The ombudsman has a fearsome new name. But just how effective will it be at policing the industry and providing supplier anonymity, asks Ronan Hegarty
The adjudicator sounds a more terrifying prospect than the ombudsman ever did. And perhaps the change in name is a signal of intent on the government's part.
But when the government finally revealed details this week of its new supermarket watchdog, it failed to fully explain the most critical aspect of all how the much-touted guarantee of supplier anonymity will work.
Consumer minister Edward Davey says the Groceries Code Adjudicator, who will oversee the Competition Commission's beefed-up code of practice (GSCOP), will ensure large retailers don't abuse their powers by transferring excessive risks or unexpected costs on to suppliers. "The adjudicator will be able to step in to prevent unfair practices continuing ensuring a fair deal for producers and safeguarding the consumer interest," he says.
However, the announcement has elicited anger from retailers and only the most tepid of welcomes from suppliers who both question the practicality of the new adjudicator. The BRC accused the government, which is supposedly anti-quango, of creating an office that was tantamount to a quango (see boxout), while the NFU admitted it "hadn't got everything we originally asked for".
There is a school of thought that neither side should be completely happy about the remit of any new regulator as this would send the message that the government has done its job properly and managed to strike the right balance.
But in this case it seems that accusations of a lack of clarity are more than just grumbling for grumbling's sake. And the absence of detail on the critical issue of supplier anonymity suggests that the thorny issue of how to effectively police supermarket dealings with suppliers is still a long way from being resolved.
Kevin Hawkins, who was communications director for Safeway when the original code of practice was introduced in 2002, argues that even though the government's intention is that suppliers making complaints should remain anonymous, this simply can't be guaranteed in reality.
"Anonymity is a pipe dream," he says bluntly. "However you try and mask the identity of a supplier, once you mention any detail relating to the case a retailer will be able to spot it immediately. A retailer needs to be aware of the charges against it so they will always be able to tell who is making the allegations."
Should a supplier retain full anonymity throughout the complaints procedure this would be hugely unfair on the retailer, argues the BRC. It would also run counter to many of the principles that underpin the UK legal system. "Granting complainants anonymity offends natural justice and would make it very difficult for retailers to respond to cases," says BRC director Stephen Robertson.
This point of view gained support from an unlikely source this week. Duncan Swift, head of agrifood for recovery specialist RSM Tenon, has been a fierce critic in the past of the supermarkets and of "rogue buyers" piling undue pressure on suppliers.
"On this issue the retailers actually have a point," acknowledges Swift. "But this is why the idea of an ombudsman with full investigative powers has to be the only answer. Whatever name you put on it, the regulator needs to be able to launch an investigation independently on the basis of enough anecdotal evidence without having to rely on formal supplier complaints. What the government appears to be doing with this adjudicator is like asking a policeman to go and fight crime but telling him he can't go on the streets looking for it."
Fiona Gooch, senior policy adviser for Traidcraft, agrees that the adjudicator needs greater investigative powers. "It's widely known supermarket suppliers operate in a culture of fear afraid to speak out," she claims. "So, it's good to see complaints will be kept anonymous. But for real effectiveness the adjudicator must have the power to initiate an investigation on the basis of credible intelligence."
However, other supplier representatives were more positive. "The pragmatic proposals will ensure there is an effective, low-cost monitoring and enforcement body in place," says FDF director general Melanie Leech. "The adjudicator will be of particular help for smaller businesses, ensuring the food chain operates fairly and in the best interests of consumers."
The time frame nevertheless remains an issue. It will be 2012 by the time the adjudicator comes into being at least four years since the Competition Commission concluded its Groceries Market Inquiry and recommended the creation of an ombudsman. To get the regulator in place, government should prioritise it in this first session of parliament rather than waiting for the second session, says Gooch.
Although the government has not fully embraced the Competition Commission's recommendations in particular regarding its vision of a proactive investigations unit the Commission says it is pleased with the adjudicator. "This was a carefully considered recommendation, which we believe is a necessary and reasonable step to ensure the strengthened code works effectively and restores confidence in the existing system," says a Commission spokesman. "While our primary concern is to protect the interest of consumers, we think it will benefit all concerned to tackle at modest cost a problem that has clouded the industry for many years now."
One other important detail that is yet to be resolved in all this is penalties for retailers found to be in breach of GSCOP. As it stands, the government believes the fear of being named and shamed will be enough to keep them in check or make sure they don't repeat any abuses. Suppliers had wanted clear financial penalties for companies found guilty of code breaches. These have not been included in the current proposals but there is a proviso, should they be deemed necessary at a later stage.
The BRC is concerned that changes to the adjudicator's authority could be introduced at any time through secondary legislation. "This is very worrying," says food policy director Andrew Opie. "It could mean that the adjudicator will end up with similar powers to the OFT in this regard. We are talking fines of up to 10% of turnover here."
This issue will no doubt be resolved as the recommendations move through parliament. Whether the concerns surrounding supplier anonymity are addressed is another issue. And unless they are, it won't matter how fearsome the adjudicator sounds eight years on from the first code of practice, retailer-supplier relations could end up looking depressingly similar.
The key facts
- Draft legislation will come in later this year, a Bill is due late next year and the adjudicator will be introduced in 2012
- The offices will be at the OFT but it will be entirely independent fuelling retailer accusations it is a quango
- It will be funded by the 10 UK grocers with a turnover of more than £1bn. Government estimates the regulator will cost £1.2m a year £120,000 per retailer although costs will vary depending on the complaint and investigation numbers
- It will be able to receive complaints from all primary suppliers in the UK supply chain or overseas. This includes farmers not directly supplying supermarkets even though these contracts are not covered by GSCOP
The adjudicator sounds a more terrifying prospect than the ombudsman ever did. And perhaps the change in name is a signal of intent on the government's part.
But when the government finally revealed details this week of its new supermarket watchdog, it failed to fully explain the most critical aspect of all how the much-touted guarantee of supplier anonymity will work.
Consumer minister Edward Davey says the Groceries Code Adjudicator, who will oversee the Competition Commission's beefed-up code of practice (GSCOP), will ensure large retailers don't abuse their powers by transferring excessive risks or unexpected costs on to suppliers. "The adjudicator will be able to step in to prevent unfair practices continuing ensuring a fair deal for producers and safeguarding the consumer interest," he says.
However, the announcement has elicited anger from retailers and only the most tepid of welcomes from suppliers who both question the practicality of the new adjudicator. The BRC accused the government, which is supposedly anti-quango, of creating an office that was tantamount to a quango (see boxout), while the NFU admitted it "hadn't got everything we originally asked for".
There is a school of thought that neither side should be completely happy about the remit of any new regulator as this would send the message that the government has done its job properly and managed to strike the right balance.
But in this case it seems that accusations of a lack of clarity are more than just grumbling for grumbling's sake. And the absence of detail on the critical issue of supplier anonymity suggests that the thorny issue of how to effectively police supermarket dealings with suppliers is still a long way from being resolved.
Kevin Hawkins, who was communications director for Safeway when the original code of practice was introduced in 2002, argues that even though the government's intention is that suppliers making complaints should remain anonymous, this simply can't be guaranteed in reality.
"Anonymity is a pipe dream," he says bluntly. "However you try and mask the identity of a supplier, once you mention any detail relating to the case a retailer will be able to spot it immediately. A retailer needs to be aware of the charges against it so they will always be able to tell who is making the allegations."
Should a supplier retain full anonymity throughout the complaints procedure this would be hugely unfair on the retailer, argues the BRC. It would also run counter to many of the principles that underpin the UK legal system. "Granting complainants anonymity offends natural justice and would make it very difficult for retailers to respond to cases," says BRC director Stephen Robertson.
This point of view gained support from an unlikely source this week. Duncan Swift, head of agrifood for recovery specialist RSM Tenon, has been a fierce critic in the past of the supermarkets and of "rogue buyers" piling undue pressure on suppliers.
"On this issue the retailers actually have a point," acknowledges Swift. "But this is why the idea of an ombudsman with full investigative powers has to be the only answer. Whatever name you put on it, the regulator needs to be able to launch an investigation independently on the basis of enough anecdotal evidence without having to rely on formal supplier complaints. What the government appears to be doing with this adjudicator is like asking a policeman to go and fight crime but telling him he can't go on the streets looking for it."
Fiona Gooch, senior policy adviser for Traidcraft, agrees that the adjudicator needs greater investigative powers. "It's widely known supermarket suppliers operate in a culture of fear afraid to speak out," she claims. "So, it's good to see complaints will be kept anonymous. But for real effectiveness the adjudicator must have the power to initiate an investigation on the basis of credible intelligence."
However, other supplier representatives were more positive. "The pragmatic proposals will ensure there is an effective, low-cost monitoring and enforcement body in place," says FDF director general Melanie Leech. "The adjudicator will be of particular help for smaller businesses, ensuring the food chain operates fairly and in the best interests of consumers."
The time frame nevertheless remains an issue. It will be 2012 by the time the adjudicator comes into being at least four years since the Competition Commission concluded its Groceries Market Inquiry and recommended the creation of an ombudsman. To get the regulator in place, government should prioritise it in this first session of parliament rather than waiting for the second session, says Gooch.
Although the government has not fully embraced the Competition Commission's recommendations in particular regarding its vision of a proactive investigations unit the Commission says it is pleased with the adjudicator. "This was a carefully considered recommendation, which we believe is a necessary and reasonable step to ensure the strengthened code works effectively and restores confidence in the existing system," says a Commission spokesman. "While our primary concern is to protect the interest of consumers, we think it will benefit all concerned to tackle at modest cost a problem that has clouded the industry for many years now."
One other important detail that is yet to be resolved in all this is penalties for retailers found to be in breach of GSCOP. As it stands, the government believes the fear of being named and shamed will be enough to keep them in check or make sure they don't repeat any abuses. Suppliers had wanted clear financial penalties for companies found guilty of code breaches. These have not been included in the current proposals but there is a proviso, should they be deemed necessary at a later stage.
The BRC is concerned that changes to the adjudicator's authority could be introduced at any time through secondary legislation. "This is very worrying," says food policy director Andrew Opie. "It could mean that the adjudicator will end up with similar powers to the OFT in this regard. We are talking fines of up to 10% of turnover here."
This issue will no doubt be resolved as the recommendations move through parliament. Whether the concerns surrounding supplier anonymity are addressed is another issue. And unless they are, it won't matter how fearsome the adjudicator sounds eight years on from the first code of practice, retailer-supplier relations could end up looking depressingly similar.
The key facts
- Draft legislation will come in later this year, a Bill is due late next year and the adjudicator will be introduced in 2012
- The offices will be at the OFT but it will be entirely independent fuelling retailer accusations it is a quango
- It will be funded by the 10 UK grocers with a turnover of more than £1bn. Government estimates the regulator will cost £1.2m a year £120,000 per retailer although costs will vary depending on the complaint and investigation numbers
- It will be able to receive complaints from all primary suppliers in the UK supply chain or overseas. This includes farmers not directly supplying supermarkets even though these contracts are not covered by GSCOP
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