[Relevant documents: Oral evidence taken before the Environment, Food and Rural Affairs Committee on 14 November 2023 and 9 January 2024, on fairness in the food supply chain, HC 160.]
That this House has considered e-petition 643216, relating to the Groceries Supply Code of Practice.
It is always a pleasure to serve under your chairpersonship, Mrs Murray. The petition asks the Government
“to amend the Grocery Supply Code of Practice (GSCP) to require retailers, without exception, to…Buy what they agreed to buy…Pay what they agreed to pay…Pay on time”.
The petition also states:
“Almost half (49%) of a panel of 100 UK fruit and veg farmers fear they will have to give up their farm within the next 12 months, and many raised concerns about the behaviour of supermarkets, with 69% agreeing that tougher regulations are required to redress the imbalance of power between farmers, processors and the supermarkets.
The current GSCP contains provisions that are meant to protect suppliers, but allows supply agreements to be varied in certain circumstances.”
The petitioners
“believe a stronger, clearer code of practice is needed to make sure that all supermarkets stick to fair practices when dealing with farmers.”
There are complex perspectives on the code and the issues raised in the petition that need to be unpacked, but it is worth beginning with an overview of the salient facts and how the situation came into being. The groceries supply code of practice was introduced in 2009, following an investigation by the Competition Commission, in a bid to strengthen the food supply chain and improve relationships between growers and retailers. The Groceries Code Adjudicator, or GCA, was established by the Groceries Code Adjudicator Act 2013, and is responsible for enforcing the code.
Despite its success and the best intentions, the code has faced criticism from farmers and academics. The main issues are that the code does not cover the relationships between farmers and any processor or intermediary, that the code does not cover of pricing, that there is an imbalance of power and risk, that the GCA is under-resourced, and that the GCA is both adjudicator and arbitrator. I want to unpick each issue in turn, but let us first recognise the integral role that farmers play in our society: they are the stewards of our land, custodians of our food security and backbone of our economy. However, the code’s structure often leaves farmers vulnerable to unfair trading practices, and places them at a significant disadvantage in negotiations with powerful retailers.
I congratulate my hon. Friend on her introductory remarks and welcome the debate. The last few years have been very difficult for farmers, with inflation in the wider economy increasing their input costs substantially: we need only to look at fertiliser for one example. The reality is that they are very exposed in the supply chain, so we need to look at how we can strengthen support for our primary producers.
I thank the hon. Lady for giving way and for her excellent speech on this important topic. Does she agree that farmers such as those in North Devon have a huge role to play in our green transition and that supermarkets have a duty to ensure that farmers are getting a fair and just price for their produce, otherwise they have no hope of producing it sustainably?
I welcome this debate not only for those constituencies with many farmers, but for urban constituencies such as mine. Many constituents have written to me about this important issue and have signed the petition, because it matters so much to have good fresh produce and fair terms and conditions for growers. We in Putney are shocked that half of British fruit and veg growers now fear that they will go out of business. We would like supermarkets to use their power to support small-scale farmers, not to undermine them. Does my hon. Friend agree?
I agree completely with the points made by my hon. Friend.
The first significant issue to explore is that of intermediaries within the food supply chain. The code has brought many positives, including the removal of back-door illegal practices. Although the code has overseen improved practices, it does not cover the relationships that intermediaries have with either farmers or retailers. Its explicit purpose is to regulate supermarket behaviour to bring value and choice for consumers; it is not, and was never, about producers. The use of intermediaries has the potential to allow retailers to circumvent the code.
When I was preparing for the debate, I heard directly from farmers and about how such practices create problems for them. They rarely have a written contract, so a request for 100,000 lettuces during the first week of September could turn into a downgrade to 70,000 lettuces if the sun suddenly disappears and salads become less favoured than soups. That leaves the farmer with 30,000 unpurchased lettuces and a considerable threat to their business. There are perfectly sensible reasons for intermediaries to exist—in particular in the meat supply chain, where a farmer would not sell a whole carcase to a single retailer, and therefore a processor or intermediary sells different parts to different customers—but the potential for unfair and unsustainable practice is significantly increased without regulation.
A second issue to consider is pricing. Much of the criticism of the code centres on the fact that it does not cover pricing in the food sector, and the issue is exacerbated by the frequent misconception that it does. However, pricing was never covered by the code and the legislation does not allow for its regulation. Coercion by retailers has also had an impact as the cost of a product is squeezed beyond break-even as retailers put pressure on farmers to reduce their prices to allow them to factor in costs such as packaging, marketing and overheads. Instances of such practices have declined, but still pose a problem in achieving a fair price.
Like many other Members here, I was not aware of this issue until several constituents contacted me. Does the hon. Lady know whether there is any mechanism whereby small farmers and other suppliers can report it to the regulator when they are put in this difficult situation as a result of promises to make purchases not being kept? I do not see how the regulator can regulate if they do not have adequate information about where suppliers are being let down.
The right hon. Gentleman makes a very important point. Applications are made to the adjudicator, but there is a certain amount of confidentiality involved, and sometimes the farmers reporting want to remain anonymous, so some reporting is done behind the scenes. However, I thank him so much for his intervention; as always, he makes a very valuable point, and it would be interesting to hear what the Minister says about it.
By advocating for reform, we not only support our farmers but contribute to building a more resilient, ethical and sustainable food system for generations to come. Furthermore, a reformed code should prioritise sustainability and ethical practices. Our farmers are not only responsible for feeding the population but for stewarding our environment. It is imperative that the code encourages and rewards environmentally friendly and sustainable farming practices, which could include provisions for fair compensation for using sustainable farming methods, and penalties for practices that harm the environment.
Additionally, the reforms should incorporate measures to address the issue of market access. Farmers, particularly small and local producers, often face barriers that limit their ability to access a diverse range of markets. The groceries supply code of practice can be reformed to encourage retailers to seek out and support local farmers, fostering a more diverse and resilient agricultural system.
In conclusion, although the groceries supply code of practice was established with good intentions, it requires significant reform to provide better support for those who toil tirelessly to bring food to our tables. It is imperative that we acknowledge the challenges faced by our farmers and work towards creating a more equitable and supportive system. We must reform the code to ensure a fair distribution of power and risk in the supply chain. This could be achieved through the establishment of a transparent and accountable framework, possibly involving a new regulator, separate from the GCA, that promotes fair pricing, timely payments and equitable contractual relationships. By empowering farmers with the tools that they need to negotiate fairly, we can foster a more balanced and sustainable agricultural sector. Let us stand together in solidarity with our farmers and work towards a future in which their invaluable contributions are acknowledged, respected and fairly compensated.
It is an unalloyed delight to serve under your chairmanship, Mrs Murray. I congratulate the hon. Member for Neath (Christina Rees) on her excellent introduction to this important debate. The large number of signatures to the e-petition indicates the huge concern in the agriculture sector about the supply chain practices of some of the larger supermarkets and their impact on small-scale farmers and growers. The petition has so far attracted over 112,000 signatures, and special mention should be made of Guy Singh-Watson of Riverford Organic Farmers, who initiated it.
As the hon. Lady said, small suppliers are the backbone of the food supply industry in this country—many of my constituents fall into that category. Not only do they help to feed us; they look after our countryside and make sure that our environment is clean. Without them, our rural landscapes would look very different.
At the other, consumer-facing end of the food supply chain are the large supermarkets. Around 95% of the food consumed in this country is sold by just 12 retailers, many of which are multibillion-pound listed companies. The disparity in bargaining strength between those companies and the small family firms that I mentioned is obvious. The supermarkets have the power to drive hard bargains with their suppliers, most of whom are not farmers but commercial intermediaries. Inevitably, the pressure that the supermarkets exert down the supply chain is felt most keenly by the small farmers and growers at the beginning of that chain. According to the agricultural charity Sustain, farmers often receive less than a penny of the profit generated by their produce, with farm businesses increasingly relying on subsidies to break even, and 40% of farms earning less than £25,000 annually.
The impact of that behaviour is felt throughout the supply chain. My constituents Liz Kameen and her husband trade as Vale Grocer in Prion, Denbeigh. They supply vegetable boxes in the locality. They are small-scale growers who have chosen not to try to sell to supermarkets directly. Instead, they have created their own customer base, which they supply. She tells me:
It is a pleasure to serve with you in the Chair, Mrs Murray. I thank the hon. Member for Neath (Christina Rees) for opening the debate and outlining the issues so eloquently.
I might have mentioned on one or two occasions that my constituency of North Shropshire is rural. The issues that face the farming industry are core to everything that happens in it; farming and food production are core to the economy and our landscape, and are very important in our communities, so the issue affects us all very strongly. It is important to recognise that the farming sector has found itself in the pincer between how the cost of living affects farmers’ business and how it affects consumers. As we know, despite the problems facing the farming industry, food inflation has been running very high, and there is huge pressure from the supermarkets to keep people’s food prices low. It is our food producers who are finding themselves caught in the grip of that pincer.
On Friday afternoon, I had the pleasure of visiting Lower Lee dairy farm in North Shropshire, which is a great place to visit. It has cutting-edge technology, with a robot-orientated milking and feeding programme, so it is at the top end of animal welfare. The cows do not have to interact with people too much—I did not hear a single moo while I was there. It is a really important business; though it may be rural and looks very pretty, the technology has required enormous investment. There are growing borrowing costs for farmers, on top of the supply chain issue. If we want these good, modern businesses to thrive, we really need to think about how we will support them.
Dairy farmers are feeling the squeeze and worrying about their future. A survey last summer by the National Farmers’ Union found that 23% of dairy farmers were unsure whether they would carry on producing into 2025. That is because the price that they receive for their milk often does not cover the cost of production. As the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned, soaring input costs such as energy, feed and borrowing costs are fed into farmers’ operating model and have made things increasingly difficult. As we know, the price of milk is affected by global markets, and it has come down from the post-covid highs to leave many dairy farmers in a very difficult position. They often contract directly with a big supermarket or a dairy, and some supermarkets have attempted to improve the model on which they pay farmers to a cost-plus model, which is to be welcomed, but even in those instances, they are strongly incentivised to keep their costs low, and even under-report them in some instances. In the past, the big supermarkets have abandoned the most expensive 10% of producers in the contract.
It is a pleasure to serve under your chairmanship, Mrs Murray. I congratulate the hon. Member for Neath (Christina Rees) on securing and leading this important debate. This issue matters so much to my farmers. I rise on behalf of the 400-plus farmers in Rutland, Melton, the Vale and the Harborough villages—people such as Ben Whyles, a fifth-generation farmer in Empingham—as well as all those in Stamford who reached out and asked me to speak today. At its best, the grocery supply code of practice should ensure a degree of stability in an industry that, by its nature, is risk-facing and vulnerable to external shocks and price fluctuations. Sadly, as we all know, farmers have faced a number of recent shocks to their livelihoods, ranging from fertiliser and feed prices, which rose after Putin’s renewed illegal invasion of Ukraine, to flooding, cold weather damage and the spread of avian flu over the last two years.
We all know that national food security is a Government priority, yet all too often there seems to be a disconnect between the recognition of the importance of food and how it is produced, and the reality where farmers are often left feeling that this rests solely upon their shoulders. To support farmers, we need to ensure that we speak up for them and help them to do their job, not only feeding our nation, but conserving the precious character of our countryside.
When it comes to food and drink, very few can compete with Rutland and Melton. Whether it be bison and lamb, chicken and eggs, dairy, elderflower, beef, sugar beet, crops—you name it, we have it. There is also the infamous stilton and Melton Mowbray pork pies—I considered pausing to allow the audience in the Gallery to provide that line, but we shall just move on swiftly. I would also like to give a specific shout-out to the amazing Allerton Project in Loddington, which I know the Minister visited. It leads a lot of the research into how we do sustainable farming and is decades ahead of the rest of the country—it really is leading the way.
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We must also look into the imbalance of power and risk. Pricing can illustrate the problem of unequal power and risk within the food supply chain. In 2008, the Competition Commission inquiry found that grocery retailers were transferring excessive risks and unexpected costs to their suppliers. Furthermore, examples such as the one I mentioned previously—when the size of a produce order is suddenly scaled back—illustrate the inequitable distribution of risk, with the grower shouldering most of the burden while the retailer can quickly adapt an order according to market forces without the same risk.
The response to that was the creation of the code and enforcement by the GCA. Several mandatory reviews by Government, as well as supplier surveys, have shown significant improvements in supplier-retailer relations during the past decade or so. Despite that fact, fear remains in the industry. Many call on the GCA to make greater use of its powers to issue fines.
Some suggest that the GCA is hugely under-resourced. It is widely recognised that the cost of a single investigation is greater than its entire annual budget. The result is a perception that the GCA is toothless. The GCA’s opinion is that it is effective within the current parameters of the law, and it is not for it to say whether those parameters should be expanded. However, it is acknowledged that additional funding and powers would be needed to expand the remit of the GCA. The most common criticism of the code and the GCA is that they do not cover the whole supply chain, which means that they apply only to direct suppliers of the 14 biggest retailers, including Tesco, Morrisons, Sainsbury’s and Aldi. That leaves indirect suppliers unprotected, including many small farmers and primary producers. The Competition Commission predicted that problem back in 2008 and suggested two responses: to extend the code and the GCA to cover indirect suppliers or to introduce complementary codes to cover intermediaries and primary producers. Both options, though, ignore the issue of how such codes and regulators are funded so, finally, we must explore the issue of a regulator being both adjudicator and arbitrator.
The GCA is funded via a levy on 14 retailers. This is not uncommon for sector regulators, which are almost always funded via the organisations they oversee. However, that can leave them open to criticism of unfair practice and of not being hard enough on retailers. Although collaboration and arbitration are often useful ways of working, it can be argued that such circumstances pose a challenge if a situation requires the regulator to become an adjudicator and enforce fines. The GCA’s opinion is that the code is flexible enough to deal with a range of issues, including online sales, and that amending it might make it too rigid. When farmers are direct suppliers, the three issues raised by the petitioners are clearly covered and regulated.
What reforms are needed? It can be argued that the criticism levied at the code and the GCA is somewhat unfair as most issues, such as pricing and intermediaries, are simply not covered by the existing legislation and procedures. However, that does not preclude the fact that the issues exist and need to be dealt with. To that end, several reforms have been suggested and need exploring, including expanding the number of retailers covered by the code by lowering the threshold for compliance from £1 billion in turnover to £500 million, preventing retailers circumventing the code by purchasing through intermediaries, increasing the powers and remit of the GCA to cover issues such as pricing and processes, and setting up separate regulators with separate obligations.
The groceries supply code of practice is a vital tool that can either support or hinder the wellbeing of our farmers. It is our responsibility to advocate for reforms that ensure fairness, transparency and sustainability in the supply chain.
While I was preparing for this debate, I met the petitioners and many stakeholders, and I would be pleased if the Minister could explain his Government’s position on the code and give his opinions regarding the issues I have raised. I also invite him to meet me and the petitioners, so that we can explore these issues in greater depth.
“As we supplement produce we grow with produce from organic farms around the UK, we are very concerned about the impact of supermarket behaviour on those producers.
If we lose any of our suppliers we cannot continue offering the amazing veg and fruit we do currently.”
The pressures inherent in the food supply chain have long been recognised. They led to the creation of the groceries supply code of practice, which, as we have heard, is enforced by the Groceries Code Adjudicator. Although the code is welcome so far as it goes, it does not go far enough to afford adequate—or, indeed, any—protection to smaller famers. That is because it only governs the relationship between the supermarkets and their contractual suppliers, who are very rarely the farmers and growers. The GCA is therefore unable to intervene where the practices of supermarkets cause hardship to those small family firms.
In September last year, the GCA published a report on his deep-dive survey of the conduct of supermarkets, in which he noted complaints that some supermarkets had chosen to conduct “warfare” with suppliers and had displayed a lack of good faith in negotiations. Such behaviour ultimately has a heavy impact on small producers.
The campaign launched by Mr Singh-Watson calls for new powers for the adjudicator that would enable him to take a more effective and, in appropriate circumstances, punitive stance against unfair practices in the supply chain. It further calls for the code of practice to be revised, embedding the principles that retailers must buy what they agreed to buy, pay what they agreed to pay, and pay on time without exception. Those are entirely fair and reasonable requests; decent retailers should be only too happy for the code to be amended in that way, because that is the way they should be behaving anyway. However, that is not always how they behave. Riverford Organic Farmers cites the example of a potato farmer who was told that his potatoes were no longer wanted by the supermarket he was supplying. He was left with 60 tonnes of potatoes and no customer. Such practices will naturally have a devastating impact on farmers.
Research conducted by Riverford indicates that 49% of farmers fear that they will go out of business in the next year; 61% said that supply chain unfairness was adversely affecting their mental health. It is entirely unacceptable that people with a vital role in the nation’s food supply should be driven to feel this way. Riverford, Sustain and the other campaigners are right: the code of practice needs to be brought up to date and up to standard.
I know the Government recognise the unfairness in the food supply chain. The Agriculture Act 2020 enables the Department for Environment, Food and Rural Affairs to introduce statutory codes of practice, but it has been questioned whether it makes sense for two regimes to co-exist, especially if they will be enforced by two different regulators. The answer should be to amend the code of practice, as called for in the petition. The Government are consulting on contractual relationships in the fresh produce industry, and I understand that that consultation will close on 22 February. I very much hope that its outcome, informed by this debate, will be that those amendments will be made as soon as possible to provide fairness for the United Kingdom’s farmers and growers.
If those producers go out of business, there will not be enough milk for UK demand—it is finely balanced at the moment—and it will have to be imported. It is important to think about the environmental and animal welfare implications of importing milk, because our cattle are some of the most well looked after and environmentally friendly in the world. So this is not just about maintaining our landscape and our economy; it is the right answer for the environment and animal welfare. It is really important that we support dairy farmers to be paid a fair price for the milk they are producing.
We not only have cows in Shropshire, but grow fruits, vegetables and other crops as well. When I meet constituents, they raise the issue of intermediaries and people who process food. Just before Christmas, I went to see the director of Maincrop Potatoes Ltd, who trades potatoes throughout the UK. Potato farmers have had a particularly torrid time over the last winter with the rainfall we have seen and the difficulty in getting potatoes out of the ground. They are not well positioned to benefit from the sustainable farming incentive because of the things that have to be done to grow potatoes and the way crops need to be moved around from year to year. They are squeezed to a horrendous extent.
A major producer of chips and other similar types of potato goods increased payments to its contracted suppliers by 0.4% this year in the face of increased costs for fertiliser, fuel, machinery and doing business that are clearly way in excess of that. That has taken its toll: potato acreage is falling and we are starting to increase our imports of potatoes from countries such as Egypt. We face the same problem of damaging our food security and importing goods from countries where we do not have control over whether they take the environmental steps required to produce in the most sustainable way.
We need to recognise the importance of food security and affordability. I do not think anybody here would like to see food prices rocket for consumers. That is where the Groceries Code Adjudicator is so important: it is not just about the margin that the supermarket takes. Supermarkets have made absolutely astronomical profits during the cost of living crisis and have not been feeling the squeeze in the same way that farmers and consumers have. However, we also need to look at food producers that intervene in the supply chain before things reach the supermarket. There are people are like me who do not cook everything from scratch and do not always use a raw potato or a raw carrot—they buy some processed food as well. We need to make sure that those producers are not gouging prices from farmers. I would really like to see the code of practice extended to anybody who buys produce from farms so that the balance of power between the producer and the processor is appropriately managed.
In conclusion, I echo the calls of the petitioners to extend the code to intermediaries and producers, and to resource the adjudicator properly so it can make sure that those provisions are being enforced and that the farmer, who is often a small business, does not have the teeth to shout up and is in fear of losing their contract, is properly protected by the arrangements we have put in place. I support the petitioners, our farmers and our food producers, and I would like to see the amount of profitability through the supply chain looked at and managed so that we keep our farmers in business and do not have to import food from across the world.
Although we may say otherwise sometimes, farmers largely put their heads down, pull their socks up and crack on with producing the food we need. When they speak, we need to listen, and this is one of those times. This petition is not asking for the world, and the requests it makes are balanced, fair, and in my view—and clearly that of so many others—worthy of adoption by the Government. It also reflects the requests that so many of us have made since we came to Parliament.
I fully support the three asks: first, that suppliers should buy what they have agreed to buy; secondly, that suppliers should pay what they have agreed to pay; and thirdly, that the grocery supply code should ensure that they pay on time. It is really not that much to ask. The grocery supply code applies only to retailers with an annual turnover of £1 billion or more. These companies are surely more than capable of honouring the amount bought, the price given and the date of payment agreed. Time and time again, farmers have said that the balance of power is weighted towards large suppliers, leaving them underpaid and under-informed and feeling undervalued. These three common-sense additions to the code go some way to evening the scales towards fairness.
We saw this during the recent issue over the price of British sugar beet. While a deal has finally been reached, it was disappointing that so many farmers, particularly in my constituency, faced uncertainty over what price they would get for their crop. I know Ministers were very active in helping to resolve the dispute, and I thank them for their efforts, but we need to bring the same energy to this issue. It is therefore in that spirit of hope that I am also calling for the lowering of the threshold for inclusion in the supply code to retailers with a revenue of £500 million. That would spread the benefits of the code to many more farmers and provide a degree of economic certainty in these uncertain times.
We should acknowledge that the conversations we are having today are only possible because of the extra powers that we voted to give Ministers in the Agriculture Act 2020. I commend the Government for their drive to clamp down on unfair practices in food supply chains, but we need to use these powers to go that bit further, and demonstrate that we have a steadfast commitment to British farming by adopting the three simple asks in this petition.
I would like to take this opportunity to reiterate my ask for the establishment of a gas fertiliser price index, as we need to ensure transparency and fairness in the fertiliser market. We already have indexes for grain and many other commodities, and a fertiliser index would bring clarity to a market that is currently opaque and prone to damaging fluctuations.
I also thank the Government for announcing the biggest upgrade to UK farming schemes since we left the EU. We are seeing an increase of 10% to rates for the environmental land management scheme, which my farmers raised with me and are thankful for. We have seen plans to improve food labelling to protect farms better. We have seen far less paperwork—I am really hearing that on my monthly visits to a farm in my constituency—and enhanced payment for protecting our environment.
I thank the hon. Member for Neath again for leading this vital debate, and I thank the 286 people in Rutland and Melton, and the 276 in Stamford and Grantham, who signed this petition calling for reform to the grocery code. I hope this debate tells them that they have been heard. I am sure my right hon. Friend the Minister will show the Government’s willingness to help when he makes his comments, just as I stand here today and reassure you, if you are a farmer in Rutland, Melton, the Vale, the Harborough villages and the Stamford villages, that I, for one, will always stand on your side.