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Environment, Food and Rural Affairs Committee - Draft Groceries Code Adjudicator Bill - Minutes of EvidenceHC 1199-i
House of COMMONS
TAKEN BEFORE the
Environment, Food and Rural Affairs Committee
Draft Groceries Code Adjudicator Bill
Tuesday 14 June 2011
Peter Kendall and Nick VON Westenholz
Richard Hirst, David Piccaver and Laurence Olins
Evidence heard in Public Questions 1 - 102
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Taken before the Environment, Food and Rural Affairs Committee
on Tuesday 14 June 2011
Miss Anne McIntosh (Chair)
Examination of Witnesses
Witnesses: Peter Kendall, President, NFU, and Nick von Westenholz, Government Affairs Adviser, NFU, gave evidence.
Q1 Chair: Welcome, good morning. Thank you very much for joining us in our inquiry into the draft Groceries Code Adjudicator Bill. I think it has been explained to you that we are not doing the inquiry in our own right; we are going to feed in from the representatives of the producer organisations and growers to the BIS Committee. Peter, would you like to state who you are and your colleague, for the record?
Peter Kendall: Yes. I am Peter Kendall, President of the National Farmers’ Union. This is Nick von Westenholz, who is the head of our London office, Government affairs.
Q2 Chair: His lips did not move. You are both very welcome. Can I ask you at the outset what you believe the role of the Adjudicator should be?
Peter Kendall: Yes, I realise this is quite an emotive subject. What I am really pleased about is that, following the GSCOP being implemented last year, we wanted an enforcer, and we do see that the role of the Adjudicator is to see that those rules are followed and, where necessary, proactively seek out where they are not being applied. That is where I see its key role.
Q3 Chair: Does it mean that the Adjudicator will only benefit farmers and growers who have a direct supply agreement with a large retailer? How many of your members fall into that category?
Peter Kendall: We are moving now into very complicated territory. I travel around a lot talking to both large businesses that supply to the retail chains and I meet farmers who are part of a processing cooperative and then supply retailers as well. What I think is always the case is that, where there is undue influence or bad practice, it finds its way down to the primary producer. I think it is important to say that although a farmer might not directly supply a retailer, the fact is that, if he is supplying a processor in the middle who is only one person-processors are often working on very small margins-any retrospective claims or additional costs find their way back to the primary producer. There will be a significant number of our members who fall into that category.
Q4 Chair: In my view, if the Code is going to work and if the role of the Adjudicator is going to be a success, the system seems to be asking people voluntarily to come forward and make a complaint. We have been trying to get evidence on the record, and have noticed a slight hesitation among witnesses to come forward and share their thoughts with us. I am not saying that it should go completely the way of the European Commission in Brussels in competition cases. However, rather than waiting for cases to come forward where, no doubt, the growers and producers can be easily identified, and may find that their contract is at risk, and suddenly they are not producing for that supermarket anymore, would there not be some merit in giving the Adjudicator powers to swoop of its own volition?
Peter Kendall: A key proposal of ours is it must be proactive. Organisations like the NFU can cite bad practice in a generic sense. I have to say it is naïve to think a person supplying a big retailer with many millions of pounds’ worth of product will come and say, "Hold on, this is not working properly," and put their hands up. They have too much at stake. The problem is you might have built a relationship with a retailer over a long period of time. You have therefore extended yourself; you have borrowed money. Actually, the most important thing you need is that turnover to be maintained. For a whole host of different reasons-they might be retrospective claims, or inflated packaging or haulage costs-you know that you are being treated unfairly. It must have the ability for the Adjudicator to proactively explore and pick up on issues that we raise as an organisation, and other programme trade associations can point out where we think malpractice is occurring and where the GSCOP is not being applied fairly.
Q5 Chair: Would you seek to amend the draft Bill in its current form?
Peter Kendall: Absolutely, we do think it needs strengthening, both in being proactive and in the area of fines as well.
Q6 Chair: Several submissions in the evidence that we have received indicate that no claims have been made by suppliers under the current Code of Practice. Why do you believe there has been a lack of complaints?
Peter Kendall: I am not surprised at all there have been no complaints, because it is not able to be cited by a third party and people are very easily identified. That is the whole problem in all of this. I bumped into somebody in the street yesterday who works for one of the big retailers. I said, "I had a lot of complaints about you guys last week." She said, "Tell me the product they are supplying." I said, "You must be joking. I just want you to know that we know what you are doing."
Q7 Chair: At the moment there is no comeback, though.
Peter Kendall: Absolutely.
Q8 Chair: Do you think that, if the Adjudicator is established, that would automatically make a difference, or do you think that the Bill has to be amended before we bring the Adjudicator into play?
Peter Kendall: The Bill has to be strengthened. It is really important. It cannot even be: "Go and look at cauliflower purchasing in the South West," to pick an example. It needs to be: "Look at the practices that are going on about retrospective discounting and changing terms of supply in these areas," or "Go and look at the way people are made to pay additional charges for packaging or haulage," for example. Otherwise, it looks very quickly as if one particular business has drawn this to your attention. The discussion I have been having previously with the PVGA is that it might not be this year that you are de-listed; it might be 18 months or two years down the road that you are de-listed. It needs to be a generic inquiry that is done on the back of independent people citing that bad practice, and then it needs to be a proper fine. Actually, if these fines are threatened-and that is the other amendment that we urge-there would be fewer occasions when we would need to cite that practice.
Q9 Chair: Is there any way around the lack of anonymity, whereby a supplier can be very easily identified?
Nick von Westenholz: There are provisions in the Bill at the moment that are aimed at protecting anonymity but, in our view, they are not strong enough. What we are suggesting is adding to the grounds upon which the Adjudicator can launch an investigation, which at the moment are twofold-either a direct complaint from a supplier or from information in the public domain-a third ground, which is that the Adjudicator can launch an inquiry on the basis of credible evidence. That may be something the Adjudicator needs to set out in its guidance-what exactly it means by "credible evidence". There clearly will, therefore, be a threshold and it will not be just going out on investigations for any reason. It will mean that there is a third ground, so it is not obvious to retailers where an investigation has come from-i.e. a complaint from a supplier.
Q10 Chair: Are there currently any provisions for penalties or fines in the Bill?
Nick von Westenholz: At the moment the provisions for fines can be brought forward only by secondary legislation following consultation. The Business Department has said that it could be, in due course, that fines are brought in, and that provision is in the Bill, but it will not be enforced from the inception of the Adjudicator, so when it gets up and running it will not be able to fine.
Q11 Chair: You would like to see that written in.
Nick von Westenholz: We would like to see that right from the start, yes.
Q12 Tom Blenkinsop: Do you think your members would be satisfied with the description of the purpose of an investigation by the Adjudicator? It says in the explanatory notes to the draft Bill that it "does not see it as the purpose of an investigation to decide whether to uphold a particular complaint, but rather to consider a pattern of behaviour by one or more retailers". Do you think members would be happy with that?
Peter Kendall: I come back to the point that, if it is a specific complaint, it then becomes that person has reported that supermarket for that action. Therefore, you then get to the point where it is very difficult to identify whether you will then be singled out and highlighted. Trying to find a solution that looks at an Adjudicator that highlights that, for example, charging additional sums for labels or thirdparty haulage through a single use, as a practice is outlawed and very clearly identified as not being acceptable, and where people are seemingly doing it, they are fined and told not to do it again, is, I think, better than picking up individual complaints and then identifying a remedy against that individual complaint, because these people have such a large stake financially with that particular retailer.
Q13 Amber Rudd: The British Retail Consortium has argued that the costs of establishing the Adjudicator may lead to increased costs for the consumer. Do you think that is a danger?
Peter Kendall: I am staggered by some of the lines that the British Retail Consortium has come out with on this subject. I find it breathtaking. I have debated with Andrew Opie on a number of occasions on the radio. £120,000 yearly cost to Tesco to demonstrate they are treating their suppliers properly? If they are going to pay a bit more for their cauliflowers from the South West because they treat their suppliers properly, I do not think that is an increased cost; that is a fair price to pay for a product that is being sourced in a fair and ethical way. The British Retail Consortium is saying that this is going to inflate their costs of operating, because they are demonstrating they treat their suppliers fairly, but I think that is just the basic standard required for conducting business. If they are worried about their £120,000 yearly contribution to fund the Adjudicator, I look at the salaries of some of the chief executives and I think it is very small. I do not think it would even be one less chief executive or senior director; it might be a fraction of one of the directors.
Q14 Neil Parish: They are obviously paid a lot more than Members of Parliament, but we will not go into those details. The Government committed to introduce an Adjudicator "to curb abuses of power which undermine our farmers". Now, you have partly answered this, but does this Bill deliver on that commitment? You have talked about wanting the fines in place, which I think we all agree with, but where do you think the Bill is good; where do you think it needs strengthening? Does it deliver on helping farmers in the end?
Nick von Westenholz: As Peter said, extending the grounds on which investigations can be brought about is crucial. There is an awful lot that is good in the Bill. It is essentially almost there, but it is the issue of investigations that is the real problem and, at the moment, it is too narrow. For example, under this, organisations like NFU or other representative organisations are not allowed to bring evidence to the Adjudicator’s attention in order to start an investigation. We are not claiming we have a Godgiven right to do that, but clearly that can be very beneficial. Our members are much more likely to approach us with issues and expect their anonymity to be protected. We can play a role, for example, in identifying patterns of practice, which may be the sort of thing the Adjudicator wants to investigate further. Of course, when there are question marks being raised, by the BRC for example, about the resources and the costs, that is actually something that is beneficial. We-and organisations like us, not just us-are able to fulfil a role in preparing the ground and the evidence for an investigation, which must be of some help.
The other important point is this one of how it protects anonymity. At the moment, there is every risk that a complainant looking at the Bill will not feel that his anonymity or identity is sufficiently protected. If the Adjudicator is allowed to launch an investigation in wider circumstances, so that a retailer cannot be sure that there was a complaint, because it may well have been that an investigation was launched on a more proactive basis, that is bound to encourage suppliers to complain, because they will feel that their anonymity is better protected.
Q15 Neil Parish: That is what I wanted to press you on. In reality, how practical is it? I agree with you the anonymity of people should be kept, but in reality surely the suppliers, especially the big ones, are going to work out quite quickly who it is, are they not? How do we protect that?
Peter Kendall: I think it is a major problem to guarantee anonymity, but we must try to do it because-you will probably hear about this after us from the PVGA-there has been quite a lot of consolidation in the horticultural sector, where there are some very big players. For a whole host of reasons, whether it is food security, growing awareness of the problems of sourcing product around the world and the imposition of the GSCOP, we now have better relationships developing with some of those big operators. As they are so large, guaranteed anonymity is very difficult. Even issues such as labelling, haulage or other areas where they impose additional costs could be looked at across the board to make sure we raise the game in how the supply chain works. Certainly the smaller operators are easier to protect, because they can be covered in a more general investigation. Om your question about whether we felt this draft Bill meets the obligations, I do not think it does; I think it must go further, and that is what we are seeking.
Q16 Neil Parish: That is why you are here this morning to give us evidence. My next question is that, given that the Adjudicator at the moment can only investigate the relationships between a large retailer and a direct supplier, what is the benefit of the draft Bill in enabling an indirect supplier to make a complaint?
Peter Kendall: I tried to touch on that earlier on. At the end of the day, if you are going to a cooperative or processor in the middle, invariably these businesses work on very small margins, which get passed straight down to the small producer at the start of it. We have to identify where those practices are going on, and by not allowing those practices to go on-whether it is the haulage that I have talked about, or the retrospective claims-they do not get passed on to the small producers. We would probably cite the behaviour between the retailer and the processor.
Q17 Neil Parish: It could almost be a number of smaller, indirect suppliers affected, could it not? Would you be able to deal with that under this Bill?
Peter Kendall: What I am identifying is that, by identifying the behaviour from the retailer to the processor or the cooperative in between, and by removing the practice there, you would not have downward pressure then going to the primary producers, which are smaller, feeding into that processor. I know this is complicated and occurs in many different facets of agriculture, but what we are trying to do is make sure we remove some of these bad practices. The Adjudicator is the one way to make sure these rules are policed.
Q18 Thomas Docherty: There is obviously some evidence or suggestion that, at the moment, producers are reluctant to highlight poor practice by retailers. Could you make an estimate of how many cases are currently not investigated because of the fear of repercussions from retailers?
Peter Kendall: Honestly, no I cannot. I have already identified, and again you will hear this confirmed later on, that there are some more novel, openbook relationships developing between the very big processors, farmer producers and the retailers. Even then, within those more openbook systems, there are bad practices you would hear about, whether it is some retailers demanding backhanders or something else.
I had one example on my desk only recently, where the plastic being used was being charged. We knew what the company was doing to its thirdparty customers: it was putting the price up by 6%. We then heard from one of the leading supermarkets that who was supplying them had to go up by 16%. We knew what was happening there: the retailer was getting the 10% uplift in value paid back to them as a backhander for saying, "You must use this person’s plastic," to suppliers.
That will not be reported, but I am hoping we can identify, within an Adjudicator, that sort of practice going on and being looked into. The retailers challenge me and tell me it is because they have a different sort of glue on the label or the plastic will not stand the weather. We know it is made by the same person in the same factory. One goes up 6% and the other goes up 16%. We have a lot of examples of where this sort of thing goes on, but at the moment I cannot report it; we have not got an Adjudicator to report it to, so I am not sure how to advance this until we get the Adjudicator and allow organisations like ours to point the finger.
Q19 Thomas Docherty: Obviously you would say that the Bill, as it currently stands, is not sufficient.
Peter Kendall: Absolutely.
Q20 Neil Parish: Dairy UK is concerned that suppliers should be obliged to take part in an investigation. Do you suppose that third parties could identify systemic problems of which suppliers may be unaware? How do you respond to Dairy UK’s concern, and do you think the Adjudicator should be able to accept evidence from the suppliers that do not wish to make a complaint against a retailer?
Peter Kendall: Dairy UK is an interesting body that started life trying to represent all sectors of agriculture. Even now the Chairman of Dairy UK would probably acknowledge it is a processors’ organisation and not a wholechain organisation, and therefore I can understand that they want to protect some of their relationships and have a different view from how I would view the smaller first primary producer and how his views are represented. I am not surprised by Dairy UK taking that position, but I think we need to be able to supply information to an Adjudicator in an open and transparent way, so they can have a full and fair inquiry.
Q21 Neil Parish: Taking it a little bit wider than that-you may not want to answer this one-we had Wiseman in giving us evidence. They have their liquid milk deal with Tesco, and the farmers are getting a reasonable price for their milk, but there is no doubt that Wiseman gets squeezed in the middle. When Tesco has a war on prices with somebody else and drop their price of milk, they are going to go back on the processor and try to squeeze some blood out of them-or perhaps milk in this instance. Seriously, it does not directly affect the farmer, but in the long run it probably does. What I am saying to you, quite bluntly, is it is not going to be in Wiseman’s interest, even under an Adjudicator I suspect, to complain. How do we actually get the price up, when we have big processors that are completely controlled by Tesco or whoever the big buyer is? In the end, that is not going to get prices up for the farmer.
Peter Kendall: We have done inquiries on the dairy sector before and there are many more complex questions. When you say Wiseman have come to you, Robert Wiseman is Chairman of Dairy UK; I suspect they are all linked together. My solution in the Wiseman case supplying Tesco is actually more transparent relationships, where maybe even there is a transparency about the commission or the level of processing charge that is being paid to Wiseman to process Tesco’s milk. There has been a tender recently for the Coop’s designated milk supply. If you looked into that, you would find the prices that have been agreed-and be careful about what is in the public domain-are so low that the standard processing margin required by a milk processor would not leave the farmer with that designated supply price, so it is having to be taken from somewhere else. I do not see the Adjudicator solving those problems. What I do see is actually making sure that Wiseman does not bit bid those so ludicrously low prices that it then has to take it out of the supply chain beneath it. We need other solutions in the dairy chain. That will not prevent that sort of madness by the processors.
Q22 Thomas Docherty: Following on from the issue of investigations, your evidence suggests that, under clause 19, the Adjudicator may have to halt an investigation if it is felt that they would be in breach of the confidentiality of the complainant. How would your suggested alternative of using credible evidence be able to resolve that difficulty?
Nick von Westenholz: Our concern under clause 19 is that, because, as we have already said, there are going to be many instances where, under the Bill as it stands, it will effectively be impossible to protect the anonymity of a complainant, the Adjudicator will not be able to continue with that investigation. Simply what we are saying is that, by increasing the grounds on which investigations can be made-and as I have already tried to explain that will improve the anonymity provisions of the Bill-clause 19 will come into play less, and actually the Adjudicator will be able to continue with investigations more often than not. At the moment, it seems to me, with anonymity provisions as weak as they are, the Bill essentially fetters the ability of the Adjudicator to go ahead with investigations, even if it has good evidence that there has been a breach of the Code.
Q23 Amber Rudd: Is there an example of an adjudicator in another industry that you think conducts proactive investigations well?
Nick von Westenholz: It is not something we have looked at in any great detail actually. An important point is that the Competition Commission reported in 2008 and recommended, as it was then called, an ombudsman. Among its recommendations for the ombudsman was that it a) should be able to fine, and b) should be proactive. It felt that that was the only way you would get an effective ombudsman that would be able to stop the adverse effects on competition that it had identified. We very much believe that the Competition Commission, an august body, and its considered report should be recognised. It is a shame, really, that the recommendations of the Competition Commission have not been carried through in their entirety into this Bill.
Peter Kendall: I chair the Food Chain Committee for COPA in Brussels now, which is looking at this. It is very interesting that Norway has just published a paper picking up on a lot of the work that has been done by the Competition Commission in the UK. We are looking for a businesstobusiness directive in Brussels for this practice because, as we look at CAP reform, we are looking for less support for the farmers through direct payments; we want markets to work more fairly. I think actually what the Competition Commission was talking about in 2008 is very innovative. I do not think it is something that we can compare to other parts of the world very easily, but there are other parts of the world that are looking for a lead from us. What is really telling from the Competition Commission is actually that these sorts of bad practices impede the ability of farmers to invest and will impact on consumers. It will be to the detriment of consumers in the long run. I think those sorts of messages are being picked up now in a broader sphere in Brussels, and other countries are looking for a similar approach.
Q24 Amber Rudd: Do you consider that there is also a danger of vexatious complaints being made against large retailers, just looking at the other side for a second?
Peter Kendall: As tempting as it might be, yes of course there could be somebody who has lost business for a legitimate reason, through failing to deliver, and they might want to make a fuss and that could cause problems. However, I have to robustly say, I have a shedload of complaints to me on a regular basis, where I think behaviour is very underhand. I hope that any troublesome complaints would be very few and far between. Certainly for an organisation like ours, which prides itself on its credibility, we would want to make sure there was a very serious investigation before we took any complaints forward. From a thirdparty source, our credibility as an organisation would rest on it, so I would give you some pretty strong assurances that we would not be giving any encouragement to troublesome complaints, but I cannot rule out that somebody who has got something wrong and had a relationship that has gone sour making such a complaint.
Q25 Amber Rudd: Do you think that the proposal as it stands is correct about the possibility of having to pay for costs, if it is deemed to be vexatious?
Nick von Westenholz: That seems to me to be fair. As Peter said, I think they would be few and far between. The other point to make is that, if we do have a third ground for investigations of credible evidence, hopefully that also helps filter out vexatious complaints, because the point is an investigation should not be made until the evidence is deemed credible. If we have got to a situation where an investigation has been carried out in its entirety, and then in retrospect it appears that the complaint was vexatious, it is fair that the costs are then turned on the complainant.
Q26 Chair: Could I just press you, because I think this is the key to getting the Bill, the Code of Practice and the Adjudicator correct? Will you just repeat again what you said to Amber Rudd about the consensus there was in 2008, and why you think that perhaps that is not on the face of the Bill?
Nick von Westenholz: The Competition Commission’s report said that an ombudsman was needed to enforce and monitor the GSCOP, and among its recommendations were that it had the ability to fine anybody caught in breach of the GSCOP and could be proactive in the way that it could launch investigations. Now, as I tried to explain earlier, on the face of the Bill at the moment, the Adjudicator will not be able to be proactive; it can only respond to direct complaints or to information in the public domain. It is also not going to be able to make fines from the outset, so it does seem to us an omission from the Business Department that this Bill does not bring forward all of the recommendations made by the Competition Commission.
Q27 Chair: It might be for us. I understand that Select Committees can now table amendments to substantive Bills, so I would be very keen to take forward these provisions, with perhaps some help from yourselves, because I think it is absolutely essential. My understanding is that the Competition Commission is modelled on the European Commission, so what works over there effectively should work here. I think that was the intention of the Competition Commission. There was, you say, an allparty consensus. You mean all the interested parties.
Nick von Westenholz: And all the political parties.
Q28 Chair: We will certainly consider that. We might need some guidance from you on that. You also referred to issues surrounding packaging and haulage, resulting in excessive cost to suppliers. These issues are obviously crosssectoral and do not impact on specific products, so do you agree it would be possible to investigate them without revealing the suppliers concerned?
Peter Kendall: Yes. I think there is always a real risk you can find out where there is one particular supermarket or a couple of supermarkets that are pushing these boundaries, and it might be traceable back at some point. We would certainly, as an organisation, do our utmost to try to make sure it was a generic inquiry into those areas, so it was not found, but they are the areas where there is least chance of identifying a specific relationship.
Q29 Chair: Would you say it is normally the case that breaches of the Code occur across lots of different products, rather than a relationship between one particular buyer and seller?
Peter Kendall: I am an arable farmer. I produce wheat and oilseed rape. My markets are very global. I can see on the futures markets in Chicago, the MATIF in Paris, exactly what is happening. It is very different. I was chatting with the PVGA earlier on about the fallout of the E. coli scare, the fingerpointing at Spanish cucumbers and the impact that has had on our market here in the UK. One of the retail bosses was reassuring us at the start of last week that it certainly would not take advantage of this. By the end of last week, their younger buyers were saying, "Actually, we can now buy these cucumbers in Holland at a third of the price. Are you going to match the prices?" I think there is a difference between those sorts of relationships where you can have very rapid oversupply, than my wheat one, where I could actually shut the door and say, "I will sell this when the market recovers." If Cargill rethinks or some international trader is taking a unique position, I can shut the door and hold back until I see the markets transparently working.
Chair: We are going to possibly come on to E. coli, if we may.
Q30 George Eustice: I wanted to press you a bit about the need for a third criterion on which they would conduct an investigation. Clause 4 of the Bill is very clear; it says information that is publicly available could be used. I do not see any reason why a trade association could not make information public. One of my hobbyhorse issues that I have pressed on before is that the NFU could create a panel of, say, 500 suppliers across all sectors and have a regular quarterly questionnaire to those, which judges all 10 major retailers against their adherence to the Code. That would actually produce a league table of the worst offenders. You could even have a system-and there is nothing in this Bill that would stop it-in which, whoever comes bottom of that league, if they are there for two consecutive quarters, triggers an automatic investigation. Is this something you would be willing to take forward?
Nick von Westenholz: It is something we are looking at, certainly in terms of trying to come up with some sort of league table or qualitative assessment of the performance of the supermarkets. Actually having the third ground, the having credible evidence ground, supports the ability to do something like that as well. The problem with the ground that an investigation can be carried out on evidence that is publicly available is that if an organisation like us has some evidence of maybe a systematic breach of the Code and we want to launch an investigation on this, we have to make that publicly available. Clearly we would have to redact that pretty heavily, because we would want to protect anonymity. If it goes on our website, sure, the Adjudicator can see it, but so can the retailers and everybody else. Publicly available really does mean that, so I would suggest that that ground is not strong enough; it means that the evidence would not be of a very good quality, because of the steps you would need to take to protect anonymity.
Peter Kendall: I think we would be very keen to look at whatever examples or structures we can use to trigger that credible evidence criterion. I went to the Oxford Farming Conference and said we were going to do a league table of ethical behaviour. We did some work with Cardiff Business School and Cranfield, and we found it incredibly difficult to make it robust, because so many of the responses have to be subjective. What I wanted to do, and I try to pride our organisation in doing it, was making sure that whatever we put in the public domain was robust, and was not just someone feeling like being grumpy about someone at a particular point in time. It is a valid point that we need to look at.
Tom Hind, who is our new Corporate Affairs Director, is actually here doing a league table on meeting commitments on corporate social responsibility obligations, and we want to keep trying to hold retailers to account on the promises they make. They are all lovely, chucking out these fancy colour brochures at the moment, bragging about their corporate social responsibility. We want to hold them to account on it and we are very keen to do that. If we can use it as a way of pointing the finger, I need to make sure that whatever measurements are robust and legitimate, not too subjective from those suppliers involved. We have taken that away and we are trying to do some work on how robust we can make that.
Q31 George Eustice: I do agree with that, but the key there is to have a consistent set of questions and consistent panellists. The panellists should be the same people every quarter, so that you actually have track of it and can see the changes in movement. Having a large sample is how you filter out vexatious complaints. On this third issue again, is there not a distinction between what triggers an investigation and what is public information-it might be something that you made public could trigger an investigation-and actually the investigation itself? The second part of clause 5 is clear that they are not necessarily limited to those two factors so, once they get into the investigation, they are able to go more widely and take evidence from a wider sphere. I am just not convinced of this need for credible evidence to trigger an investigation.
Nick von Westenholz: If we say what might trigger an investigation, we can see this as being a very plausible set of events that a number of suppliers have come to us and suggested that there have been breaches of the Code. They are unwilling, even with the Bill as it stands and the anonymity protections, to take that to the Adjudicator, so the investigation never gets off the ground; that complaint never gets made; the evidence never gets brought to the attention of the Adjudicator. Absolutely, once the investigation is under way, the Adjudicator can spread its wings fairly widely, but our concern is that, with anonymity protections weak, the investigation never gets started. Our considered view is that those two grounds do not help that situation.
Q32 George Eustice: On the issue about the ability to fine, if they are found to be in breach of the Code, why do you think it is necessary that the Adjudicator issues those fines, rather than it simply being a case that there has been breach of contract here and therefore the remedy is through the courts?
Chair: Is it because they are fines for anticompetitive behaviour?
Nick von Westenholz: Our view on the fines is that they need to be a deterrent. The fact is that there may be a finding of anticompetitive behaviour; there may be a finding of breach of the Code. That does not necessarily mean that the supplier is going to then pursue an action through the courts for breach of contract. It is quite likely, I would suggest, that actually there would not be any legal remedy, because the Adjudicator has simply made a finding, but there has not been any litigation. Our view is that fines need to be a deterrent to bad practice by the retailers, but also that the current provisions of naming and shaming are not strong in the absence of fines. For example, if naming and shaming is going to be effective, what we would really want to see is somewhere in the Sun or the Mirror an article saying that Tesco has been found guilty of treating its suppliers poorly, for example. That, I would submit, is not very newsworthy unless they can also put a tag on them being hit with a sizable fine. "Tesco found guilty of breach of GSCOP" does not in itself make a very good headline.
Peter Kendall: For a supplier to say that a retailer has treated them badly, and it is confirmed by the Adjudicator, for the small supplier then to try to seek legal redress against the large retailer is slightly unbalanced, but also that supplier would hopefully want to carry on supplying in the future to that retailer, but knowing he is doing so under a fair set of rules that are being applied fairly. Taking legal redress himself would be something that we think would not work, and therefore a deterrent of a fine that hurt for abuses that hurt-as we have been saying-would be the right way to address this.
Q33 George Eustice: My final point is about the review procedures for the Adjudicator. Clause 16 talks about a list of statutory consultees that the Secretary of State should look to in reviewing the performance of it. I am presuming you would expect to be one of those consultees, and have you had any discussions to that effect?
Nick von Westenholz: No, not yet. We respect the fact that clearly the performance of the body needs to be reviewed. We do not have any specific issues with that process and, yes, we would expect to be consulted as a part of that, but it is important that the review looks at the wider picture and what the Competition Commission identified as being in need of remedying, which was the adverse effect of competition, and not just, for example, quantitative assessment of the number of investigations or complaints received.
Peter Kendall: I think we have already seen smarter business relationships as a result, partially, of the GSCOP set of rules. If we have an Adjudicator with real power, and we do not see a catalogue of breaches or reports, that it itself can be accredited with having raised the game and raising standards. That is what I would want us to reflect on a review-the change of behaviour and the way that the industry is working together to sort these problems out, rather than the number of breaches being reported.
Q34 Chair: Just for the record, how many of your members are actually suppliers to supermarkets?
Peter Kendall: It is incredibly difficult to measure that. My wheat goes to Weetabix. I am not a direct supplier. Across the board, if I was a dairy farmer-which thankfully at this moment in time, I am not-your milk ends up at a retailer. Almost everything we produce goes through the retailers. Ultimately, it is just the way it gets there.
Q35 Chair: In its present form, do you think that the draft Bill actually would be of benefit to farmers, without the amendments that we are proposing?
Peter Kendall: My answer would be yes, but let us strengthen it if we possibly can.
Q36 Amber Rudd: You would like it to go further, but it is in the right direction. Is that correct?
Peter Kendall: Yes.
Q37 Chair: Basically you would like to go back to the consensus that was established around the 2008 agreement.
Nick von Westenholz: Absolutely, yes.
Q38 Chair: Thank you. Mr Kendall, you touched on E. coli. I just have this concern about, if we had an outbreak of E. coli here, how the UK authorities would handle it. Do you share that concern?
Peter Kendall: It is very difficult. We have learned a lot in the UK about animal diseases and how we treat disease scares across the board. I am hopeful that people have shown genuine leadership, but I have to say that-while I am mood of having a go at the British Retail Consortium-some of their comments about cloning recently were not particularly helpful or clearcut about addressing what is going on in the marketplace. What I say is, if we do have potential food scares, we get a proper sense of the proportion of messaging right across the industry, rather than some pretty shortterm cheap shots being made and claims that cannot be substantiated.
Q39 Chair: Could you put my mind at rest that growers are not encouraged to spread human effluent on their fields in pellet or powder form?
Peter Kendall: As we look at integrated farming systems, of using human and cattle manure, we are going to have to learn to be smarter than ever in, rather than using just bagged inorganic fertiliser, using organic fertilisers. We have strict laws in the UK about how we do that and I am very confident that we meet the highest standards in doing that. We need to use more organic manures in the future, smartly recycling. I abhor the fact that we used to put manures or human effluent into the sea when we could use them to replace the phosphate on my fields in Bedfordshire. We have to learn to do it smartly and do it well, and I think we do meet very high standards in the UK.
Q40 Chair: You see absolutely no link between the spreading of human effluent on the land and an outbreak of E. coli?
Peter Kendall: That is still unsure-I think they have identified it to the bean sprouts in Germany now. My counterpart, Gerd Sonnleitner who heads up the German farmers, said this was all down to lower practices of farming in southern Europe. He happens to be Chairman of COPA as well, as Neil would know. I am surprised he has not had his backside well and truly kicked for making those remarks, when it was closer to home. I am very cautious about making a pronouncement. I just want to make sure that we have good traceability, people look for the local labelling so they know how it is produced and know the standards, and we continue to reassure customers of our highest possible standards.
Q41 Chair: I know you have a particular interest. How are you concerned about the present drought conditions? I know you have had a drought summit.
Peter Kendall: I was walking fields this morning to make a decision about whether to put any more nitrogen on the ears of my wheat to try to make them of high enough spec for protein. We will not be doing that, because I already estimate I have put nitrogen on for a three and a half tonne crop, and the crop will be more like a two and a half tonne crop, looking at the impact of the drought, the smaller ears and the fewer numbers of grains. We will be putting some figures out tomorrow-they do not even trust them with me at the NFU. We will be putting estimate data out at the Cereals Event, and I suspect it is not as dramatic as some would have thought but, for certain areas, the loss of yield will be between 30% and 40%-in some key areas.
Q42 Chair: Do you think it was a mistake to reduce the stalk length so we get less straw now? Would it have been better to have kept the height of the straw?
Peter Kendall: I have a lot of my grey hair as a result of trading backwards in farming-whether I sell wheat too soon or too late, whether I try to keep a crop standing in anticipation of a normal year. I have used less growth regulator on my farm this year than I have ever done, because we have made decisions as we have gone along. I say that to reassure my livestock members as well that I will be doing my best to make sure we have enough straw. It is very difficult; you make decisions on what you see ahead of you. In hindsight, I would have put less nitrogen on; I would not use any growth regulator at all. You would have made different decisions, but that is the nature of farming and it is why I am rapidly going grey.
Chair: We would like to come on to the Single Farm Payment briefly.
Q43 Neil Parish: Can I just ask about the effect E. coli has had on our cucumber producers here? We have been all of a sudden turning on Spain; the Dutch have got lots of cucumbers and the whole market becomes flooded, because the public are not buying them. What effect has it had on our growers here?
Peter Kendall: At the start of the last week, I was not receiving a lot of comment. By the end of last week, I was receiving a lot of comment. We are talking to Minister Jim Paice about whether they apply for compensation out of the European scheme, but we need evidence about whether, if he sets a scheme up, it will be used. What is the level of damage? The work we are doing at the moment is to try and collate that, and make a case to DEFRA about how it might use those funds. Towards the end of last week, we saw dramatic impacts on the markets for those commodities-not so much demand, I suspect in many areas, but in competition with surplus products from other areas.
Neil Parish: It just shows, if you take a shot from the hip, what damage you can do across Europe and to this country.
Q44 Thomas Docherty: Mr Kendall, I think we have approximately two weeks left in the current payment window for the RPA. What is your assessment of whether DEFRA is on course to meet the target of 95% payments? Are you personally aware of any farmers who have not yet received their payment?
Peter Kendall: I joyfully received mine last week. Not only did we have some rain, but I had my Single Farm Payment as well. I know there are a lot of manual payments going on at the moment to meet the 95%. I think it is actually pretty pitiful that we have ended up in the mess we have. I am conscious that there are representatives across the Government spectrum, the parties, here today. We got in a terrible mess setting up the scheme originally. We put the wrong computer in for the wrong payment system. I think there is a lot of scrutiny now on Minister Paice and the promises he has made, and an expectation to do something about it because, when he was in opposition, he made lots of criticism. This next payment window has been in place for a year and a third, and we would expect to have seen some improvement. The problem is that some of the issues are so embedded-the way the entitlements are now scattered around with different values-it is going to be very difficult to make it simple and easy to administer until we move on with the further CAP reform. In England, we will have a flatrate payment by this coming year, and we are of the view they need to work with the Commission to say we now have to stick to these values and just get the money out, particularly in areas of severe drought, where people have to pay a lot of additional cost for livestock keeping, forage, etcetera.
Q45 Thomas Docherty: Are you nervous that the Secretary of State plans to wait until after the CAP reforms have completed, or have been agreed, before officials turn their mind to the new payment IT and structure? Her argument, obviously, is that she needs to see what it looks like before she goes down the road of a new system. Do you think that work needs to be done in part beforehand?
Peter Kendall: I think we should focus initially on getting a simple system in the CAP reform, because some of the proposals coming out of the Commission worry me enormously. One of the points I will be making tomorrow at the Cereals Event, which is one of the biggest events in the agricultural calendar now, is that we bizarrely have two different conversations going on, as far as I can work out. On the one hand, we have John Beddington’s Foresight challenge on the future of food and farming; we need to produce a lot more food in a smarter way. The Commission is having a debate around greening, compulsory cover crops and regulatory approaches that I think will damage our competitiveness. They are not going to help us raise our standards and the sustainable intensification that Sir John Beddington’s group called for. There are different conversations going on, and the one the Commission is currently going down will make administering the Single Farm Payment scheme very difficult. It is a real worry we have. My view is not to justify this money at all costs; it is to try, through the ombudsman and other areas, to help us become more resilient and get more of our income from the marketplace. I do not see that conversation coming out of the Commission, which I am very disappointed about.
Q46 Chair: Can I just draw you back to the way it is applied at the moment? We took evidence from the Chief Executive of the RPA, and one thing that concerns me greatly is the reliance on manual payments. If we carry on doing manual payments, year on year, then we have no electronic history of those. Do you share that concern? Also, I personally have a number of constituency cases where farmers have bought farms in 2009 and they still are not receiving the Single Farm Payments-since 2009, which is completely unacceptable. Do you have any views on that?
Peter Kendall: It strikes me as predominantly farmers who have either engaged in trading-they have let land out, have rented land in or have been expanders and acquired land either by renting or by purchasing-where we have a lot of these entitlement problems. I for one year involved myself in renting some land off the Coop. They have one of the most complicated claims histories of any: they are the biggest land farmer in England and I think the RPA says they interact with 1,800 different other claims. That can only be done in a manual way. I do think that there is an opportunity, if we can get the Commission to agree it, once we get to a flatrate payment and a singlelevel entitlement to simplify this further. It is a sorry mess from building the wrong computer for a different system of entitlements than we intended to have. Margaret Beckett ordered a system to manage historic payments. We now have a hybrid system with different valued entitlements, and all we have done is taken an old beatenup car and bolted new bits on to it. That has not solved the problem, and I do not see it solving the problem unless we change the demands upon that rebuilt motor.
Q47 Chair: Three of us were on the European Committee yesterday that looked at the CAP, and we have heard that the Minister has agreed with the Dutch, and the Commission and other Member States have agreed, to proceed with simplification. Are you aware of that? Do you have confidence that that is the right way forward?
Peter Kendall: I am absolutely behind simplification. We have four key principles at the NFU. We do believe that it should be as simple as possible and as common as possible. It should be marketfocused and it should not damage but enhance competitiveness. Those are four very key focuses that we stick to and on which we judge proposals. I will give you one example. I think they have already dropped the demand to have overwintered covered crops. Why? Actually if I do not put my claim in until May, they will not know what I have done with my farm before that, unless they come out and inspect me on two or three occasions. Why have a rule you cannot police? It is one of those things that we have to address. I have been trying to get the Commission to focus on what it can deliver and what the outcomes are in meeting that Beddington challenge, if you like, of sustainable intensification.
Q48 Neil Parish: There are cases that have been so difficult over the years that they just have not been sorted even now. Are you going to press so that, when we get to 2013, some of these can almost start again, in order that we can actually get them processed into the system? Some of seem just not to work, do they?
Peter Kendall: I think there is an opportunity with this year going to full flatrate levels again, if we can get some accommodation with the Commission, to go to a single level of entitlement and try to round them up and say this is year zero. We need to work with the Commission and we need to, as an industry, accept there might be some rounding up and down within that.
Chair: Thank you very much indeed, Mr von Westenholz and Mr Kendall. Thank you for being so generous with your time. We are very grateful to you. Thank you for participating in our inquiry. I invite the next set of witnesses to take their places.
<?oasys [el6] ?>Examination of Witnesses
Witnesses: Richard Hirst, Chairman of Processed Vegetables Growers' Association (PVGA), Member and Past Chairman of NFU Board for Horticulture and Potatoes, David Piccaver, Past Chairman of PVGA, Past Chairman of British Leafy Salads Association, Member of the Fruit & Vegetable Task Force, and Laurence Olins, Chairman of British Summer Fruits, gave evidence.
Chair: Gentlemen, good afternoon and welcome, and thank you very much for participating in our inquiry. If I ask you each in turn, just for the record, please introduce yourselves; say who you are and state your organisation.
David Piccaver: David Piccaver, a grower from south Lincolnshire representing the British Leafy Salads Association.
Richard Hirst: Richard Hirst, a grower from east Norfolk representing the PVGA.
Laurence Olins: Laurence Olins, marketeer representing British Summer Fruits.
Q49 Chair: Thank you very much indeed. Could I just ask you at the outset what your view is of the draft Bill in its present form, and what you believe the role of the Adjudicator should be?
Richard Hirst: We certainly feel that, since GSCOP has come in, trading practise has improved immensely, particularly with larger suppliers. We certainly view the idea of an Adjudicator as being extremely important. The challenge that we see is actually in practice how it will work so that, if there are issues, anonymity is protected. That is the fundamental problem that we have.
Laurence Olins: The soft fruit industry is slightly different from the other horticultural areas. It is very concentrated: 90% of the business is conducted by four companies and the remainder is several smaller growers. The major companies have turnovers in excess of £200 million. They do not feel that an Adjudicator would be terribly important in their figuring. They feel they have adequate relationships with their major customers to deal with most situations, though they have seen improvements in practice since GSCOP has come in, with mixed results.
David Piccaver: It is very much the same, Madam Chairman. Again, the 80/20 rule applies in terms of the suppliers, as it does across a lot of the horticultural sector. It is quite easy to identify if you get into that situation. There are not that many suppliers. Again, as has already been pointed out and was said earlier, anonymity is a very critical issue in terms of this draft Bill.
Q50 Chair: Starting with you, Mr Piccaver, what proportion of fresh produce growers have a direct relationship with large retailers?
David Piccaver: In terms of our Association, I would say it was 100%.
Chair: Mr Hirst?
Richard Hirst: I think it is difficult to establish. If they are not directly, they are certainly part of the marketing organisation that then feeds in, so it would certainly be in excess of 80%.
Laurence Olins: All our members, be they marketing companies or individual growers, deal directly with the supermarkets.
Q51 Chair: Why do you think there have been so few complaints so far, since the introduction of the GSCOP?
Richard Hirst: My view is that they are afraid of being delisted. If they make a complaint, they lose that business. For us, having trade associations and organisations actually being able to make those referrals is absolutely fundamental, because it removes the individual grower from the firing line. We would certainly support the NFU’s view that they should be one of the bodies that can make referrals to the Adjudicator.
Laurence Olins: I think relationships have improved beyond recognition in the last few years. Our industry has grown by a factor of 10% to 15% every year, and it has done that through working with the clients and not against them. It has been very cooperative.
Q52 Chair: From where I sit-I will be very frank-if I was one of your members, it would not be in my interest to make a complaint. Would you support the original recommendations of the Competition Commission that there should be the ability for the Adjudicator to investigate off his own bat and also to impose fines?
Richard Hirst: Some of the points that Peter Kendall made earlier about things like packaging and some of those practices where, as suppliers, you have to deal with certain companies and do not have the opportunity to get the best possible arrangement for some of those input costs, it is absolutely right the Adjudicator should do that, yes.
Q53 Chair: Are you able, without disclosing any particular growers, to give examples of the sorts of supermarket actions that cause your members difficulties?
Richard Hirst: In the past, some of the issues of retrospective rebates have been a big challenge, but GSCOP has certainly made that much more transparent now, so we are much more aware of the costs of doing business with that supermarket and what they are before you start trading. One of the issues may be the expectation that the supermarket, whatever the challenge that is faced-shortage of supply or whatever-will be able to maintain their margin at a level that you have agreed, whether crops suddenly go short or whatever. That is an issue that is difficult to accommodate and would be difficult for the Adjudicator to look at. The risk of crop losses or shortness of crop will always come back to the grower. It is not the supermarket or the end consumer who shares in that cost.
Q54 Chair: In terms of negotiating contracts to make them GSCOP compliant, has this pushed up the cost for your members of finalising the contract?
Richard Hirst: No, I do not think so.
Laurence Olins: No.
David Piccaver: Actually, Madam Chairman, we do not have contracts as such. We have terms and conditions, but we do not have contracts. I have never signed a contract per se.
Q55 Chair: How long do your terms and conditions apply for, once they have been negotiated?
David Piccaver: A season.
Laurence Olins: Purely for one season at a time.
Q56 Chair: No one in their right mind among your membership is going to raise a complaint.
Richard Hirst: Actually it is a bit more complicated than that. Some of the businesses that we are involved in work very closely with supermarkets to grow their business, as well as the supermarket’s business. It is more about, although there is a seasonal arrangement for supply, there may well be a fiveyear plan in place that everybody buys into to try to grow that business. It does create some close contact between yourself and the supermarket, which can be beneficial to both parties.
Q57 Chair: The mood music I am hearing, Mr Olins, is you have said two or three times that the situation has improved enormously, so you are not going to say anything to contradict that. Would you have any objection to the Bill being amended so that the Adjudicator had the power to investigate?
Laurence Olins: None whatsoever.
Richard Hirst: No.
David Piccaver: No.
Q58 Chair: That would be in your interests.
Laurence Olins: It is plainly in growers’ interest to have that final threat hanging over potential retailers. When I say things have improved, when I look back over the last five years, some of the worst examples of behaviour were actually when supermarkets were on their way out. Safeway and Somerfield were probably the worst ones. I am not just saying that because they are not here now, but they were desperate for either profit or margin, and imposed some quite draconian measures on their existing suppliers towards the end of their life.
David Piccaver: There is no doubt that relationships have improved and, equally, the retailers have put quite a lot more effort into improving the relationship. Certainly in our experience, one area where the risk still sits is there is still a very strong tendency by retailers, when they want to do a line change or content change within any particular line, they will change it. To implement that change and the supplier to change, well hang on chaps, we’ve got to run about six weeks, probably two months or three months, depending on what your growing cycle is. In most cases, that is not taken into account. That is something we just have to deal with and manage.
Q59 Chair: You mentioned that your growers have no contracts; they have terms and conditions. Can these be amended retrospectively?
David Piccaver: I am not aware of that. I am not saying it has not happened, but I am not aware of it.
Q60 Chair: If there was a breach, your members could not sue for breach of contract.
David Piccaver: What I have just been talking to is not in those terms and conditions.
Q61 George Eustice: I just wanted to push on this point about the types of conduct by supermarkets that might still cause a problem. Certainly one veg producer only recently talked about a system that one of the supermarkets was using that they described as "margin buckets". This is where the supermarkets had a set target of how much money they have to make out of a given supplier in a given year. They therefore just do not accept their share of the risk. At the end of the day, if that farmer wants to supply them the following year, they have to accept prices well below the market in order to deliver this set margin.
The second one I just want that I just want to make, Mr Olins, is I was in the strawberry industry and I know it is one of those where it is very easy to get your fingers burnt right the way through the supply chain. Traditionally, what has always happened in strawberries is a supermarket will order a big order for the weekend, because it looks like it is going to be sunny. It then rains; sales collapse and they therefore look for excuses to reject strawberries. Always the problem was that one depot might accept a delivery for one batch, whereas another depot that had overordered would find a reason to reject it. Are you saying that that kind of practice has now been eliminated?
Laurence Olins: I would say pretty much so. Yes, you do go through disparities between the same customer and different depots, but you could put that down to quality assurance differences in interpretation rather than malpractice. If there was going to be a problem, it would not be at the depot level; it would be at the actual store level, where there had been oversupply. A lot of times when there is an oversupply of fruit, and we can see that coming, we deal ahead of the situation, speak to supermarkets and they push out the fruit on our behalf, because it is in all our interests to get that fruit moved. No, I do not recognise that scenario.
Q62 George Eustice: Does "margin buckets" mean anything to you as a term?
David Piccaver: I am delighted that the soft fruit industry does not recognise that scenario. I am afraid in our sector I certainly recognise that scenario, because we happen to be in a product that is very weatherrelated in terms of demand. We are still quite oldfashioned in the UK in terms of our demand for eating salads. When the sun shines, it rings the right bell. When it is not, it does have an impact. Weather forecasts about Wednesday for the weekend are absolutely critical; we get a fair idea what is actually going to then happen. What you have described does happen; it is part of the marketing scene and we have to manage it.
Laurence Olins: Can I answer the question about margin buckets, because it is a good area? It has been an area where supermarkets in the past have tried to come back at a supplier at the end of a season and say, "Look, we have not achieved jointly our margin that we agreed," and then wanted support to cover up that margin. I have seen less evidence of that now, because the customer and the supplier are working very closely together to manage that margin. Suppliers are acting ahead of the game now and they are putting in practices on a weekly basis-margin trackers-where they are telling the supermarket exactly how they are performing on their products each week. If the supermarket is performing lower than that set margin, they will come back and say, "Look, if you carry on in this manner selling product at a low price, you will not hit your endofyear margins, so we suggest you do this, that and the other." That protects the supplier from a retrospective amount of money being asked for. That is definitely going on.
Q63 George Eustice: Just quickly, would asking for a repayment of a margin retrospectively be in breach of the Code?
Laurence Olins: I think it would be, yes.
Q64 George Eustice: It still does go on, to some extent.
Laurence Olins: I do not think it does, because we have now all found a way of changing that, by putting these weekly trackers in place. I know that is common practice throughout the soft fruit industry.
Richard Hirst: I think GSCOP has forced that to happen, because they would have been in breach of it, so they have found ways to manage it. You are almost aware of what the problem is going to be in advance.
Q65 Neil Parish: Cucumbers are quite fashionable at the moment. There is a lot of talk about cucumbers. If the Adjudicator was in place at this moment in time, would it actually help? Basically you have a lot of cucumbers floating around in Europe, destroying the market because of German comments. If supermarkets decide then to buy foreign cucumbers and not British ones, could you help your suppliers or would the Adjudicator help, if he or she was in place at the moment?
Richard Hirst: It is a very difficult question to answer. I suppose it is a situation where the Adjudicator could take part, but it is still becoming more apparent what the impact is of cucumbers. Because it is a food scare issue, as GSCOP or the Adjudicator rules are written, I am not certain it is necessarily something that the Adjudicator would want to get involved in, but it certainly would be a good case, because marketing plans have been in place and plants are grown to provide that level of cucumbers from UK growers for last week, this week, next week and the next few weeks, which probably will not find a home because of a collapse in trade.
Q66 Neil Parish: If a supermarket decided, instead of buying a British cucumber they went out and bought a Dutch one or whatever, would that not be partly in breach of their supply contract possibly? Would not the Adjudicator be interested in that?
Laurence Olins: I do not think so, because all products are based on programmes rather than contracts. Programmes have guidance in terms of volumes. What would happen is, at the outset, the supermarket would go to their suppliers and say, "Look, we know there is an over-supply. The market is awash with cucumbers. We want to help you, believe it or not. We will jointly promote it." If the supplier says, "No, I have alternative customers", the supermarket, may very well import from Holland, but they will not import the whole programme. They may import 20% of it, and therefore the UK industry would have a 20% gap rather than no gap at all. Working together between customers and suppliers goes on.
David Piccaver: I would agree with Laurence’s comments. Also the other aspect of this is that you might have to take on board the current situation with the retailer, with your customer, but the opportunity might arise to address that at some future date within the marketing scene. You would actually make note of that fact in having that discussion probably to redress that situation at another point in time, whether it is when the market goes short or whatever it is. It can be an opportunity.
Q67 Neil Parish: You would hope to extract blood later on, even though you would be losing blood at this particular time?
David Piccaver: I would put it in terms of redressing the balance.
Laurence Olins: What classically happens is that the supplier, being in a difficult position, would go to the supermarket, arrange a promotion and the supermarket would push out that product to the stores ahead of what their own stores want, and normally the supplier would cover that extra wastage, because that is where the supermarket would get the loss. It would be taking more cucumbers than it actually wanted, and then the supplier would happily take that loss, because that loss is still better than putting it on the wholesale market. There are still ways of working together to get out of that flush problem. We have that in soft fruit in the same way you have that in lettuce.
Q68 Chair: Would you agree with the evidence from the Agricultural and Horticultural Development Board that the Groceries Code is not being implemented in its intended spirit, and that there is a need for an Adjudicator for that reason?
Richard Hirst: We have certainly seen changes in trading practices in the horticultural sector that are more in line with where the Code is meant to go. We think there are perhaps more issues because the UK does have a 12month season and we can only supply five or six months of that. From a horticultural product point of view, importers may not be so aware of the terms and conditions of GSCOP, and therefore that is perhaps an area that needs more focus. We feel there have been big improvements in the trading practices of supermarkets with horticultural produce than before. It may that within the dairy sector or the meat sector it is different, but we are not involved in that, so it is difficult to comment.
Chair: That is why you are here.
Laurence Olins: There is a trap that we all are guilty of falling in, in saying "supermarkets" and applying one word to eight or nine different companies. Every supermarket is totally different; they all have totally different agendas and they behave in different manners. It is a long stick. At one end of the stick, a certain supermarket that my company deals with has the buyers talk about GSCOP in their vocabulary-an example being that prices are fixed on a weekly basis. They will get their prices from three suppliers for a punnet of strawberries. If two of the suppliers say £1.40 and the other one says, "I am not going to sell less than £1.50," and they agree to the £1.50, they pay £1.50 to the two that quoted £1.40, because they say that is within GSCOP. That is at one end of the stick. There are other supermarkets at the other end of the stick that, if you mention a Code of Practice, have not said anything to their suppliers, and there are a lot in between. It is wrong to generalise about supermarkets’ behaviour.
Q69 Tom Blenkinsop: From what I have heard so far, I can gather that the supermarkets, you believe, are behaving better in general terms-although you want to avoid those. There are no guarantees on that, are there? There are no guarantees in the future that they will always behave that way. Do you think that the existence of the Adjudicator will produce more confidence to invest in the future or what specific amendments in the Bill would you like to see to give you confidence to invest and innovate for the future?
Laurence Olins: I have seen no evidence-and the soft fruit industry is a highcapital highlabour industry-of growers not investing because of the behaviour of supermarkets. I do not think they take that into account at all. There are other reasons why they may not invest, but certainly not the behaviour of supermarkets.
Richard Hirst: I think the threat of the Adjudicator is perhaps focusing the minds of the supermarkets and those that are not complying. There does need to be something to make sure they are. From a grower’s point of view, business is developing and building, and this Adjudicator may not necessarily make a difference to whether they invest or not. The Code being in place has certainly improved trading relationships and it would be great to have an Adjudicator there that actually does not have to do anything. That would show that it is working very well. The main amendment to the draft is the ability to let trade organisations make those referrals, and their not having to come from individual growers. Where you are trying to develop business, if there are small issues, the nature of the business is that those growers will be identified quite quickly, and that will put people off wanting to make referrals.
David Piccaver: I do not think that innovation has been affected, in terms of growers wanting to invest, but then the sectors we are both referring to happen to be in positive growth. There are other sectors in horticulture where that is not the case, and therefore there may be a different view, but then a different driver is causing investment to take place. Certainly in our own sector, innovation is a vital part of the total marketing process.
Q70 Chair: The explanatory notes to the draft Bill said that "The Government does not see it as the purpose of an investigation to decide whether to uphold a particular complaint, but rather to consider a pattern of behaviour by one or more retailers." Is that your understanding of the role of the Adjudicator? Is that what you would like to see happen?
David Piccaver: I think it has the ability to raise the game, Madam Chairman, as Peter Kendall indicated, and I think that is probably absolutely right from that point of view. The one area we have not yet touched on, and no doubt you will come to that, is the question of confidentiality. That actually is a very serious issue that has to be addressed, because otherwise, in its current format, it will not work.
Q71 Chair: When you say confidentiality, it seems to be this cloak of anonymity is not there, and a grower would be identified immediately. How would you like to see confidentiality achieved?
David Piccaver: That is a very good question and I have not got an answer. I apologise for that, because I have thought about it, having read these documents. It is all very well saying no, but can you come up with a solution? On the face of it, I actually cannot come up with a solution. That does not mean to say there is not one, but, I am sorry, I cannot be more positive than that.
Richard Hirst: If you could be up before an organisation, they have to gather the robust evidence. It is that organisation that fronts the complaint, so it is not necessarily down to an individual grower. There are generic issues, such as the packaging issues, use of plastics, etcetera, which are not an individual grower problem; it is a general practice, which is much easier to investigate. In some ways that improves the grower return, because it is a cost that we end up having to pay. If those costs can be reduced, as long as the supermarket does not take their margin from somewhere else, which is another issue that might happen, it would certainly improve the returns that come back down to growers.
Laurence Olins: I am quite cynical about being anonymous. By the time it gets to an Adjudicator, the grower could not care less about being anonymous. He has already lost his business and is going to the Adjudicator to try to get some redress. By that time, he does not mind that he is known.
Q72 Chair: To come back to my original point, if the Adjudicator was allowed to investigate rather than relying on complaints, which was the original intention, then you would not be placed in this position. Is that not correct?
Laurence Olins: Yes. If there were to be an Adjudicator, he needs to be proactive rather than reactive.
Q73 Chair: You are agreeing with the evidence that we heard earlier.
Laurence Olins: Yes, and I think the areas that he could be proactive in are the areas that have been discussed earlier on. They are the generic practices that might affect every crop and every sort of supplier, where it could be quite effective.
Richard Hirst: It may well be that already the Competition Commission investigation, which was charged with looking at it, has had an impact on trading relationships. There is some good that has come out of that already.
Q74 Chair: It could be built on and be put on the face of the Bill. You would have no objection to that. It would only be beneficial to you.
Richard Hirst: Yes.
Q75 Thomas Docherty: You obviously sat through the evidence earlier on from the NFU and there is a great deal of agreement there. If I could explore further how trade organisations might act as a complainant to a new Adjudicator, would you for example see it as being one of your members comes to you or the NFU, and then either yourself or the NFU would then try to organise a more systematic investigation of, if you will pardon the pun, the field? Then it goes up to the new body and says, "We believe this is a systematic abuse going on," and presents that evidence on behalf of your members to the Adjudicator, for example. Would that be a workable system?
Richard Hirst: Yes. I just wonder how much cost we are suddenly lumbering the NFU with. To my mind, it would be a much better place to have that. I think we would be much more able to retain anonymity. There may be issues that are not creating a breakdown in the trading relationship between the supplier and the supermarket. It could be some trading issues that need investigating. I think someone at the start has to provide credible evidence, and it has to be down to the supplier to do that. Hopefully the NFU can then take it forward. I guess what you are suggesting is right, but we do not want to end up with layers and layers of RPAtype administration to use a hammer to crack a nut.
Q76 Thomas Docherty: Do you think that the lack of a contract makes it more difficult for growers to provide the evidence to the Adjudicator that would be sufficient to launch an investigation?
Richard Hirst: You do not start that trading relationship-if you know that that is how you are going to trade, then you accept it as part of the trading conditions. I do not think it would make any difference.
Q77 Thomas Docherty: Finally, do you believe that the draft Bill would be sufficient to dispel the "climate of fear" that was referred to by the Competition Commission?
David Piccaver: Not as it is currently written, no.
Richard Hirst: No.
Laurence Olins: I do not think it would be used.
David Piccaver: Coming back to the first point again, we have to come back to the point that, in the horticultural industry, once you name the product concerned, the identity of the individuals concerned is probably down to four or five. You are then getting into very difficult water. Again, we come back to the same point.
Q78 Neil Parish: They cannot remain anonymous then.
David Piccaver: No, it is very difficult.
Q79 Thomas Docherty: You were saying that, for example strawberries, there are only four suppliers for that.
Laurence Olins: 90% of the market is supplied by four companies who are trading 12 months of the year. We are also within our minds thinking about UK produce, but we are talking worldwide, global sourcing. This Bill covers global sourcing. Actually there is an irony here, because some of the larger supermarkets are increasingly going for global sourcing, so they are opening up contacts with growers worldwide on a direct basis. I suspect, if you go to Chile, Spain or anywhere and say to them, "What does GSCOP mean to you?" they would just look at you. If they could speak English, they still would not understand it. I have that blank look when I talk to English growers, so what would you get from an overseas grower? They would not have a clue, but the Bill is supposed to cover them as well. It is not going to, clearly, because no Chilean grower is going to suddenly say, "I am going to contact the Adjudicator." They would not know it is there.
Q80 Thomas Docherty: Do you think, finally, that the National Farmers’ Union should be therefore a statutory consultee?
Chair: There would be an obligation for them to be consulted on the Code.
Richard Hirst: I think absolutely.
Laurence Olins: To answer your question, Mr Docherty, initially, If British Summer Fruits heard or were approached by a grower saying, "I’ve been badly dealt with by a supermarket," we would immediately say, "It is outside of our remit; you have to go to your union"-basically the National Farmers’ Union-"to deal with it, because it is not something we as an association would deal with."
Q81 Chair: I think one of you talked about lumbering the NFU with additional costs. If we had the investigation coming from the Adjudicator, that would not apply.
Richard Hirst: I do not think it would, no. The problem the NFU has always had with gaining evidence is this whole issue that Mr Piccaver has already stated-that most of the supply chains are quite short with very few growers involved, so it is quite easy to identify them. There are some generic issues that could be looked at, which do not focus, say, on the lettuce grower, asparagus grower or strawberry-it is about the packaging they are using for those products, for instance. There are places that they could start with anyway.
Q82 Chair: Is there any evidence that suppliers would be likely to make vexatious complaints, in view of what you have already told us?
Richard Hirst: I guess it is likely to happen, is it not?
David Piccaver: It is always possible, Madam Chairman. That is the world, it is not?
Richard Hirst: I suspect that costs might come back to the complainant if the complaint is not upheld. In a way, that puts people off complaining, because one does not understand what the costs would be. If it is a judicial review of whatever, you get into hundreds of thousands of pounds, which would probably put small growers off actually wanting to take those complaints forward. If there was a way of limiting the liability for growers, it might make complainants come forward, particularly those who have lost contracts. We cannot have it both ways; we cannot have a system for complaint and not expect people to complain.
David Piccaver: I would have thought the Adjudicator would have a pretty fair opportunity to actually identify when there was a vexatious complaint. It would become fairly apparent, I would have thought.
Laurence Olins: I cannot see that happening.
Q83 George Eustice: I wanted to just try to get to the bottom, because there is a big difference in emphasis between the evidence you have given, which is that actually the supermarkets have improved dramatically and everything is not so bad, and what anecdotally you would hear from smaller farmers who were supplying into the chain, and also indeed the evidence that we have just had from the NFU. Is there a problem here that small farmers basically are sometimes treated badly by the middlemen that they are dealing with, who are supplying the supermarkets? They therefore blame the supermarkets when actually it is your members’ fault?
Richard Hirst: I do not know that there is a huge difference between what we have said and the NFU has said. We are talking about one particular sector, whereas the NFU is talking about the whole supply chain. It may well be that the relationships within the horticultural sector are better than they are in quite possibly the dairy or meat sector. There has always been a concern in my mind about the small suppliers and the relationship they sometimes have with the middleman, which may have that "contract" with the supermarket. That is where some of those issues could come in. In some of the supply chains, you have the marketing company, which has a cooperative of growers working with them. You probably do not have those issues, because the relationship would be such that the marketing company will be talking to their growers all the time about what is going on; they become more aware. Where you have independent growers supplying a packer, then yes, that could well be where some of the issues happen.
Q84 George Eustice: Could I just ask how it works then? In terms of your members who have a direct trading relationship with the supermarkets, but may take, for instance, some supply from a dozen or more smaller farmers, typically do they just pay them a rate or is it a commissionbased thing? For instance, I know Kentish Garden used to run a very strict commissiontype process.
Laurence Olins: They are all on commission.
Q85 George Eustice: Farmers always got a marketing fee that was fixed. Is it the case now that some just pay them what they think they can get away with or do most of the four you have mentioned-
Laurence Olins: All four of them work on a consignment basis. To answer your other question, there is very little movement between marketing companies-with growers moving from one marketing company to another. You could say that is because they are all satisfied or you could say it is to do with the distortion of producer organisations. Being a member of a producer organisation that then appoints a marketing agent makes it very difficult for growers to move from one marketing agent to another, because they are locked in because of their producer organisations. That is a complete distortion anyway; it is another subject. We have members that are small independent suppliers supplying direct to supermarkets. Knowing I was coming here, I sent them an email last week saying, "I am here. Are you aware of GSCOP? Are you aware of the Adjudicator? Is there anything you want me to raise on your behalf anonymously?" I did not get one reply, so I can only assume they are happy.
George Eustice: Or June is a very busy time, if you are a strawberry grower.
Laurence Olins: An email is an email.
Q86 George Eustice: Just on your contract, I think you mentioned earlier in terms of the contract that your members have, you do not really have a contract.
Laurence Olins: There is no contract, no.
Q87 George Eustice: What is the basis on which you uphold to determine it? Is it literally just price and supply for every given consignment?
Laurence Olins: The relationship between the marketing company and the supermarket is based on seasonal programmes and longterm business plans, in essence. The relationship between growers and marketeer could be contractual over a threeyear period. Growers are locked into marketing companies.
Q88 George Eustice: In the relationship with the supplier, they have a programme but, within that, the only contract is the supply of a given batch of fruit at a given price.
Laurence Olins: Before a season, three or four months before, say, the UK season, the marketing companies sit down with the supermarkets, in February, and work out volumes on a weekly basis, going right the way through the season. They will also decide when the promotions should appear, which week it appears, because you know what the growing pattern is. You can move that forward or backward, depending on how the season is going.
Q89 George Eustice: That is a plan, rather than a binding contract.
Laurence Olins: Absolutely it is a plan. We call it a programme but it is a plan, and both sides try and stick to that plan.
David Piccaver: The other aspect of that is of course that the grower will be obliged to do certain things to become a supplier, in terms of how he does his work, certain standards, protocols and things that he will need to adhere to, to be able to supply certain retailers. That is part again of that process and that can be quite an involved process once you are in it. Once you are in there, it is certainly part of that deal.
Q90 George Eustice: The only thing contractually in law you could hold them to though is that you have supplied them with a given product on a given date.
David Piccaver: And to the right standard. That is just as important. We always say you are only as good as the last load that went out the gate.
Laurence Olins: There is no recourse to law. I know of no experience, in 40 years in the industry, of a supplier going to law against a supermarket.
Q91 Neil Parish: Can I ask you two very direct questions, quite broad ones? Do you actually see the Grocery Adjudicator as a step forward or a step backward? The second is: if you think it is a step forward, what would you like it to incorporate that is not in there already?
Laurence Olins: Potentially, it could be a step forward, more as a deterrent than anything else for the one of the eight or nine supermarkets behaving against the Code. In that respect, it is a step forward. I would say, in practical terms, if an Adjudicator is going to have any cases referred to him or be proactive, it is on the generic side of a problem that affects most crops and most suppliers. He would be unemployed from our industry’s point of view. If he is going to wait for complaints from the soft fruit industry, he probably would have a long time waiting.
Q92 Neil Parish: You hope he will be a deterrent, in a way, to stop the worst practices.
Laurence Olins: Yes, I think so, just by his existence.
Richard Hirst: I would agree with Laurence. There has definitely been an improvement in those relationships since GSCOP has come in, and the threat of the Adjudicator, I guess, is helping that whole process happen. He has to have the ability to investigate without referral, which comes back to this issue of, if there is a complaint, where it comes from. I think it is more likely to come from trade associations than it is from individual growers.
Chair: Or investigations practically.
Richard Hirst: Yes.
David Piccaver: I think that is absolutely right. I would concur with what has already been said. I do not need to be repeating it.
Q93 Amber Rudd: Do you think that the establishment of an Adjudicator would affect the relationships-the way suppliers and customers relate to each other through the supply chain, or the way growers and processors deal with one another?
Richard Hirst: I think those relationships have improved. Certainly from a grower’s point of view, going to war with your customer is not the way to develop business. There are opportunities to grow businesses. It will just keep everybody focused. Certainly, unless there is an Adjudicator, in some ways GSCOP will lose its teeth.
Q94 Amber Rudd: It is helpful to hear that you think those relationships have improved, because in the draft Bill there were several references to the "climate of fear". Do you think that has dissipated to some degree?
Laurence Olins: There is no climate of fear in the soft fruit industry.
Richard Hirst: David has already said it: you are only as good as the last load that you delivered so, from that point of view, there is a climate of fear, but it is about getting it right and it is what the customer requires. I think "climate of fear" is probably a slightly strong term but, without the threat of the Adjudicator, GSCOP will lose its teeth.
Q95 Chair: Can I return to the question of overseas growers? Do they know about the Code of Practice? Are they aware of the Code of Practice? Does it apply to overseas growers?
Laurence Olins: The Bill applies to overseas growers. The Code, I assume does, and I would say the answer is no.
Q96 Chair: Would you be disadvantaged, if the Code of Practice does not apply to them, so supermarkets could actually bypass you and take soft fruit and other products from third countries?
Laurence Olins: If there is a Code of Practice, it should apply-it must apply-to all suppliers to a supermarket. It does not matter from where it comes.
Q97 Chair: Again, it could be an amendment to the Bill.
Laurence Olins: I may have misread it. I thought it was already covered in the Bill. Is it not?
Q98 Chair: Is that your understanding?
Laurence Olins: That is my understanding, yes: that the Code and the Adjudicator covers supply from all sources. If it does not, it should, because in fruit we only supply 10% of the market. 90% of the fruit consumed in the UK is imported, so a UK grower would be disadvantaged I would have thought.
Q99 Chair: Thank you very much indeed.
Richard Hirst: Madam Chairman, before you finish, you asked Mr Kendall about the E. coli outbreak.
Q100 Chair: I was going to ask about E. coli, if you would like to comment, and also about the drought. I am so sorry.
Richard Hirst: The drought is having an impact. The biggest concern for a lot of our members is we have water and irrigation licences, which are set in place. We have had ours since 1961 and we have never used the full quantity of water. I think we will this year at home. The public water supply has some massive licences, but they do not normally get to use anything like the full amount. The water is available; it is just a question of how it can be more equitably distributed in a year like this, because I suspect the water companies will not extract anything like the amount of water they have licences for, whereas growers will be restricted, and that would have an impact on crop. It is not only about yield; it is about quality as well, because that is a requirement of our customer. We are farming right on the east coast in Great Yarmouth. I think the rest of the country has had rain; we still have not had much, and it is becoming quite serious for a lot of my neighbours now. We will run out of water and not have the yields we expect to have.
Laurence Olins: The soft fruit industry grows 100% under cover, so we are not dependent on rain from day to day. We are dependent on winter rain to fill up reservoirs, which growers depend on-their own reservoirs. At the moment, the reservoirs are plentiful and we are not short of water and will not be this season.
David Piccaver: The growers in our association are not going to grow lettuce unless they have water available. It goes with the territory, as one might say. Having said that, in most cases this season people started irrigating sooner than they have done before. Therefore, if we do not get any quantity of rain, there is a fair chance that things could go fairly tight when we get into August and September. That is when there could be a little bit of an issue, but the good Lord has given us a little bit of rain in just the last 10 days or so, which has eased things. Even if you do not have to irrigate for a week, it helps to just take the job out. We have been managing water quite tightly for at least six weeks now, having seen the way the weather pattern is going. From a management point of view, we have already been trying to stretch the thing out and equally look at alternative strategies, in terms of trying to make sure that we are not in a position where we cannot supply.
Q101 Chair: You wanted to say on E. coli?
Richard Hirst: As a grower of fresh produce, we have extremely strict protocols as to where we can and cannot use animal manures. We are actually banned from using human manures. You cannot apply raw sewage to farmland; you have not been able to for years in the UK. Treated sewage is available. There is a real dilemma coming, because some of the talk about green CAP and things will encourage us to increase organic matters in soils. You can only do that by applying manures, in most cases, or composts. On the one hand, we are being told we have to increase organic manures by using whatever type of organic material it is; on the other hand, there is a concern about E. coli. There is a real debate to be had on whether we have to rely on inorganic, in other words artificial, fertiliser, manufactured fertiliser, or whether we can make use of proper treated sewage, which is a jolly good fertiliser-it does condition the soil very well-but in a way that cannot affect the crops that you are doing. We do that quite well at the moment. I would be amazed if anybody in the UK is feeding their vegetable crops with raw sewage-absolutely staggered. They should not be doing it, because the growing protocols say you should not do it.
Laurence Olins: The problem, Richard, is that it is not just the UK. It was cucumbers. It could have easily been Spanish blueberries or strawberries, and we would be sitting here talking about the destruction of the English strawberry business. I am very fearful of the controls not on conventional farming, but on organic farming, frankly. I do not think the controls are there, and that is where the weakness is. At the end of the day, our industry, which is nearly a billion pounds’ worth of sales, is only as good as the weakest grower in the weakest country, and we are dependent on that. That is the chain. It is frightening.
David Piccaver: The situation we have had exemplifies that situation very clearly. From the UK point of view, we do operate to very high standards. Within our association, it is all readytoeat product, <?oasys [cn ?>so micro issues are absolutely top of the tree in terms of any management agenda. My biggest concern out of this last episode is that I think it is very important that the Food Standards Agency really looks at how they are going to manage these sorts of situations in the future. Before anybody utters a word as to what the source is or whatever, they are very confident about what they are actually saying. The downside of that, which we have seen, and the implication of that have been absolutely disastrous. It need not have occurred. Somebody was in a hurry to get something out on paper or they were put under pressure. I think, Madam Chairman, that is absolutely critical with an issue like this. It has cost a fortune and caused a chaos. In my book, it was unnecessary. That is not saying that we do not care about food safety or anything else. We do. We care very much about it. It is very important that consumers are confident about what we do-paramount-but on this aspect we need to be satisfied.
Q102 Chair: I forgot to ask: the Adjudicator’s powers include being able to require publication of information, make recommendations and, as we heard from the NFU, impose fines. Do you believe that these are appropriate forms of redress?
David Piccaver: Yes I do, if it is going to have teeth.
Richard Hirst: Yes.
Laurence Olins: Yes.
Chair: Thank you so much for your time.