Draft Groceries Code Adjudicator Bill

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE    To be published as HC 1224-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

 

Business, innovation, and skills Committee

Draft groceries code adjudicator bill

Tuesday 28 June 2011

terry jones, peter kendall and stewart houston

shane brennan, kenneth parsons and susan dole

Evidence heard in  Public Questions  167 - 271

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Oral Evidence

Taken before the  Business, Innovation, and Skills Committee

on  Tuesday 28 June 2011

Members present:

 Mr Adrian Bailey (Chair)

Mr Brian Binley

Dan Jarvis

Simon Kirby

Mr David Ward

Nadhim Zahawi

 ________________

 Examination of Witnesses

Witnesses: Terry Jones, Director of Communications, Food and Drink Federation, Peter Kendall, President, National Farmers Union, and Stewart Houston, Chair, National Pig Association, gave evidence.

Q167 Chair: Good morning gentlemen. Can I thank you for agreeing to come and be our witnesses today? Just a couple of words that will hopefully be helpful. We have a lot of questions. I will try to keep the questions brief and pointed; if you can keep your answers likewise, that will be helpful. Do not feel obliged, if one person has answered a question, to add to it, unless you have something with which you either wish to contradict the previous speaker or something definitely different that you can add, as we can take an awful lot of time replicating advice. With that, I will just invite you to give your names and titles for voice transcription purposes. I will start with Terry Jones.

Terry Jones: Thank you Chairman, my name is Terry Jones and I am the Director of Communications at the Food and Drink Federation.

Peter Kendall: Peter Kendall, President of the National Farmers Union.

Stewart Houston: Stewart Houston, Chairman of the National Pig Association.

Q168 Chair: Thank you, I must say this is a role reversal for me interviewing the NFU representative; on many occasions when I have contested rural seats as a parliamentary candidate I have been on the receiving end of NFU questions. The large retailers say they are complying well with GSCOP and that it has improved relations with suppliers. Do you agree?

Peter Kendall: To a small degree, we have seen new ways of working developing, but too many examples of bad practice are still being reported to us, where suppliers are not prepared to go public about the complaints or the practices they are experiencing.

Q169 Chair: Is that the view of others?

Terry Jones: I think we may have seen small, incremental improvements, but the most up-to-date work that we have got, which surveyed food and drink manufacturers, suggests that it is perhaps not the case. FoodDrinkEurope, formally CIAA, asked businesses from across Europe whether they had been confronted by the following situations. These are the figures from the UK dataset. Non-respect of contractual terms by some customers: 77% said that that had happened once or several times during 2009; delisting threats to obtain unjustified advantages: 75% said that that had happened, again in the same period; unilateral deductions to invoices without sound business reasons: 60% said that had happened. The anecdotal evidence that we have, from talking to particularly our SME members, suggests that that continues to be the case.

Q170 Chair: That is helpful and the statistics particularly so; from the NFU perspective, have you got any statistics that you can give us?

Peter Kendall: Certainly not as surveyed as that; no, I cannot add to that. I think it is a very powerful message about what is going on in the supply chain.

Q171 Mr Binley: Are you talking about indirect suppliers to suppliers, or are you talking about suppliers to retailers? If you are talking about the former, how much of this was about the behaviour of direct suppliers? Do you have any figures for that?

Terry Jones: These are businesses that supply retail businesses directly. They are sizeable food and drink manufacturers.

Q172 Mr Binley: Nestlé, people like that as well?

Terry Jones: This is an anonymous survey; to give you a reflection of our membership, 68% are SMEs and it would be likely that that figure is replicated in this survey or is possibly even higher.

Stewart Houston: Chairman, it is worth making the point, though, that while that is evidence about direct supply, we have no doubt in the pig industry that anything that affected the direct supplier would end up down the chain at the door of the producer.

Q173 Chair: Thank you. A question to the NFU: in your evidence to the EFRA Committee you gave a particular example. You seem to have particular problems with packaging and haulage costs. I had a slight difficulty in following the evidence that you gave to the EFRA Committee, so can you elaborate on exactly what these problems are?

Peter Kendall: There were just examples really of the survey that Terry Jones has given to you. On packaging, for example, I have had several emails over the last few months in which a given retailer will insist that the packaging, plastics and labels all come from a certain supplier. We know that retailers put the costs up by 16%, but the supplier of plastics and labels has put his costs up by 6% to everyone who is not on those aligned contracts to the retailers. The retailer is taking a 10% cut out of the supplying of plastics and labels. It is actually outlawed by the GSCOP; you should not be making people have those sorts of relationships, but they are very apparently still going on.

Q174 Chair: Can you give any hard evidence on that?

Peter Kendall: The problem is that one of the reasons we talk about anonymity and how you have to have reasonable evidence to have an inquiry for an adjudicator is that the industry has become incredibly consolidated through the relationships that exist. In the future, with an adjudicator with grounds to investigate under reasonable circumstances, we as an organisation could say, "We believe there is some bad practice going on in procurement of labelling in this area. Please go and have a look." That way, it is not quite the same as saying a raspberry grower in Biggleswade-that is where I come from and no one grows raspberries there, so I can quite comfortably say that-has a problem about the packaging, for example.

Terry Jones: There is also this problem with what I think I heard you describe as "a climate of fear" in the last session; we have been able, again, to quantify that. The survey that I mentioned earlier showed that, of the businesses interviewed, only 3% had ever done anything other than discuss the situation with their customer. When asked why, 52% did not believe in the effectiveness of the remedies by public or legal authorities. We are talking here, in many ways I suppose, about the old code; FMCG suppliers had no faith in the 2001 code. Probably the most staggering figure is that 44% were afraid of commercial sanctions. That in part supports the President of the NFU’s point, but also serves to underline how difficult it is to get hard data on this because we have proactively to go and ask our members about these instances. We do not really get complaints to us, unless they are very, very serious.

Chair: I should perhaps clarify the expression "a climate of fear". It was actually in the impact assessment of the Bill.

Q175 Mr Binley: Can I ask you a general question first to help me, because I am rather confused about what the Government wants? On the one hand, it says that it wants to reduce regulation and overbearing bodies that impact on SMEs; SMEs all tell me that they want less regulation because regulation costs an enormous amount of money. Yet we have a scheme here, which seems to me to be, when you read the detail, highly bureaucratic. I am confused because Ed Davey, in something produced on 21 June on consumer empowerment and protection, said, "The Government supports flexible, non-regulatory approaches to ensuring consumers are empowered and protected. Good businesses have long developed voluntary codes of practice which go beyond the law." I find that there is a dichotomy there, a bit of a problem, as to what the Government actually wants. Can you tell me where you would stand, bearing in mind that again and again many of you appealed for less regulation?

Peter Kendall: As a famer, I dislike regulation. Certainly, at the NFU we have been working with the Macdonald taskforce, with DEFRA, on a whole review of regulation in agriculture. We are very committed to that. However, we at the National Farmers Union have been pushing for 10 years to try and solve some of the problems in the supply chain. We promoted, for a very long time, a voluntary code that just went nowhere. Sometimes when you work with your partners in the industry to try to find a voluntary code and a voluntary solution, at the end of the day, you are banging your heads against a brick wall. What we have tried to do here is to work on a scheme that is not overbureaucratic, not too expensive and can be fleet of foot and effective. However, a code of practice brought in during February 2010, but with no policeman, so to speak, is failing, as you have seen from Terry Jones’s evidence.

Q176 Mr Binley: Is that a general view?

Stewart Houston: Yes, it is. In the pig industry, the number of individual suppliers to the larger retailers is quite small, and there just is nowhere to go as a recourse in a difficulty between the two parties.

Q177 Mr Binley: I go back to pricing, because my NFU people, who are really quite robust in approaching politicians-they are mates as well, they get me in the pub on Friday nights-tell me that their concern is about prices being forced down first and foremost, but this does not answer that question, does it? Prices are outside the remit of this.

Terry Jones: I would not wish to speak on behalf of the NFU, despite the fact that I have worked for them for nine years previously, but I think price is a symptom of the unfair treatment that we see. This is how it manifests itself in the supply chain: the abuse of market power manifests itself very often in lower prices. That then inhibits the ability of suppliers to innovate and invest and that is where the adverse effect on competition arises, which is mentioned in the report and, as we know, has an impact on consumer welfare. I would not want to lose sight of the point, particularly, that this is a measure to protect consumers, and, to reflect on your previous question, we have had, now, two inquiries, one failed attempt at a voluntary agreement, and these remedies as constructed by the CC are twintrack remedies and are there to protect consumer welfare.

Q178 Chair: May I ask the NPA representative a question? Your evidence seems to imply that it is through failures of GSCOP that, in effect, the pig producers are losing money on pig production. What changes would arise from the appointment of an adjudicator that might actually change that? Picking up Mr Binley’s point, this is not really about pricing.

Stewart Houston: It is not, but it is about dealing fairly and lawfully with the supply chain. If you take as an example what has happened to the pig industry since August last year, when there was a really dramatic increase in cost of production, one well outside their ability to tackle, retailers recognised that as a problem, but have not been able to find a way of doing anything about it until reasonably recently. Where the normal pig cycle used to go in waves of supply and demand, of high price and low price, and then you had input risks, here there is a bigger piece in the middle, which is the retailer just pressing down and creating pressure in the supply chain. From the consumer’s point of view, that means that when that pressure finally bursts, they end up paying more money than they would have done if it could have been tackled in a reasonable way earlier.

Q179 Chair: My concern is that GSCOP is a code of practice; what you are talking about is, effectively, responding to changes in market conditions, production costs and so on and so forth. I am not quite clear how having an adjudicator to ensure that a code of practice is adhered to will actually alter, if you like, the dynamics and outcome of that process. Why should it impact directly on prices, which are a response to market conditions?

Stewart Houston: To me, the bit in the code that really deals with it is "Dealing fairly and lawfully with their suppliers". That goes all the way down through the chain. I repeat that if the adjudicator cannot find a way of helping that to happen, the consumer is disadvantaged in terms of their choice of supply and the price they finally pay in the store.

Q180 Chair: I am sorry to labour this point, but if there is a contract between suppliers and the retailer, and then market conditions change so that the contract becomes uneconomic, I still do not see how the adjudicator can actually intervene in what is a perfectly normal contract and one the retailer is perfectly entitled to expect the suppliers adhere to.

Peter Kendall : We certainly do not believe in the adjudicator or GSCOP distorting or changing market dynamics. If, because of the good Lord and the weather we are having, there are big crops and an oversupply, we expect market forces to send messages to us as farmers to take our foot off the accelerator and produce less. We accept that. Actually, in Stewart Houston’s sector, there are some good examples of some feed ratchets where they are linked in-contracts where you do get farmers closely aligned to the cost of feed-but too often there are retrospective changes to terms and conditions, and prices are then forced on to farmers and producers that they cannot stand. If it goes through to a processor, they invariably have to pass that straight back down to the primary producer as well. We are not looking to fix prices in any way. We are looking to make sure the environment, the conditions of trade, are fair and reasonable.

Q181 Chair: In effect, you are saying that the retailer has changed the terms and conditions and then imposed them on the suppliers. Can you provide the Committee with hard evidence of that?

Peter Kendall: We have plenty of anecdotal evidence of change of terms, of retrospective rebates being demanded. As I say, this is a very integrated industry, where you will find that terms of trade have been changed.

Q182 Chair: Anecdotal evidence may or may not be better than nothing, but some hard evidence would be welcome if you can provide the Committee with it.

Stewart Houston: We would have difficulty in doing that, Chairman, because of the confidentiality and anonymity aspects. Particularly-and I am sure it is the same in a number of other sectors-where there are only two or three suppliers, it would be fairly obvious where the information came from.

Q183 Chair: Could you provide numbers of suppliers that complain of this particular of activity?

Stewart Houston: We would have to go away and see if we could come back to the Committee with an answer to that question in written form.

Chair: That would be helpful.

Terry Jones: Just on the numbers point of view, I think probably the best and most relevant piece of work to this Bill relates to the GfK work that was done on behalf of the Competition Commission in 2007. I have referred to the CIAA work as well. If I may pick up on the points that you were making to the NFU and the NPA, market power itself is not a problem. Market power enables retailers, on behalf of consumers, to drive low prices and to get good deals. We have got a phenomenally competitive and consumer focused grocery supply chain that delivers probably far more than many others across the globe. It is the abuse of market power that needs to be addressed. We can all think of examples, many of which we would love to share the specifics of with this Committee, but unfortunately the rules of the game mean that our members have said that they do not want those in the public domain. However, they have been shared with the CC. To give you an idea of the scale of the problem when it comes to gathering evidence-I am trying to think when it was, it was probably 2007 or 2008-the CC had effectively to subpoena suppliers through the use of Section 107 agreements to get this detail into the CC’s final report.

Chair: You will appreciate the difficulty Government has in implementing legislation based on evidence that people do not want to give us. Can I bring in Brian again? I am sorry to have interrupted, but I did feel this was a point that we needed to pursue.

Q184 Mr Binley: You talked about the work being done in 2007. As an aside, I do not understand how so much power can be applied within the remit of a contract, because it seems to me-and in my former life as a non-executive Chairman of a company supplying very big companies in a given sector I found it so-if there is a problem, I say "Okay, this is our agreement." Have you tried that and what was the response?

Terry Jones: Mr Binley, there was an absence of contract in this market until the advent of the GSCOP. There were at best framework agreements. I will come back to my original point; this is a twin remedy design. The GSCOP only takes us so far. It is the rule book, but we now need the referee to-I hesitate to use the word "proactively"-reactively, with good information, respond to suppliers’ concerns.

Q185 Mr Binley: Let me move on to that point because that suggests that there has been a degree of movement forwards, which is important with regard to the application of GSCOP. Can I then ask you, if it is not too soon, remembering that the Competition Commission’s work, which you based some of your stuff on, was taken in 2007: GSCOP has only been in being for a year; there are hints that improvements have been made, particularly in the areas of contracting to limit abuse; is it right to go ahead quite so early when this thing is an evolving process that is improving?

Terry Jones: I would argue that it is actually too late.

Mr Binley: It cannot be too late; that is nonsense.

Terry Jones: No, on two occasions we have seen retailers found guilty of these transgressions. The AEC in relation to consumers has persisted for at least 11 or 12 years and that is what needs to be remedied. When the independent competition authority of the UK Government says, "We believe that these are the two twin track remedies," then I think that the Government has got a duty to implement those remedies. Indeed, if you look at the Act that puts in place the CC’s powers in this regard-the Enterprise Act 2002-if we do not do it as the CC envisaged, then, arguably, we undermine the authority of this House, as well.

Q186 Mr Binley: But the size of the adjudicator suggests that it is the adjudicator’s existence that will change the situation and not the number of cases brought before it. If it is the number of cases brought before it, then this is the thin end of the wedge, just as the first attempts of health and safety at work were the thin end of the wedge, and we will then find ourselves lumbered, crawled all over. Isn’t that a concern?

Terry Jones: I am sure the President of the NFU wants to pick this up as well. I would argue that the presence of the adjudicator would reduce the number of complaints because at the moment, we have a rule book and there is a silent majority of suppliers out there who are very reluctant to come forward and go to the OFT because, let’s face it, all the OFT can do is police the order; they cannot police the code. At the moment, there is no safe place for that group of suppliers to go.

Q187 Mr Binley: If I may ask, volume and price terms are overwhelmingly, in your sector, about main suppliers, and, indeed, very large, main suppliers. There was a conversation, at one time, about limiting this area of adjudicating activity to indirect suppliers because that is where the real problem lay. I personally do not think that companies like PepsiCo and Nestlé need an adjudicator. Would it be more sensible if we limited this whole thing in its initial stages to indirect suppliers, who seem to be those who are kicked about the most?

Terry Jones: I think I should leave the President of the NFU to comment directly on the direct suppliers. In relation to the large suppliers that you mentioned, it would be wrong of me to talk about individual companies. However, you need to look at the definitions of market power; those businesses, while big on a global stage, in relation to their retail customers wield much reduced market power. This is what we are talking about: market power and its abuse. If I can take issue with your other point, which is that the vast majority of these suppliers to multiple retailers are very big in nature, actually, that would be incorrect.

Q188 Mr Binley: In terms of volume, it is not incorrect actually. In terms of volume, it is absolutely correct.

Terry Jones: But in terms of numbers it is not correct.

Q189 Mr Binley: You mean numbers of businesses?

Terry Jones: Yes.

Q190 Mr Binley: That is a different matter and that impacts on the indirect suppliers primarily because that is where most of the SMEs exist in this chain.

Terry Jones: No, I am only talking about FDF membership: 68% of food manufacturers are SMEs and they have a direct trading relationship with retailers. I agree with you that it is those businesses that are probably asking for this protection.

Q191 Mr Binley: I think that is right, and I am back to my question: would it not be sensible, simply as a start of this process, to limit it to those smaller businesses? Because there is the middle man there, and in many cases, or at least in some cases, it has been suggested to me that the villain of the piece can be the middle man rather than the end-user retailer.

Terry Jones: Chairman, I feel I am hogging this. All I would say, just to conclude, is that it is not about the size of the business in its entirety; it is about the market power that that business wields. Very large businesses will have very small amounts of market power in the UK.

Q192 Mr Ward: This is about the dynamics of the market; I am just trying to understand it. Obviously, the large retailers have massive organisational power, but is there no concern that they could kill the golden goose? Presumably, they are hugely dependent upon regular and competent supplies. You said there are relatively few suppliers. Aren’t the big retailers worried that, if they are overweening in terms of their power, they will be affected?

Stewart Houston: No, because they balance their supply base in such a way that they can switch huge volumes of supply from one supplier to another almost overnight. I would like to come back to the Committee with some descriptions of what a contract is because I do not think that there are very many of what I would call a contract in the relationship between the pig industry and retail. There is an awful lot of tendering for supply on a three monthly basis. They use that to work between two suppliers.

Q193 Mr Ward: They play one off against another.

Stewart Houston: Yes, and then you have always got the third supplier who is dying for some business and who will come in with a silly price to get the business. The big problem with that is that it takes out huge amounts of efficiency because your business is not guaranteed for a lengthy period of time at all. When a supplier loses huge tonnage, he has got a lot of work to do in getting that tonnage back. That in itself is one of the reasons why we need someone bearing down on these retailers to keep some fairness in the market.

Q194 Mr Binley: One final question on this issue: what would be your view if a mini-review of underlying compliance was undertaken by the Competition Commission between now and the Bill coming into force? Would that help us or hinder us?

Peter Kendall: What I want is for the Bill to be amended to carry out the additional measures that we have talked about. Whatever else goes on in parallel, bluntly, more information is welcome. We have talked about ammunition, yet the Competition Commission has twice reported on the failings in this area. We know we have the GSCOP. I find it, bluntly, laughable how the big retailers talk about the cost and the bureaucracy of this. These are very, very sophisticated large businesses and to keep churning out that £120,000 a year of cost to them is a big deal, and that it is going to put prices up for consumers, I find laughable.

Q195 Mr Binley: Mr Kendall, I chair an organisation that has 1 million SMEs amongst its membership; they are consistently and totally complaining about regulation, red tape, and the burdens that creates for them. That is where I am coming from in that respect and I do not want that to happen to a greater extent in a business that is already so bundled up with red tape as to be quite frightening.

Peter Kendall: As I said, as an organisation, working closely with the organisations other side of me, we have tried repeatedly to get voluntary solutions. I, as a farmer, loathe red tape. I have been on the farm this morning preparing for a regulatory visit soon on the farm. I loathe it. Like car insurance, for the good of everybody, you have to occasionally regulate to make sure there is a base regulation in place. That is what we need here. Rather than just having a review, we need to strengthen the Bill as it stands, particularly in the two areas about being responsible for proper claims and the right retribution.

Q196 Mr Binley: Finally, in order for us to do that, hard evidence would be very helpful. Throughout this whole discussion, that has been the major point of difficulty, quite frankly.

Peter Kendall: Can I refer back to the two Competition Commission reports on this as hard evidence of failings and of ultimate damage to consumers if something is not done? The Competition Commission is best placed to report on the failings in the supply chain in this regard.

Q197 Nadhim Zahawi: Mr Jones, you referred to a number of statistics that would be very helpful to the Committee. Just so that I am clear before I get into my questions, the symptoms of price pressures are obviously not tackled by the adjudicator; that is a market issue. However, the reality on the ground, which you are reporting from your members, and, anecdotally, from members of both the NFU and the NPA, is that the retailers will vary contracts willingly without proper negotiations, or equal and fair negotiations, with the suppliers. Is that right? That is the issue here. We are not, for the Committee’s clarity, talking about you complaining about prices that retailers pay for your members’ produce; you are talking about the abuse of that contractual arrangement.

Peter Kendall: I will not use specific retailer examples, but the phone rings, it is coming to the end of one of the big retailers’ year, they had planned for a 4% increase in sales, and they had only managed 2.8%. My large supplier to the retailer has had a phone call saying, "We want a 1.2% top up to make up our turnover throughput we wanted to make. Actually, if you want to carry on supplying us next year or in a month’s time, we need to have that as a contribution to our overheads and commitments going forward." That business has investment in its infrastructure, its overheads, it is planning for the long term, improving its environmental footprint etc, and it has a large demand on it sometimes into seven figures.

Q198 Nadhim Zahawi: On the same theme of evidence, do you think that evidence from trade associations and other bodies should be allowed to found an investigation, provided, obviously, that it is credible?

Peter Kendall: Absolutely. One of the main points that we are pushing for in the changes that need to be made to the draft Bill is to make sure, because of the "climate of fear" that has already been referred to in this session and because of the structure of the industry and the close ties in certain sectors, that it has bodies such as the National Farmers Union, for example, and the FDF to say, "Actually we are concerned about what is happening around packaging in that particular area. Can you have a look?"

Terry Jones: I agree with that. In the drafting of the Bill there is an argument that says that merely scrapping the second clause under investigations would give the adjudicator that scope to find credible evidence. Even if that were not the case, we would like to see an insertion around credible evidence or credible information for a number of reasons really. As currently drafted we have really pinned down the sources of information. For example, if there were a whistleblower within a retailer, his evidence could not be used. Furthermore, certainly early in the life of the adjudicator, trade associations would fulfil an important role because, as the President of the NFU has pointed out, we as trade associations often pick up trends that, early in the life of the adjudicator, would be difficult for him to see himself. You see certain buyers in certain categories in certain retailers at certain times of the year doing things that run contrary to the GSCOP. They are very quick snapshots in time. I think the adjudicator needs every weapon at his disposal so that he is not proactive so much as reacting with good information and every bit of information at his disposal.

Stewart Houston: Chairman, I also think that working through a trade association can save an awful lot of cost to the adjudicator because the trade association will want to maintain its reputation, and therefore, picking up Terry’s comments on common themes, will bring forward a common theme that will save many people from coming forward with a problem. They will also be the first filter for any vexatious claims that might be made. So I think that they might actually be quite helpful.

Q199 Nadhim Zahawi: Just following on from that, do you think that trade associations understand enough about the relationship between direct suppliers and retailers? Is that taken as read?

Stewart Houston: Yes, of course.

Terry Jones: I think we have to because this has been a problem for so long. We have had to become experts and now every trade association has probably got somebody who understands those relationships and works very closely with the affected groups to understand that.

Q200 Nadhim Zahawi: But your raison d'être is something different i.e. it covers a much bigger scope. Is it enough, in terms of expertise, for you to be able to make that judgment?

Peter Kendall: My view about the NFU is that it is only an effective organisation if it is credible. Therefore we invest in the right staff, understanding and training to make sure that we can be. We have been around for 100 years. There is no point in the NFU becoming an organisation that just shouts from the sidelines, making noises that do not have any sense or reasoning behind them.

Q201 Nadhim Zahawi: It has been argued that trade associations can help preserve suppliers’ anonymity. Would it not be the responsibility of the adjudicator to preserve the suppliers’ anonymity? Why should it be trade associations that preserve anonymity?

Peter Kendall : Ideally, you would be working together to try to make sure that you identified an area of concern , and together you would try to make sure that that person’s business was not jeopardised because of it. We have examples. I have one in my file from last week of a supplier who made a lot of fuss over time and, as soon as they could, they delisted him.

Q202 Nadhim Zahawi: You could have a "double lock" in terms of anonymity, is that right?

Peter Kendall: I think we need to make sure that we work with the adjudicator to preserve anonymity wherever possible

Q203 Nadhim Zahawi: Mr Houston, is it the National Pig Association’s view that you would like GSCOP extended to cover contracts between primary producers and indirect suppliers such as processors? Do you believe that the Bill will achieve anything for you without such an extension of GSCOP?

Stewart Houston: Our ultimate aim is that there are full supply chains, individual supply chains, from the retailer, through processors, to producers. That is our long term aim. We think that the adjudicator can help that process by making it important for retail to build their relationships through the chain.

Q204 Nadhim Zahawi: Lastly, one of the objectives of GSCOP is to allow certainty for suppliers to invest. Do you think that the adjudicator will allow your members to improve investment and thereby potentially reduce prices further?

Peter Kendall: The whole benefit for us is to have the confidence and certainty of fair terms and trade. I am afraid the fens are littered with packhouses that have gone out of business that have made big investments in partnership, long term, with conditions of trade; a re-tendering occurs, such as Stewart has mentioned, and it just prevents what we need with climate change and global population change: very smart investment and long-term thinking. The shorttermism, the abusive power that is used at the moment, will damage consumers’ choice in the long run.

Terry Jones: This is a very relevant topic at the moment. The Grocer at the weekend reported on capex levels of leading FMCG suppliers and the total was £1.5 billion. That has dropped from £2.4 billion 10 years ago. Of course, we can argue about the reasons behind that; there will be a whole host of things. We know that manufacturing on the whole has declined in the UK. However, compare that with the largest retailer, Tesco, whose figure is £1.7 billion on its own.

Q205 Nadhim Zahawi: Sorry could you explain that last figure again?

Terry Jones: The capital expenditure-

Nadhim Zahawi: For Tesco alone.

Terry Jones : -for Tesco alone is £1.7 billion. The capex for FMCG in the Food section is £1.5 billion. My sector is spending less than Andrew Opie’s-whom you saw last week-leading member on investment. Innovation is the lifeblood of food manufacturing. We have a very discerning consumer whose tastes change daily. We need to keep up with that and innovation is absolutely what we are investing in. Indeed, we recently came to this House with the APPG to show how important it was. So our view would be that anything that can provide greater certainty-there are many things that, I know, this Committee has looked at beyond the scope of this inquiry-help to get that level of investment back up.

Chair: Just to clarify, one of the things that irritates me enormously is this presumption that manufacturing has declined. It has declined only relative to other sectors of the economy and in employment. It has actually expanded. We have to be very careful not to say things that imply a rundown of a key sector of our economy.

Q206 Mr Binley: I refer to a report that was published last week-the very report you referred to. As I understand it, quarter 1 of this year showed a sizeable increase in new products, which suggests that, since GSCOP, there has been more investment in new products. I understand that over 40% of companies surveyed launched new products in that period.

The general view is that investment in new products in this area is increasing. You may make the point about 10 years ago, but we have had a pretty serious recession over the last two and a half years, which without a doubt has impacted on investment. Could it be argued that GSCOP has had an impact on investment that has been really very productive?

Terry Jones: I think it may well have had an impact, but I also think that food manufacturers as responsive businesses will have invested in innovation to try and find a way through the difficult economic circumstances. It is easy to sit back and say that people always need to eat, therefore food is somehow insulated from an economic downturn. That is very much not the case. We need continually to innovate to try and help consumers through a difficult time. I apologise to the Committee because the level of capex for the first time in those 10 years did go up from 2009 to 2010; it went up by 0.2 of a billion. But the overall trend, as I have said, is shown by the 38% decline from 2000 to 2010.

Q207 Mr Ward: I return to something we were talking about earlier: anonymity and the role that trade associations may play in helping to preserve it. Is this not, really, a fallacy? In reality, particularly if a single product line is being investigated, it is going to come out, is it not?

Peter Kendall: Maybe I could go first on this Chairman. Go back to my example: whether it is haulage, wrapping, labels, plastics and so on, we can point to that as a generic area for an inquiry. Of course, if somebody has had a large retrospective rebate, we might actually say, "Go and look at that retailer" and they go and look at what he has done about some of Terry Jones’s members, as well as vegetable producers, soft fruit producers and meat producers on a general scale, but we have got to highlight it. I think we could.

Q208 Mr Ward: It would be broadened out.

Peter Kendall: We would broaden out the area to do it. I am sure that then brings a concern about regulation, but, look, let’s be honest about this: it is not adding regulation to the farming industry or the SMEs to which Mr Jones refers; this adds a small amount of regulation to the big 10 retailers who have turnovers of over a billion pounds. These guys already have tremendous systems in place to monitor where the product is going, how it is being managed and looked after. Putting a few of these guiding rules in place and contributing to some of the costs of running the adjudicator is minute as regards the regulatory burden.

Q209 Mr Binley: Is it true, Mr Kendall, that once the bureaucrats get their hands on a new growth area, the thin end of the wedge works quite dramatically? That is my fear with regard to this. Do you at least share that fear, and do you argue that this really wants controlling? This is a special case that must be totally limited to this particular area of activity.

Peter Kendall : We have got it limited to the big 10 retailers to start with. Actually, I think that is a good starting point. Of course, I am a farmer as I said already; regulation is the bane of my life. You have to be careful. This is why we have tried the voluntary approach. But that has not worked; it has failed. Therefore we must be determined to take the right course of action. At the same time, we have to make sure that it does not balloon out of control.

Chair: I have to say that the huge majority of the complaints about regulation come from small businesses rather than the majors.

Q210 Mr Ward: Just moving on to something else that has been mentioned-credible evidence. Have you got any definitions that you might use?

Stewart Houston: Credible evidence would be something that could be supported by information. Going back to your first question, one of the things that we can do, as I think someone mentioned earlier, is react to themes. These happen at different times of the year with different retailers. These retailers watch each other like hawks and nothing happens in one retailer without it happening in another retailer as little as a week later. It is about collecting evidence that could be used to help the adjudicator make a decision that would help the consumer in the long run.

Q211 Mr Ward: Wouldn’t all evidence have to be credible?

Peter Kendall: I have talked about my organisation needing to be credible to continue to have influence in the area in which we operate, My view would be that an adjudicator would very quickly understand, if it was the NFU pointing its finger at a certain area of activity, whether it had a track record of being actually correct, and whether it had built up a track record of being credible or not.

Q212 Mr Ward: The credibility is, then, very much determined by the source?

Terry Jones: There is merit in either a list being specified in the Bill or one of the early duties of the adjudicator being to specify a list from which credible information can be obtained. Having said all that though, and having looked at the legislation, we are very interested in possibly scrapping the second clause under investigations anyway because that would give the adjudicator the discretion to set his own terms of reference around credible information.

Q213 Mr Ward: If the definition of credible evidence is not the source, but rather some other criteria, should it then be open to any source that can provide some credible evidence?

Terry Jones: I guess that emphasises my point about scrapping the second clause under investigations: that you would then be able to draw credible and useful evidence from wherever.

Q214 Mr Ward: Would that not then lead to a flood of claims?

Stewart Houston: As I said earlier, if the adjudicator is working through trade associations, they can amalgamate those large numbers of claims into one theme and therefore save time and cost, and eliminate vexation.

Q215 Mr Ward: Also, you mentioned "proactive investigation" earlier; would you care to comment on that at all?

Terry Jones: I have hesitated to use the term because it gives rise to a feeling that somehow this Bill could create a busybody and none of us would want that. The term that I have talked about is "informed reactivity". If we get this part of the Bill right, around where this person or this body can draw information, the way in which he reacts to that will give him an air of proactivity and make sure that he finds the difficult areas, but merely to talk about this being a proactive body would be a mistake.

Q216 Mr Ward: I suppose one way of looking at it is: some evidence appears from wherever, and to support that and make it look more credible the adjudicator then goes looking, or indeed, prompting potential suppliers to support the evidence that has been received.

Stewart Houston: If he were able to do that, that would have a reaction in itself in that, if the retailers know that someone can communicate, they will be a lot more careful than they currently are.

Q217 Simon Kirby: How effective might the cloak of invisibility be and how practical would it be for the adjudicator to recommend improvements without giving away individual suppliers’ identities?

Peter Kendall: It will depend on a track record, as it evolves. What we need, as Terry Jones has said, is the ability to be reactive to the finger pointing that we have talked about. We will have to learn about how best to do this and to build trust and work with the adjudicator to make sure that best practice operates. It is a bit like television technology at a test match now; I am hoping that the scrutiny will stop some of the dubious practices that have gone on in the past.

Terry Jones: The key to this is dealing in categories with retailers. By that I mean that you investigate by category to preserve that cloak of invisibility and you also recommend changes by category, because the number of suppliers contained within a category is so numerous that I think it would be very difficult to identify the individual or the group of complainants because they would sit within a much greater field of suppliers. Indeed, of the rules and the problems that many of us have encountered, the rules are set by category directors and the problems are very often categorywide rather than being limited to small groups of suppliers.

Stewart Houston: As a theory, I do not think that is always the case. In the pig industry, particularly, there are a smaller number of suppliers, so it would be difficult to do that. That is why I keeping coming back to this theme approach, which I think would help with anonymity.

Q218 Simon Kirby: My experience of life is that invariably the truth gets out. I am playing devil’s advocate here. Is it reasonable for a retailer to have to comply with regulations without knowing that context? Is that a reasonable thing to ask?

Peter Kendall: I think it is and where I am coming from is that actually we have got the rules in place with GSCOP. We are just looking now for someone to enforce them. If we get proper fines being administered as well, I hope that this is a very low cost, rarely used adjudicator. It is absolutely fair; now we have got the GSCOP laid down, we just need to make sure that people follow those rules. I do not think that it can be said to be unfair that people should then be expected to meet those regulations. As long as it is done through that effectively set up third party, I think that that is legitimate.

Stewart Houston: It is not in anyone’s interests anywhere in the chain to have a bad relationship; this would be an absolute last resort.

Q219 Simon Kirby: If I come back to the sectoral approach, does that enable precise enough compliance if it is blurred, if it is muddied, if the real complaint is masked?

Terry Jones: If you have investigated and then recommended on a category basis, you have, very often in the structure of our customers, a clear line of responsibility for an individual. Those categories are sufficiently large and in the case of pork, of course, it would be in a much bigger category of red meat or fresh. You could make the recommendations for that category as a whole, not reveal the identities of the complainant or the group of complainants, and have clear accountability for the recommendations that you have driven through.

Q220 Dan Jarvis: I would like to ask you about fines. How important do you think that fines are as a remedy for code breaches?

Peter Kendall: We think it is a very important part of the process. These are very, very large companies often having very dramatic impacts on relative small businesses and I do not believe that naming and shaming is a sufficient remedy. We want to make sure that we have fines that are a very clear deterrent to bad practice. It is as simple as that.

Terry Jones: Just to add to that, our concern around naming and shaming as a mechanism to drive changes in behaviour would be that the media could well develop code or adjudicator fatigue. Indeed, we rely on the media in this regard to promulgate this message where there have been code transgressions. If we were in a position where they were no longer interested in the story, we would lose the lever that we require to change behaviours.

Peter Kendall: I could give you an example in an agricultural context: I have even heard of an agriculture magazine not running stories about the problems of a certain range of tractors because they were big advertisers with them. So, I think we need to find a way of making sure that there are very clear penalties for what is going on.

Q221 Dan Jarvis: Following on from that, do you think that the threat of the eventual introduction of fines could be as effective as actually having the fine?

Stewart Houston: Probably, in front of that, the very presence of an adjudicator would have a beneficial effect and of course the threat of a fine would have an effect. There is one particular retailer we talk to regularly who constantly goes back to referring to fines that were imposed three years ago, I think it was, to do with milk.

Q222 Mr Binley: I just want one more question to try and to get into my mind what is a relatively complicated market. I want to ask whether we shouldn’t be extending the role of adjudicator. I am not advocating it, but I am wondering whether you think it should be extended to the direct suppliers, the major manufacturers. For instance, you will know, I am sure, that last year Birds Eye cancelled a contract with the UK Beef Farmers at very short notice indeed, creating very serious problems. I pose the question because I think the complication of this marketplace is not quite as simple as indirect suppliers and retailers; there is a problem with the middle man, as it were, the direct supplier. Do you think that it would be a good idea to extend the adjudicator’s powers to cover that sort of a problem?

Terry Jones: If I may open the batting, the adjudicator should match the remit of the new GSCOP and the original findings of the CC. They relate to the relationship between retailers and their direct suppliers. Now, the final report of 2008 makes it clear that, should the adverse effect on competition persist-and by that I mean that the intermediaries continue to pass excessive risk and unexpected cost, as you have just described there Mr Binley, on to the producers-then the Department for Business, Innovation and Skills and DEFRA have within that investigation and its final report a duty to remedy that AEC should it persist, and they should consider what remedy should be put in place. It seems to me that the remedies must be put in place as conceived by the CC, which are: we have got the code, an adjudicator to police the code, and we need to see how that works. Only if the AEC persists should we look to extend it.

Peter Kendall: I have some farmers who want it to go wider, but we take that exact view. We want to see how that works first and see the impacts, partly because of the regulatory creep we talked about earlier.

Mr Binley: That is my concern, yes.

Stewart Houston: In the pig industry, the main producers have a year-long contract with processors, with a six-month cancel clause on either side. So their relationship is covered by a contract.

Q223 Chair: Thank you, I think that concludes our questions. Thank you for a fairly robust and informative session.

Examination of Witnesses

Witnesses: Shane Brennan, Public Affairs Director, Association of Convenience Stores, Kenneth Parsons, Chief Executive, Rural Shops Alliance, and Susan Dole, Head of Corporate Finance, Waitrose Limited, gave evidence.

Q224 Chair : Good morning. Thanks very much for agreeing to speak to us this morning. If you were not present when the previous panel opened, I will just repeat my advice: we will try to keep our questions brief; it does not always work. We would be very grateful if you could keep your answers brief. There is absolutely no need for everybody to repeat a point made by a previous witness. Obviously, if there is something you wish to contradict or add to, your comments are very welcome. Just to check voice transcription, could you just introduce yourselves with your title?

Shane Brennan: Hello, Mr Chairman. I am Shane Brennan; I am Public Affairs Director of the Association of Convenience Stores.

Kenneth Parsons: Morning. I am Kenneth Parsons, Chief Executive of the Rural Shops Alliance.

Susan Dole: Good morning. I am Susan Dole. I’m Head of Corporate Finance at Waitrose, and I’m also the Code and Compliance Officer for GSCOP at Waitrose.

Q225 Mr Binley: What are your impressions are of how GSCOP is working so far?

Kenneth Parsons: It is very difficult for us to judge. Having said that, if you look at the number of complaints that have been raised it is minimal. I would also go a stage further and say that I would have hoped that there would be some impact on the supermarkets if it had been working. That would have been reflected, for example, in their company reports, reports to shareholders and suchlike. We see no evidence at all of that actually happening.

Q226 Mr Binley: Is that your general view or does anybody want to add to that?

Susan Dole: Maybe from perhaps the only retailer that is covered by GSCOP here, Waitrose’s position is that we found that it has been quite effective and practical, in the sense that Waitrose was not covered by the previous Code of Practice, because it was not part of the big four. It is now covered by the existing GSCOP. Although it has been gratifying to us, because Waitrose has always had a code of practice about how one behaves very properly with suppliers and treats them with fairness, what it has introduced is a discipline in terms of training, a discipline in terms of maintaining and being able to retrieve information in case of complaint or investigation, which has been very useful. We have not seen any queries that have been escalated to the Code Compliance Officer that have been validated, so we think it has been a useful exercise in compliance. We are in the timetable whereby-because our year end is the end of January 2011-we will not report until May next year, but I think there are some compliance reports coming through from other operators that have earlier year ends. We are starting to see them coming through between late August and early spring next year.

Q227 Mr Binley: Can I just ask you a supplementary to my initial question? The evidence that we have been given is that one of the reasons for the adjudicator is that people are frightened, fearful of losing their business actually, and in fact their whole livelihood, because of the actions of large supermarkets. Consequently, without the adjudicator and just with the Code of Practice, that fear would still exist. Is that a fair summation?

Shane Brennan: I think that is the point. If we go back to something like the Supermarket Code of Practice and the OFT’s looking into that in 2005, predating the Competition Commission inquiry, they did a review that was broadly positive about compliance with the Supermarket Code of Practice at that time. The Competition Commission then investigated the market and found hundreds of breaches of what they felt were unfair practices. In a sense, it is about the investigation and the ability to get involved and probe to find whether there might be breaches. Without that, you just do not have confidence that it is working.

Q228 Mr Binley: From your own senior positions in big organisations, is it-as it was thought to be with the banks-pressures put on middle management that caused a lot of the problems? For instance, perhaps a guy ordering incorrectly, realising he has made a mistake and taking a very dodgy route out of it by refusing to accept supplies. Is that about pressure on middle management? Do you see that? Are you fearful of that?

Susan Dole: From Waitrose’s perspective, no.

Mr Binley: Waitrose is all right, but what about the rest of them?

Susan Dole: I cannot answer for our competitors.

Mr Binley: You know what is going on in your marketplace.

Susan Dole: From Waitrose’s perspective, we have been encouraged by the rigorous training and compliance requirements of the Code. It has given us greater confidence that our buyers are held to even greater account than they were previously, and that, if they commit a fault, that will be highlighted very publicly, because the suppliers know what the escalation practice is. On your question about anonymous and indirect suppliers, that route of complaint is not open until the adjudicator is established.

We believe that every supplier in the supply chain, whether it is a direct supplier, i.e. the one who Waitrose contracts with, where we have a contractual agreement to pay them, or whether it is a supplier of a ready meal-so it might be the prawn in the prawn curry, but the prawn curry supplier is not the prawn supplier-equally has a right to a voice in complaining about any inequalities or market practices in the supply chain. The only route that is proposed at the moment to be open to them is through the GCA, and we support that. Waitrose is totally dependent on its suppliers for the quality of the goods it provides. The suppliers are totally dependent on indirect suppliers to give them that quality. There needs to be a voice for every supplier on the supply chain.

Q229 Mr Binley: The general impression that that gives me is that you are perfectly happy that your middle managers are not under too great a pressure to go into those unacceptable practices. Is that right across the piece?

Susan Dole: Yes.

Shane Brennan: It is a different way of looking at it. The problem is that you do what you can get away with, when you have power in the negotiation. We have a highly concentrated grocery market. The practice over time we have seen is a spiralling of negotiations; they get tougher and tougher every year. Sometimes those practices veer into things that the Competition Commission has found to be unreasonable, and therefore you need a rule book. The GSCOP is a rule book. What do you need then? You need a referee. That is our view.

Kenneth Parsons: You are right in saying that middle managers are under a lot of pressure in these companies. They have profit targets; they have turnover targets. By gosh, they will push the boundaries to achieve those targets. Their career depends on it. Equally, they tend to move jobs very quickly and have a limited amount of time to make their mark on a particular section before they are moved on.

Q230 Mr Binley: You are suggesting that there could be a problem in this area. I want to go on from this, because I just wonder how that fits in with most large retailers taking the view that it is too early to introduce an adjudicator. I am getting some vibes that you might be arguing that perhaps it might be a better thing than has been suggested by the large retailers collectively.

Kenneth Parsons: I have to say I would take a very robust view on that. This whole issue has been around for 20 years or something like that. It is about time we actually got some firm action. The big retailers, when they want to, can move very, very quickly. I used to work for a big multiple and literally, if our managing director went out into the stores on a Saturday, there would be changes in all the stores by the following Friday if he asked for it. That is the pace at which retail can move. For them to suggest that we are moving too quickly is pretty rich.

Susan Dole: Waitrose’s perspective is that it is a very different organisation. It is a partnership; it is owned by its employees and it has a written constitution, way before not only GSCOP but before SCOP in 2000, part of the supermarket report. It goes back 100 years. The overarching principles are that one behaves fairly, honestly, promptly and courteously with suppliers. As I said previously, one of the really reassuring points about introducing GSCOP, because Waitrose was not party to the previous COP, was that the behavioural changes that we needed to make were very, very few and far between. The whole ethos of the way that we train our buyers, the ethos of the way that the partnership works with huge respect for suppliers and the supply chain-whether they are direct suppliers or indirect suppliers-is very, very strong.

Q231 Mr Binley: I have been a managing director, now a nonexec chairman, of a company, and I understand all of those good things that very senior management always say, almost as a part of the vision statement. At the same time, the financial director, in order to be able to do his job, is giving a different message, which has an impact upon middle management. Will the concept of an adjudicator help in that respect? Forgive me, Ms Dole, but that happens in every business I have been in: the board says one thing, but there is another message that is being operated by middle management.

Susan Dole: I have operated in different organisations, not just the Partnership, and I can testify that there is a real difference between the way that the partners operate and deal with their suppliers, and other organisations. The principal reason for that is that one of the ways the partners-you are talking about buyers-operate is they are appraised by the way that they deal with their suppliers. It is not just about margins; it is not just about cost prices. It is about the holistic arrangement that we have with suppliers, the way that we nurture them, our longstanding relationships with them that go back a decade or more. This is as important a part of their appraisal system, which leads into remuneration and promotion, as is the bottom line that they get on their product.

Q232 Chair : Could I just ask the Waitrose representative-it is interesting to hear what you say about your relationship with suppliers-does this not in part reflect the particular market and, if you like, the particular emphasis on quality that you have, rather than price, whereas the other players, shall we say, are more price competitive? Do you think it gives you a bit more flexibility and headroom to develop that relationship?

Susan Dole: There is clearly a tension between cost price and retail price. The Partnership, and Waitrose within the Partnership, operates by trying to give both the supplier and the consumer a fair deal. We will work with suppliers to make sure, for example in terms of British farmers, or small, local or regional suppliers, that the cost price that they get not only is a competitive offer, reflected in a competitive offer to the consumer, but allows them to sustain a sustainable business model. They can invest in their farms; they can invest in quality; they can invest in price. There is a tension. It is where the balance of the tension is drawn, and Waitrose’s approach is that they offer the very best value for money where they can. For example, in its essential range, one can buy, I think it is now 250 grams-I used to call it half a pound, but I am too old for that-of British butter for £1.10, which is probably equivalent to anything else in the market, and a jar of jam made in Britain for 84p. This is going to be quite consistent with anything else. The "essential Waitrose" range is a very competitive entrylevel pricing range of products, which is attractive to all consumers. We price match on 1,000 Tescobranded products every week. I think that speaks for itself.

Q233 Chair : I congratulate you on using the question to promote your particular brand.

Susan Dole: I am the only retailer on the panel though.

Shane Brennan: The point I would draw out is that the GCA would not exist to stop supermarkets bearing down on the price they can secure from their suppliers. In fact, GCA should not be about just affecting the price negotiations that go on between the supermarket and supplier. It is about the terms of contract. It is about, once you have an agreement in place, not going back on the terms of that agreement. If GCA goes beyond that scope, it is overreaching from how it was originally identified by the Competition Commission and by what the Department wants to see for the GCA.

Q234 Mr Binley: First, we were told-I do not know if you were here; I think you were-that contracts are not allembracing and the whole world moves, in fact, too quickly for contracts to be really effective. There is one of the concerns. Clearly Waitrose is squeaky clean, but what about the others in respect to the question marks about the pressure on middle management?

Shane Brennan: I go back to my point. The problem is we have a highly concentrated grocery market, where retailers have got a lot of power, and they can exert that power in a negotiation that is tough every single day of the week. If they can do that and they can get away with it, they will do it and it will get worse. That is why the Competition Commission found hundreds of problems and unfair practices, and why we need the GSCOP. GSCOP is the tool by which we know what the rules now are. We need to make sure they are being complied with.

Q235 Mr Binley: It might be a couple of years before the Bill comes into force. What is your view on a minireview of underlying compliance, perhaps by the Competition Commission, between then and now? One of the problems we are finding is that real hard evidence, arguably because of the fear factor, is not easy to get. Do you think we need that real hard evidence before we commit to an adjudicator or not?

Kenneth Parsons: I actually think one of the key reasons you need the adjudicator is to get the hard evidence. I think it actually works that way round.

Susan Dole: I agree with Mr Parsons, and the sooner we get the evidence-there is no voice at the moment for indirect suppliers or normal suppliers-the better. A minireview-you suggested January 2012-is too far away. Until we have an adjudicator in place, there is no efficient monitoring or regulation of GSCOP. A lot of suppliers do not have a voice. It is the cart before the horse.

Shane Brennan: I would go further and say that we had two years’ worth of investigation. There were lots of breaches and abuses found in that time. The immediate recommendation was there was an urgent need for an ombudsman, as the Competition Commission called it. Therefore, we need it. In a sense, there was a twoyear period in which the CC tried to create an ombudsman on a voluntary basis. That was not agreed to; there was no agreement on a voluntary approach. Therefore, we have to follow through now and impose the ombudsman, because that was ultimately the threat the Competition Commission had. It is about the credibility of the Competition Commission going forward, really, because otherwise you will always be in a situation where you just do not agree on a voluntary basis to anything, because you can just delay it and delay it.

Q236 Chair : Is it reasonable to summarise your viewpoint by saying that the Competition Commission could not get better quality evidence than the adjudicator?

Kenneth Parsons: I would go a stage further than that. I think it is probably going to take several years for the adjudicator to become really effective to gain the trust of the industry to start getting the real data. A snapshot without such a position being in post is going to give you a very peculiar and partial picture indeed.

Shane Brennan: I just think it is an unnecessary delay. I think we need an adjudicator in place as soon as possible, and a minireview is yet more delay in a period that has seen incredible delay for threeodd years.

Q237 Mr Binley: One final question: I have already expressed concerns about the complicated food chain of this particular market. I have also asked whether it is right not to include the direct suppliers in the remit of the adjudicator-we have got the 11 biggies in the business, but because of the power of direct suppliers over indirect suppliers, there is a real area of pressure there too. Would it be sensible to argue for the inclusion of that direct supply chain in the work of the adjudicator?

Susan Dole: From Waitrose’s perspective, yes. We believe that every supply in the supply chain should have a voice. We would say that there needs to be very careful guidance issued to the adjudicator on two counts. First of all, to make sure that what the adjudicator investigates is not vexatious or mischievous, there have to be clear guidelines about what is a valid complaint, even if it is an indirect or anonymous complaint. The supermarkets ought to be consulted on what that guidance should be. Also, if there is a filtering system in accordance with that guidance, it should minimise the amount of cost, which is a concern among the BRC members. If the filtering system is watertight, or as watertight and leakfree as the filtering system can be-sorry, filtering and water do not exactly go together, but forgive me-it should make sure that the adjudicator’s efforts and, therefore, its costs are as efficient as possible.

If I may, Mr Chairman, just go back for a moment to your point about delaying a review until such time as the CC has got time to look at evidence for a year or so, I am entirely in agreement with my fellow panel members here. First, the regulatory authorities, the OFT and the Competition Commission, are going through a restructuring. We believe they are going to become a Competition and Markets Authority. For anything to get to the Competition Commission, it has to go to the OFT. There are structural guidelines and timetable lines as to how long that would take. It is going to be a year to 18 months before that can happen. What the industry does not need is another market investigation. What we need is a very focused, very clearcut and very quick resolution of a problem. We have a Bill, which we believe there is parliamentary will to introduce, and it is not being overseen. It needs to be overseen and it needs to be enforced. The enforcement procedures need to be consulted on very quickly with the relevant supermarkets. To wait for a hoohah to erupt, so that it is sent to the CMA, or the OFT and CC, if they are still there, is in Waitrose’s opinion not a good use of time.

Chair : I think we have got the message on that.

Q238 Nadhim Zahawi: Thank you very much, and I am conscious of the time. Mr Parsons, you have argued that measures of the adjudicator’s success will be to reduce price discrepancies between what large retailers and other retailers pay. Do you see that as an important objective of the Code and can you explain to the Committee how enforcement of the Code could achieve that?

Kenneth Parsons: Many of the practices that have been talked about and are mentioned in the Code ultimately translate into one thing. That one thing is that they increase the supermarkets’ profit to the detriment of the supplier’s profit. That essentially, in a nutshell, is what all these disparate things do. If you are in that situation, so you have the supermarkets reaping extra percentage points’ profit year after year after year, you over time get a total distortion of the marketplace. For example, you get supermarkets with so much cash swilling around that they can actually create banks and fund them out of their own resources. They can buy a lot more sites than they might otherwise be able to do.

Q239 Nadhim Zahawi: Can I just stop you there? You have given plenty of examples. Those are market forces. If someone is prepared to supply something at what price-

Kenneth Parsons: What I am saying is I think that the practices we are trying to do away with actually come down to a percentage on the margin, which is not justified on any other grounds.

Nadhim Zahawi: It is the abuse; it is not the setting of the price. It is then the abuse of the contractual arrangement.

Kenneth Parsons: Correct.

Shane Brennan: I would certainly agree that there are problems with price discrepancy. We are seeing a market where the biggest players are going this way and some of the smaller players are starting to go that way. That middle ground is becoming sparse and that is a problem. I do not think the GCA will solve that problem. I do not think it should be an ambition of the GCA to solve that problem. You are right to say that it is market forces.

Q240 Nadhim Zahawi: My next question has been covered, Chairman. My last one is just to push you a bit further, Susan, on the Waitrose position. You quite rightly talk about your essential range being at an equivalent price to the other value retailers on the market. Essentially, because of your position, your luxurious position where you have this higherend product, you can afford to support this proposal to the detriment to your competitors.

Susan Dole: No, absolutely not. As I mentioned earlier, there is always a tension between what one pays the suppliers, what customers pay and, in the middle, there is what one takes as profit margin. In the 2000 supermarket inquiry, Waitrose was not found to be profiteering in terms of its profit margin, in relation to other retailers. There is no evidence that we do anything other than treat suppliers fairly, treat consumers fairly and also do not make excessive profits in this sector.

The evidence of that is that, recently in the last five or six years, we have gone into Scotland, Wales, and the north of England. We have had enormously profitable and successful stores, which traded at budgeted turnover, which shows that, even in areas outside our heartland, where Waitrose started-everybody would say it is the affluent South East because the South East is affluent-we are doing well. I am Welsh myself and we have gone into a sector of Wales, where we have done extremely well in terms of turnover because customers appreciate two things. They appreciate our provenance, our buying British policy, and the fact that we treat suppliers fairly and do not rip them off. It is a good balance-that is how they look at it. Customers vote with their feet; if they did not like us, we would not be growing our market share in areas that are not natural territories for us.

Q241 Chair : Can we deal with confidentiality in relationships between primary suppliers and intermediaries? First, I suppose, this one is to Waitrose. As a large retailer, can you give the Committee any examples of how primary producers might be in a position to provide useful information on the relationship between a direct supplier and the supermarket?

Susan Dole: On an anonymous basis, Mr Chairman?

Chair : Yes.

Susan Dole: My answer to that would be only if they are unwilling and they do not have the intersupply chain relationships to have the confidence that the direct supplier would feed those to the retailer. One would hope that in our organisation that would not happen, because we have a lot of association; we have a lot of relationships directly with our farmers, pig farmers, beef farmers, lamb farmers, dairy farmers, potato growers, carrot growers, whatever. We would hope that, within that network of relationships with direct and indirect suppliers, any discontent would be fed through very quickly, either through the direct supplier or to our buyers. In organisations where those relationships are not as tightly knit, it is understandable that they would want to go down the anonymous route.

Q242 Mr Binley: Can I pose a supplementary to that question? You said you "would hope".

Susan Dole: Yes, because it is to do with human behaviour.

Q243 Mr Binley: Bearing in mind we are talking about some of the biggest companies, not only in the UK but in Europe, would it not be right for those companies to be more proactive in going out and ensuring they find out what is happening at the coal face, rather than hoping?

Susan Dole: It is a cultural issue and different retailers behave in different ways. Some retailers want to know right from the beginning. If you take the economic lifecycle of a pig for example, Waitrose would want to know from conception to the pork chop being on the shelf exactly what happens: who the relevant parties are within that and how they deal with each other, not necessarily getting involved in each other’s commercial relationships, but they will want to know how it gets to pork chop. Other organisations might take a much more lighttouch view as to how indirect suppliers engage with their direct suppliers, and might just leave it up to them. There are different business models and there are different behavioural models, but certainly the Waitrose way is to want to know everything that goes on.

Q244 Mr Binley: This is a problem that has been going on for a very long time. All of you say we need something done about it now and yet, it seems to me from the answer I had there and the word "hope", that the retailers themselves are not really making the greatest effort to find out what really is happening with their indirect suppliers. Should they not be doing more of that?

Shane Brennan: That is probably a cultural change that will hopefully be achieved. In reality, it is not the retailer’s primary job, on a day-to-day basis, to ensure the different layers of their contractual relationships. They do need to have is some sort of outside pressure that says you have to make sure that you act by the book at every stage in your supply chain. The way that Waitrose described that is the cultural ambition you want to see achieved. You have to assume that that is not the case in every situation now, or else the Competition Commission would not have had to go through two investigations and we would not have had the findings we have had.

Q245 Chair : Could I just take this a little further? Susan, you say Waitrose effectively does this. Presumably you would not like to comment on your other retail rivals, but would it be reasonable to say that you believe that the appointment of an adjudicator would effectively make other major retailers engage with different levels of their supply chain in the same way?

Shane Brennan: That to me is a measure of success for the GCA. If that was what came out, that would be a measure of success.

Kenneth Parsons: There is perhaps a danger of going right over the top and ending up with an incredibly bureaucratic system. It could very easily become a box-ticking exercise that gets conducted. There does come a point when we are opening up a very big area, which I am not sure that one individual with a very small office is going to be able to even scratch the surface of, if we are not careful.

Q246 Chair : Do you have concerns about the bureaucracy building up?

Kenneth Parsons: Yes.

Q247 Mr Binley: I am not asking the adjudicator to do that. I think it should be sound good practice by the retailers, as part of their business model anyway. How does that add to the bureaucracy?

Kenneth Parsons: I think I probably misunderstood the point there-and again I think we are in danger of veering into areas where we are not necessarily experts-but my understanding is that, particularly on the ownlabel products, which obviously are very important to a lot of retailers, they conduct far more investigations controlled in the way you are suggesting than they might do for a proprietary product, where perhaps reasonably they expect their big suppliers to do that job. That is what they are being paid for.

Q248 Chair : Could I just define this a little further? Yes, it would be the responsibility of the retailer to make these investigations and ensure that everything was appropriate, right throughout the supply chain. Then, and this might point to your concern about a boxticking exercise, the adjudicator would have to draw up a set of criteria, and presumably benchmark retailers against it, on the process that they employ in order to achieve this objective. Is that reasonable?

Shane Brennan: I would hope that, most days of the week, the job of the adjudicator was to provide help and advice to retailer suppliers on what is the right way to go about contractual relationships.

Q249 Chair : Can I just move on? Do you think that there is any danger that anonymity would give rise to a flood of spurious and potentially vexatious claims?

Kenneth Parsons: I personally do not think it would. The problem historically has actually been the reverse, where it has been very difficult indeed to get suppliers to come up with legitimate claims. I do not see any reason to expect people to put a lot of effort and risk their commercial businesses by coming up with spurious claims. Given the problems that have been wellrehearsed, in terms of actually being able to maintain anonymity anyway, people would think very, very carefully before raising any sort of issue, let alone a spurious one.

Susan Dole: The Waitrose position is that, as long as the guidance is very clear about what constitutes a complaint that is worthy of investigation, and that is done in consultation with the GSCOP retailers, although there will always be-it is human nature-one or two spurious complaints, one would hope that the GCA and its office will be very well experienced in weeding out any vexatious complaints, before they cost.

Shane Brennan: There are two answers to that question, in a way. One is the issue of anonymity. I think actually I have sympathy with the retailers that anonymity can only go so far in this process. You have to have the protection of anonymity in raising an issue but, at the point at which it becomes investigated, anonymity becomes very hard. Therefore, that would be a check on spurious investigations. The second thing is the issue of credible evidence, which was referred to by the FDF earlier. To me, if the adjudicator has set out clearly defined criteria of what it will consider as evidence, that is the filtering system that will lead to prevention of spurious representations.

Susan Dole: Yes, I agree.

Q250 Chair : Do you share the concern of some large retailers that without the supermarket giving contextual background to an anonymous complaint, the adjudicator will be unable to make a fair assessment?

Susan Dole: I would have thought, if a party is brave enough to make an anonymous complaint, they would be in a position to present the evidence that is required for the adjudicator to put it through the filtering mechanism to decide whether it is worthy of pursuing or not and, if it is worthy of pursuing, to justify it. It is not an easy thing to do. I take your point: even being anonymous in a big industry is a scary place to be.

Shane Brennan: The idea that you could have a complaint, an investigation, a finding of fault and then an endpoint and at no point in that process are the people involved in making that complaint made known to the parties does not seem to hold water. To me, the issue has to be that suppliers have to have the protection to be able to raise the complaint, give the confidence that that complaint is credible and, at that point, the adjudicator steps in. The further point, though, is that one thing the Bill does not do very well is protect the interest of suppliers after the fact. I think there should be an opportunity for ongoing monitoring for the GCA of the relationships of the suppliers that have been subject to investigation, and the retailers, and to make sure there has not been delisting or any other kinds of implications, and that they can go back and actually look into it again, if they feel as though the investigation that was conducted in good faith has suddenly had consequences after the fact.

Chair : That is a very interesting point.

Susan Dole: The GSCOP does provide for that, because it has provisions around how a supplier might be delisted or not. It cannot be delisted simply because it has raised a complaint, and has been found out to be the anonymous complainant.

Shane Brennan: Yes, I agree with that.

Susan Dole: The retailer would have to go through the GSCOP route to prove it was commercial.

Shane Brennan: My worry is that, in that situation, the supplier has to make another complaint. If that supplier then goes out of business, how it is going to make a complaint? There needs to be a proactive role for the GCA, after the fact, to keep an eye on the aftermath of its decision. That is just my position.

Kenneth Parsons: I would just add to that, if I may. I agree with everything that has been said. It is obviously a very difficult issue to try to monitor, but there may well be several years when the GCA is trying to get the culture of the industry to change. That is one good measure of success: when the industry is prepared to raise legitimate complaints fairly openly, the GCA really will have worked.

Q251 Chair : Do you think it is possible for the adjudicator to recommend Code improvements without giving away supplier identities?

Shane Brennan: It depends on the context. It depends on the type of practice you are talking about. If it is a specific complaint about a specific practice, on a particular day on a particular month, then I do not think it will be. If it is about a broad trend in the market that is backed up by credible evidence-and there is an issue about how you define a trend on the credible evidence test-you possibly can, but it does depend on context.

Q252 Dan Jarvis: My first question is to Susan Dole from Waitrose. Would like the power to be able to whistleblow on other large retailers?

Susan Dole: GSCOP is about improving relationships between suppliers and retailers for the benefit of consumers. It is not about retailers judging each other’s behaviour, so no.

Q253 Dan Jarvis: Can I follow up by asking you whether you think the adjudicator should have express jurisdiction over a whistleblowing process?

Susan Dole: To clarify, if I may, are you asking, if one GSCOP retailer whistleblows on another, that that be referred to the adjudicator?

Dan Jarvis: Yes.

Susan Dole: The whole point about GSCOP and the adjudicator is to give suppliers a voice. We would encourage the whole of the supply base to use that voice. It is a very powerful opportunity for it to do so. There are potentially very powerful remedies if it does do so, so we do not see the need for whistleblowing.

Q254 Dan Jarvis: I wanted to ask about fines. Can I ask you to summarise your views on the desirability of a fines regime?

Kenneth Parsons: Certainly in my case, the reality is you are talking about, by definition, exceptionally large companies and any realistic fine is not going to affect their financial outcomes at all. It is going to be symbolic. What I would put forward though is that there are certain areas of the law where both a company and the individual can be fined. I am thinking particularly of alcohol licensing for example. I think there is a lot of merit in extending it to an individual buyer. If the individual buyer was in gross breach of the Code and received a fine, it could be a fairly modest amount but still have a considerable impact on his future behaviour and that of his colleagues. I would actually put that on the table as a possibility.

Q255 Chair : There is a potential unfairness in that. An individual buyer may be in breach of the Code, but his or her behaviour may be as a result of pressure being applied by company policy.

Kenneth Parsons: Yes it might, and that would equally apply to the alcohol licensing situation in shops. There comes a point, I think, where you expect a buyer, certainly a senior buyer, to take responsibility. If they are told to do something that is against the Code, they should resist.

Chair : You think it could actually strengthen their position.

Kenneth Parsons: Yes I do, and again one would very much hope that it is one of those things where the symbolism of it and the culture it generated would actually be far more important, you would hope, so that it would not actually happen very often. I think it could do that.

Shane Brennan: You need to have fines for two reasons. The first one is there should be consequences for not collaborating and coming up with a voluntary solution. That was what the Competition Commission said. They said we would have a voluntary solution ideally and, if there is not one, there would be an ombudsman with fining powers, which would be different from the voluntary approach. Secondly, the fining powers are the way to make a regulator seem credible to the media. Those are the two reasons.

Susan Dole: We do not share that view. We believe that the fine, the pecuniary recompense for a supplier, lies within a breach of terms and conditions, whether it is a breach of terms and conditions within the concept of GSCOP, or whether it is anything else outside the GSCOP package of the supplier’s contract, and they already have a right to bring a case against a retailer, in that respect, for breach, which can amount to compensation. The most important thing for any retailer is its reputation. The nameandshame part of the adjudicator’s rule is much more powerful in terms of driving compliance, because you do not ever want to get there, but you want to change behaviour to make sure compliance is 100%. That is the most powerful tool. Should that fail, suppliers have a contractual right to go against retailers to gain financial compensation for breaching their contract. We do not believe that fines are appropriate.

Q256 Chair : I do not know whether you heard somebody on the previous panel pointing out that you could get, if you like, media compliance fatigue; the behaviour of the retailers would not get appropriate media coverage and, therefore, the disincentive impact would be lessened. Have you a view on that?

Shane Brennan: I agree. I think that fining increases the likelihood of its continuing to be a story going forward. What I would say on balance to that though is I hope there will not be lots and lots of investigations and lots of findings of fault, on a weekly or monthly basis. I hope there would be one or two investigations a year maximum. That would be my hope. If it is worse than that, we have a much bigger problem than we probably identified in the Competition Commission inquiry.

Kenneth Parsons: I also think the media might well find some of the reasons for the fining somewhat technical and not very interesting to their more general readership. The media may well get fatigued fairly quickly on this one.

Q257 Chair : I was really thinking in the event of their not being fined. I suspect that the media would not go into the technical details of why they were fined.

Susan Dole: I suspect they would not go into the technical details but, if one looks back to cases like Primark and other recent cases around retailers behaving in the supply chain, not necessarily grocers, in a way that the media finds inappropriate and has reported them, there has been a huge backlash against them. Given the nature of our media, which is very vibrant and on the ball, I would suspect that naming and shaming would be very effective.

Q258 Dan Jarvis: Can I now ask you whether you believe there should be a full right of appeal against the namingandshaming remedy?

Shane Brennan: It is a good question. Retailers need to have recourse in law to where they believe they have been found in breach. My concern would be that that would just be a delaying tactic, rather than actually a means to it. Therefore, the criteria upon which you can raise an appeal would need to be tightly defined. That would be my reaction to that.

Kenneth Parsons: The whole appeal process could blow out of the water any attempts at anonymity.

Susan Dole: If the appeal process is either the Court of Appeal or the Competition Appeal Tribunal, whatever may come in the new regulatory framework, it could be very expensive and very long drawn out. I have sympathy with the BRC’s position, which I think is perhaps a midpoint, which is a meritbased system. It is the right to review the decision before it is published, if they believe that it is unfair, unmerited or unsubstantiated. It is not the right to overturn it, but simply a right to have a sit down with the adjudicator and say, "Okay, we do not see where this is coming from. Help us understand it," and then an option to escalate it to whatever the appropriate body might be after that. We think that is a way to contain costs.

Q259 Dan Jarvis: Do you think it is practical to establish the adjudicator’s guidance before setting up the adjudicator’s office?

Shane Brennan: The adjudicator has to set his own guidance. Ultimately, this needs to be owned by that office and it needs to embed itself in. It needs to do it quickly, but it is the right thing for it to do to set itself its own guidance, its own terms of work beyond what is set for it in legislation.

Kenneth Parsons: I agree totally with that and go perhaps a stage further, insofar as the grocery industry is a very fastmoving industry and there needs to be the facility for those terms to evolve as the industry evolves, and as the GCA gets more experience of it.

Susan Dole: Our position is that effective regulation needs enforcement and there is no enforcement at the moment. Although the GCA and its office is not yet in place, clearly it is going to be advised by, presumably, an existing cohort of civil servants or experts who currently sit within the OFT, who might eventually sit within the CMA. That cohort will have the expertise, based on all its expertise with the Competition Commission, the OFT and even within BIS itself to start drawing up some preliminary guidance. If one delays until the Bill gets the Queen’s assent, we are going to be two years away. I think that is too long to leave what potentially is a very potent way of addressing issues within the supply chain, as between suppliers and retailers, without somebody overseeing it. That is too long.

Q260 Dan Jarvis: My final question is to Waitrose. You have argued for an annual review of the budget, whereas the draft Bill currently envisages reviews every three years. Would you like to see the Bill amended to accommodate that?

Susan Dole: Yes, we would. We firmly believe in two fundamental principles. If this Bill is going to drive behavioural change, it needs to bite. One of the ways that it can bite is by charging people-retailers who are acting inappropriately-the cost of investigating and adjudicating their cases. The way to do that is to spread the fixed costs on a market share basis and then allocate the incremental costs of investigation and adjudication, in proportion to the number of complaints, investigations and the amount of work that those retailers cause. We believe that three years is far too long a wait to do that. We believe there should be a review after a year and an annual review after that. The review should cover both. The initial review should cover the first year’s budget. There is widespread concern that the first year’s budget, both the setup and runon costs, is perhaps underestimated. It should cover the first year’s budget. It should cover the way that the costs, during the first year, are allocated. At the end of the first year, it should cover looking back and saying, "Was that fair? Was that proportionate? Is that driving compliance and behaviour?"

Q261 Dan Jarvis: In terms of the review, who should carry it out and pay for it?

Susan Dole: We probably think it should be BIS, and we believe that paying for it should be part of the ongoing costs, if not the setup costs, of the GCA’s office.

Q262 Chair : Can we just go on to the funding now? Having looked at the Competition Commission funding formula, I can well understand why the Government did not favour it. I must confess, I did not try to work it out. How do you think the adjudicator should be funded?

Shane Brennan: The first thing to say is it is not an area where we have strong views. We think it should be costeffective. We believe fundamentally that it should be as low cost as possible. It should be built in a way that is cutting out costs and reducing the burden of work to ensure that is doing effective work in the most costeffective way. The Waitrose arguments are well argued and, in putting those points across, I would not take issue with anything they said in that approach.

Kenneth Parsons: I would broadly go along with that. There is a danger of this whole area blowing out of all proportion. The costs we are talking about are a tiny fraction of the profits of the companies involved. For a lot of them, it is a red herring that they are raising, rather than a real issue.

Q263 Chair : Waitrose actually favoured the Competition Commission’s formula.

Susan Dole: We did, because it is based on the polluter pays principles. There are two elements of cost: there is the fixed cost of funding the ongoing costs every time. You either split it between 10, which are the grocery retailers covered by the Code, or split it in relation to market share. We would favour the latter. In terms of incremental costs of ongoing investigations, appeals, adjudications and whatever, we would favour them being allocated in relation to the polluter pays principle; so whoever triggered it ought to pay for it. Waitrose would expect to pick up those costs itself and would not expect to have other retailers picking up the costs if we have been found lacking.

Q264 Chair : Do you feel that should still apply even if the retailer that was being investigated was then found not to have been in breach of the Code?

Susan Dole: That is where the guidelines for the adjudicator come in and that is where consultation is needed. If the filtering procedure is rigorous, what is a vexatious complaint? What is a mischievous complaint? What is a potentially valid complaint? If it is a potentially valid complaint, a retailer must have done something for the adjudicator, if the guidelines are right, to consider that it is worth pursuing. Yes, it is not black and white; it is slightly grey, but we are all big boys.

Q265 Chair : Do you not think there is the potential for a grey area, where you get a number of vexatious complaints that, on the surface of it, seem to have some legitimacy, which involve a retailer on the receiving end of a whole lot of investigation found not to be in breach of them, but the claims, if you like, were of sufficient weight not to be spurious?

Susan Dole: Yes. First of all, it is really important that the industry and the adjudicator agree what the filtering terms are. Secondly, it makes it even more important to have an annual review of the office of the adjudicator, how it is doing its role and how it is applying cost. If there is a pattern and that is happening, clearly something is wrong in the guidance.

Shane Brennan: It is suck it and see, is it not? That is why there is a need for a regular review of the funding model.

Susan Dole: Three years is too long, because there could be several of those within a period of three years.

Q266 Simon Kirby: Who pays for the cost of complying with the Code? Is it the constituents in my constituency who are the shoppers in the supermarkets? Is it your suppliers or is it, ultimately, paid by your owners-in Waitrose’s case your employees, presumably?

Susan Dole: We as Waitrose will always do everything we can to minimise the cost that we pass on to consumers. We will do that in two ways. The first way is that we will ensure that we comply, so that we have as few complaints as possible. That is one way, under our funding mechanism, that we will ensure we have as low a cost as possible from that. Also, there are always ways within one’s business case of looking for efficiencies elsewhere and whatever. It is absolutely critical that we do all we can to minimise the passthrough of costs to consumers.

Q267 Simon Kirby: Does this mean the new Code has not caused prices to go up for shoppers?

Susan Dole: There is a lot of uncertainty about what the ongoing costs are going to be. Until we know what those ongoing costs are going to be, it will be very difficult for us and the whole industry to assess what the passthrough is going to be, in terms of retail prices. We, and I am sure everybody else, will also make sure that we do everything possible to minimise the passthrough.

Q268 Simon Kirby: Can I make this plea? In view of the turnover within the industry of some £70 billion, the costs of enforcing the Code are relatively minor. Could I plead that it is not passed on to the consumer because, at the end of the day, we have their interests ultimately at heart, as have you as businesses.

Susan Dole: Noted.

Q269 Chair : Just a couple of points. This is really to Waitrose. If compliance reached 100% across all retailers, you would have a formula based entirely on market share. Do you not feel that this would punish the most successful retailers?

Susan Dole: If compliance were to be 100%, the fixed costs would be based on market share, which I think is proportionate and there would be no variable costs, because there would not be any complaints. It would just be the fixed cost base, is estimated at £800,000, I believe.

Q270 Chair : If that is on the polluter pays principle and the other is a fixed cost, and there is no polluter to pay then the fixed costs will remain anyway.

Susan Dole: There are no incremental costs.

Q271 Chair : Do you not think it would be better to wait until the adjudicator settles in before deciding on the weighting to apply on the polluter pays principle?

Susan Dole: We do not believe that because we believe that it is absolutely essential that the supply base is protected. We have a mechanism with GSCOP. We do not have an enforcement. Indirect and anonymous producers at the moment, suppliers, do not have a voice, and it could be two or three years until that happens. I think that is too long.

Kenneth Parsons: I would agree with that totally.

Chair : That concludes my questioning. Could I just make the point that if, on reflection, you feel that there were questions that we should have asked but did not, and you would like to reply to, please feel free to submit further evidence. Equally of course, if we as members of the Committee suddenly realise we did not explore this particular line of questioning as fully as we might, we may well send some further questions to you and would be grateful for your assistance in responding. Thanks very much.

Prepared 1st July 2011