The UK GCA performance has been praised for gradually changing supermarket practices, with a debate now underway on whether the scope of the Groceries Supply Code of Practice (GSCOP) should be extended. Traidcraft has called for such an extension to address abuses which take place elsewhere in grocery supply chains served by developing country suppliers, who currently have no means of seeking redress. Strengthening the code to effectively cover all routes to market used by developing country suppliers is one important dimension of the current GCA review. A further important dimension is the important role which such regulatory initiatives can play in changing supermarket sourcing practices. This is an important issue given the growing role of foreign owned supermarkets across the ACP and the difficulties this poses for local agricultural producers in entering this expanding retail market component.
Reports on the UK Groceries Code Adjudicator performance suggest there was a 17% decline in ‘code related issues reported by supermarket suppliers’ between 2014 and 2016. The UK government has launched ‘a call for evidence to explore the case for extending the remit of the GCA to include indirect suppliers to supermarkets’. Currently the GCA focusses on relationships between suppliers and ‘the 10 largest UK supermarkets’ (1).
The Chief Executive of Dairy UK maintains that despite the resource constraints the GCA has been ‘effective in improving commercial relations between suppliers and retailers’. Dairy UK therefore called for the remit of the GCA to be extended to ‘large food service companies and to smaller retailers and wholesalers’, which constitute an important outlet for dairy products.
In this context while there have been suggestions the GCA could play a role in overseeing the implementation of dairy industry voluntary Code of Practice, it is also argued that this would then bring in thousands of businesses, with this representing a major administrative exercise (1).
Against this background Dairy UK believes the GCA’s role ‘should not be extended to cover relations between dairy farmers and milk purchasers’. It takes the view close regulation of contracts in the dairy sector would reduce flexibility in responding to chancing market requirements (2).
Meanwhile as part of the GCA review the UK development NGO Traidcraft has analysed the functioning of the GCA from a development perspective. It concurs with the view the code is improving the purchasing practices of retailers, particularly since the Adjudicator now has power to impose fines. Supermarkets are increasingly seen as internalising the practices set out in the Code of Practice (3).
Nevertheless Traidcraft noted how ‘62% of suppliers surveyed in 2016 had experienced potentially illegal purchasing practices’ and it therefore called for the GCA’s office to ‘become more proactive and better resourced’. Specifically in terms of relations with developing countries, Traidcraft called on the GCA to ‘translate the GSCOP and put resources into disseminating it to overseas suppliers’ (3).
In terms of extending the scope of the GCA Traidcraft notes ‘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’. Traidcraft cites the banana supply chain as a case in point, where two companies dominate ripening capacity (Chiquita and Fyffes which together have between 40% and 50% of the ripening capacity in the UK) and where the remainder of the market is ‘dominated by a handful of smaller players’, in ways which give ‘these direct suppliers significant market power’, with Traidcraft arguing a ‘regulator is needed to prevent this being exercised abusively’.
Traidcraft therefore calls on ‘the GCA’s remit to include the widest possible span of the groceries supply chains that serve the UK’s supermarkets’ (3).
In a series of confidential annexes to its submission Traidcraft highlighted the case of UK retailers who pass on excessive risks to suppliers in East African supply chains, a Kenyan exporter who experienced ‘unexpected costs’ but had ‘no practical means for redress’ and cases in the fruit sector where suppliers were ‘subjected to terms which breach the Principle of Fair Dealing’ (4).
Meanwhile at the European level the Chair of the Copa-Cogeca Food Chain Working Group IFA President Joe Healy has argued unfair trading practices cost EU farmers and farmers cooperatives nearly €1.1 billion per annum, with 94% of farmers and farmer cooperatives being exposed to unfair trading practices ranging from late payments, below cost selling, payments for shelf space and ‘pay to play’ payments. He called for EU wide legislation with proper enforcement mechanisms to curb unfair trading practices (5).
|Comment and Analysis
As part of the submissions made around the current review of the role of the GCA a call has been made for an extension of the Code of Practice and mandate of the GCA to address abuses which take place elsewhere in groceries supply chains served by developing country suppliers. This effectively calls for an extension of the Code of Practice and GCAs mandate to cover all routes to market used by developing country suppliers.
This is an issue which ACP governments could usefully take up with the UK government as part of post-Brexit discussion and with the European Commission as part of the discussions on future ACP-EU cooperation in the post-Cotonou context.
The EU has recently prioritised support for agro-food sector development in its renewed Africa-EU Partnership (see companion article, ‘Agriculture to be a Focus of the Renewed Africa-EU Partnership’, 10 July 2017). Yet efforts to invest in research and innovation in the agro-food sector and sustainable value chain development in Africa will be of little value if abusive practices remain within ACP-EU grocery supply chains. It is against this background that discussions over regulatory initiatives to eliminate abusive practices within ACP-EU agro-food sector supply chains needs to be taken up in the future ACP-EU post-Cotonou negotiations.
A further key aspect of the recent review of the UK GCA’s performance relates to how it is beginning to change the business practices of supermarkets in dealing with suppliers. This use of regulatory initiatives to change businesses practices along supply chains to the benefit of primary producers is an area which has been most extensively taken up by the Namibian authorities, first in local sourcing requirements in the horticulture sector and then across the board through the recently adopted Retail Sector Charter (for more details see companion article, ‘Namibia’s Retail Sector Charter and the Strengthening of Local Supply Chains’, 24 March 2017).
This is an area of policy development which ACP governments may wish to explore more extensively, given the expansion of foreign owned supermarkets across a wide cross section of ACP regions and the need to ensure that smallholder producers are not marginalised within this increasingly important component of food retailing.
Analysis from South Africa shows the four largest supermarket chains all to varying degrees engage in similar abusive practices in their relations with small and medium sized suppliers as are experienced by farmers in the UK. Particular concerns have been expressed about ‘rebate commissions’ which can reduce contracted price payments by between 6% and 16%, depending on the relative power of suppliers and retailers. Abusive practices are a matter of particular concern to small and medium scale suppliers (6).
Given the expansion of South African and EU owned supermarket chains across Africa, failure to regulate relationships between large supermarkets and small and medium scale agro-food suppliers could seriously constrain the development of local agricultural production and lock local small and medium scale suppliers into serving less valuable market components. It could also seriously compromise efforts to develop local agricultural production for local higher value markets. For many small ACP countries, encouraging foreign supermarkets to increasingly source locally can offer an important vehicle for agricultural diversification. Codes of Conduct and Retail Charters, if backed up by adequate enforcement mechanisms, could have an important role to play in supporting efforts to develop local agricultural supply chains, if such policy measures are realistically deployed alongside other measures to address specific identified supply side constraints.
(1) Dairyreporter.com, ‘Dairy UK says Groceries Code Adjudicator should extend to foodservice, small retailers and wholesalers’, 25 October 2016
(2) UK dairy, ‘Dairy UK Sets out Vision for Future Role of Groceries Code Adjudicator’, 11 January 2017
(3) Traidcraft, ‘What next for the Groceries Code Adjudicator?’, 31 January 2017
(4) Traidcraft, ‘Traidcraft submission to ‘Groceries Code Adjudicator Review: Part II’,
(5) thepigsite.com, ‘Unfair trading practices costing farmers, Agri co-ops, says IFA’, 4 May 2017
(6) Econ3x3, ‘You can’t bite the hand that feeds you: Contracts between SME suppliers and large supermarkets’, 17 May 2017
|Key words: Functioning of supply chains, dairy, bananas
Area for Posting: CAP, dairy, post Cotonou, EPA General, SADC EPA