What next for the Groceries Code Adjudicator?
The Groceries Code Adjudicator (GCA) is a regulator that was established by the UK government in 2013 to ensure that the 10 largest UK supermarkets deal with their direct suppliers fairly. Specifically, the GCA enforces the Groceries Supply Code of Practice (GSCOP) – a legal code that clearly sets out the features of ‘fair dealing’ when retailers purchase groceries products (including food) for re-sale.
The government has been running a consultation on the performance and role of the GCA, which closed last week. I explained some of the context of this process in a previous blog. Traidcraft want to see a world where the benefits of trade are distributed more fairly, including to the workers, farmers and small businesses that make up much of any given supply chain. As such we have been watching the GCA closely over the last three years, and a summary of the reflections and recommendations that we sent to government earlier this month is laid out below:
Part I – The GCA’s performance
Part I of the consultation asked for responses on the successes and failures of the GCA since its establishment in 2013. From our perspective, the headlines are:
- We support the GCA, and think that it’s doing a good job. The GCA’s annual survey shows that the purchasing practices of retailers are starting to improve; this is supported by anecdotal evidence that we have heard from businesses selling to supermarkets. Supermarkets pay attention to the GCA’s announcements – particularly since it now has the power to impose fines – and have appointed senior managers to ensure the GSCOP-compliance of their operations. The GCA is starting to gain a reputation internationally as an effective regulator.
- The GCA can do more. Despite the GCA’s progress, problems persist: 62% of suppliers surveyed in 2016 had experienced potentially illegal purchasing practices. Therefore, we would like to see the GCA’s office become more proactive and better resourced. It has completed only one investigation – into Tesco (see here) – which was considered a success. But the investigation only came after the supermarket referred itself to the GCA. Given the scale of the problem that the GCA is supposed to tackle, it should be carrying out more investigations.
Additionally, the GCA’s office has a permanent staff of only 4.7 FTE, while the Adjudicator works three days a week. Given that the GCA is intended to regulate the purchasing practices of huge retailers – with thousands of supplier relationships around the UK and overseas – this is inadequate and should be addressed.
The GCA should also translate the GSCOP and put resources into disseminating it to overseas suppliers – at present only 54% of suppliers based in other countries even know of its existence (according to its own data).
Part II – Changes to the GCA’s remit
Part II of the consultation was an opportunity to make the case for the expansion of the GCA’s remit to cover indirect suppliers to supermarkets.
The GCA’s remit does not allow it to address the problems of unfairness throughout supermarket supply chains. A 2008 Competition Commission report identified that ‘excessive risk and unexpected costs’ were being transferred by supermarkets onto their supply chains. This can take the form of:
- Late changes to the volume of orders
- Issues surrounding the transfer of product ownership
- Late or retrospective changes to price (pricing or deductions)
- Changes to technical specifications and the method of assessing standards
- Late payments
- Intervention with indirect suppliers
The Competition Commission concluded that, without regulation, these unfair trading practices would “have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers”.
With a remit limited to the supermarket-direct supplier relationship, the GCA is unable to prevent the continued transfer of ‘excessive risk and unexpected costs’ onto suppliers. The main reasons for this are:
- Direct suppliers can pass risk and costs onto their supply chain
Suppliers to supermarkets prefer to keep a low profile – complaining about a supermarket may lead to being delisted and losing business. Therefore, if subjected to unfair risk and costs, a direct supplier may simply choose to pass these costs onto their suppliers (who are outside of the GCA’s scope and unable to appeal for support).
- Unfair trading practices can be initiated at different stages of the supply chain
A powerful manufacturer or importer is equally capable of subjecting their supply chain to excessive risk and unexpected costs, yet this relationship falls outside the scope of the GCA
These practices make it hard for smaller businesses to flourish in supermarket supply chains, and risk creating an uncompetitive market that is structurally incapable of delivering high-quality groceries to the consumer at the best possible price.
What is needed?
The extension of the GCA’s remit to include the widest possible span of the groceries supply chains that serve the UK’s supermarkets. This is demonstrated in the below diagram:
The groceries supply sector is experiencing market failure, with healthy competition undermined by the abusive practices of a number of large players. When costs are squeezed in supply chains, labour rights, product quality and safety are among the first things to be compromised.
The sensible solution is to empower the GCA to enforce a code of fair dealing complementary to the GSCOP, which would apply to indirect parts of the supply chain. In particular, an additional code should mirror Paragraph 2 of the GSCOP:
“A Retailer must at all times deal with its Suppliers fairly and lawfully. Fair and lawful dealing will be understood as requiring the Retailer to conduct its trading relationships with Suppliers in good faith, without distinction between formal or informal arrangements, without duress and in recognition of the Suppliers’ need for certainty as regards the risks and costs of trading, particularly in relation to production, delivery and payment issues.”
We hope that Margot James, the government minister responsible, will take this opportunity to bring forward proposals for extending the GCA’s remit along these lines as soon as possible.
Tom Wills is a policy officer at Traidcraft.