Summary
Despite evidence of some serious unfair trading practices along African-UK horticultural supply chains presented during the CGA review process the British government has declined to take any action in this area. While this is consistent with the governments’ decision not to broaden the scope of the Groceries Code and the activities of the Groceries Code Adjudicator, it sits uneasily with EU proposals to include third country supply chains in its proposed regulatory initiative on the elimination of unfair trading practices along agricultural supply chains. The raises the question as to how the UK governments plans to deal with the transposition of these new regulatory requirements into UK law during the period up to the 1st of January 2021.
Following the completion of the review of the functioning of the UK Groceries Code (GC) and the office of the Groceries Code Adjudicator (GCA) the UK government released its response. This concluded ‘any formal extension of the GCA’s remit would not be appropriate at this time’. It was held ‘there is no clear evidence of systematic widespread market failures’. This was despite Ministerial acknowledgement that the consultation process had revealed problems with the balance of bargaining power in the groceries supply chain’; ‘examples of unfair or unclear contract terms’; ‘difficulties caused by late payments’ and a ‘lack of trust and transparency that discourages good relationships across the supply chain’ (1).
| Background to the Groceries Code
The Groceries Code and the office of the Groceries Code Adjudicator were established following the findings of a 2008 Competition Commission investigation which revealed that ‘some large retailers were transferring excessive risk and unexpected costs to their direct suppliers’, with this serving to ‘discourage suppliers from investing in quality and innovation’ and leading in some instances to the failure of small businesses. |
As part of the review process direct and indirect suppliers had called for an extension of the remit of the GCA to ‘regulate contractual relationships between primary producers and processors or manufacturers, to bringing smaller retailers and the food service sector within the remit of the GCA’, while development NGOs had called for an extension of the scope of the Code to third country suppliers (see companion epamonitoring.net article, ‘Role of UK Groceries Code Adjudicator could be extended’, 17 July 2017).
Retailers however had opposed any extension of the GC expressing the view that such a move could dilute the effectiveness of the office of the GCA given its funding and staffing constraints. Against this background the UK Government maintained ‘the GCA should continue in its current form’. Instead the UK Government is opting for a range of other sector specific measures in addressing concerns over ‘a significant pattern of unfair or unclear terms and conditions in contracts’ and unilateral contractual changes introduced at short notice along certain domestic supply chains (mainly meat and dairy supply chains). For example this will see the introduction of ‘compulsory written contracts in the dairy sector in 2018’ (1).
The UK government’s response singularly failed to address concerns raised over the treatment of third country suppliers and calls for the CG and mandate of the GCA to be extended to cover unfair trading practices along developing country-UK supply chains.
According to NGO critics the failure of the UK government to extend the scope of the Groceries Code and the mandate of the Groceries Code Adjudicator was a ‘weak response’ to the unfair trading practices (UTPs) perpetrated by wholesalers and large manufacturers revealed during the review process.
Traidcraft Exchange representatives argued that while the ‘Groceries Code Adjudicator has made a great start in dealing with these abuses by supermarkets…these same practices if carried out by a big food brand or manufacturer’ will remain unregulated. The failure to extend the GC will mean farmers will not be protected from these abusive practices, with this consequently discouraging investment.
This is seen as a particular problem for smallholder suppliers in developing countries. The failure to extend the scope of the code to suppliers in developing countries was seen as a particularly inadequate response given the proposals to this effect contained in the EC regulatory proposals for curbing unfair trading practices (see companion epamonitoring.net article ‘EC Proposes New UTP Regulations Should Cover Sourcing from Developing Country Suppliers’ 26 April 2018).
Ironically UK Ministers argued ‘this is not the end of the story. As we leave the EU, we will be able to go further and design new domestic policies that improve transparency and fairness for the longer-term’, with the review having identified key areas that will require further consideration.
| Comment and Analysis The absence of written contracts, the unilateral modification of verbal agreements and the application of deductions from agreed prices which would be prohibited under a range of existing EU voluntary codes by importers of horticultural products was a particular source of concern raised during the review process.The decision by the UK government to use a sector specific approach outside of the GCA framework leaves these issues singularly unaddressed, despite the anti-developmental nature of these practices the burden of which falls particularly heavily on smallholder producers seeking to participate in high value export supply chains. This undermines on-farm investment by smallholder producers and can lead to increased indebtedness and a worsening of poverty as a result of efforts to engage with the international trading system being undermined by unfair trading practices which are increasingly being prohibited along domestic European supply chains. The failure to extend the scope of the UK Groceries Code to developing countries at this time heightens concerns that any Brexit related disruptions of developing country supply chains to the UK will lead to the financial costs being passed back down the supply chain to agricultural producers in developing countries. This is potentially a major issue for those horticultural exporters in West Africa, the Caribbean and Eastern and Southern Africa (where floriculture exports are also affected), who serve UK markets via initial ports of landing in a EU27 member states. Any future EU27/UK trade deal which does not see a replication of the current frictionless trading arrangements could give rise to congestion at channel ports which could severely disrupt on the forwarding of perishable cargoes to the UK from Holland, Belgium and France. The ‘harder’ the Brexit process in the agro-food sector the more severe such disruptions are likely to be. Having an extended Groceries Code which governed business practices of all UK importers in dealings with ACP suppliers would have supported a more equitable distribution of any Brexit related trade costs along the supply chain. Given these additional trade costs are likely to be ‘front loaded’ within any Brexit process the Ministerial commitment to reviewing issues raised during the review once the UK has left the EU will amount to little more than closing the ‘stable door after the horse has bolted’. The issue of establishing a regulatory framework for curbing unfair trading practices along supply chains serving the UK would appear to be an issue which ACP governments should take up in any negotiations with the UK on the ‘cutting & pasting’ of existing EU trade agreements into ‘UK-Only’ trade arrangements. This would appear to be particularly relevant since in the coming years the EU looks set to put in place a formal regulatory framework which seeks to eliminate unfair trading practices along 3rd country-EU supply chains. How this EU regulatory framework for the elimination of unfair trading practices along ACP-EU supply chains is to be effectively enforced is an issue which could usefully be addressed in the context of the trade component of the forthcoming ACP-EU post-Cotonou negotiations. Against this background the issue also arises of how the UK authorities will deal with the new proposed EU regulatory initiative on eliminating UTPs during the period up to 1st January 2021. |
Sources:
(1) HM Government, ‘Groceries Code Adjudicator Review: Part 2 Government response to the Call for Evidence on the case for extending the Groceries Code Adjudicator’s remit in the UK groceries supply chain’, 1 February 2018
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/681882/groceries-adjudicator-consult-summary-of-responses-180216.pdf
(2) Sustain.web, ‘Food and farming groups condemn Government response to unfair trading practices as utterly weak’, 16 February 2018
https://www.sustainweb.org/news/feb18_government_fails_to_extend_grocery_code_adjudicator/