Policing the strain on supply chains

The government is considering scrapping the groceries code adjudicator, but campaigners want to see regulation of buyers extended to foodservice. Nick Hughes reports.

The latest inflation figures make for grim reading for the food sector. The average price of food and non-alcoholic beverages rose by 13.1% in the 12 months to August 2022 according to the Office for National Statistics (ONS), up from 12.7% in July and the 13th consecutive month of year-on-year growth.

This might go some way to explaining why relationships between food buyers and their suppliers are showing signs of strain. The annual groceries sector survey published by the Groceries Code Adjudicator (GCA) in June found that for the first time in nine years of carrying out the survey suppliers saw an increase in issues relating to the groceries supply code of practice (the Code), which regulates how 14 of the UK’s largest food and drink retailers treat their suppliers (that is, they are fair and lawful). 

More than half (53%) of suppliers have experienced Code-related issues in 2022 compared to 44% in 2021. These issues range from delays in payments (12%) and de-listing without reasonable notice (16%) to the incurrence of significant costs because of inaccurate forecasting by retailers (18%).

Current CGA Mark White said the pressure from inflation “has impaired relationships and created wider problems”. He noted how 80% of suppliers had asked for at least one price increase in the previous 12 months with a quarter (26%) saying they had experienced a refusal by a retailer to consider such a request or an unreasonable delay in concluding it. This makes the issue the most raised by suppliers in GCA surveys over the last five years.

Foodservice operators are not covered by the Code and so tend to fly under the radar. Some NGOs, as discussed below, want that to change, and there seems little doubt that tough negotiations will be going on with suppliers to keep price increases to a minimum.

So is there any prospect of greater harmony breaking out between buyers and sellers in the current inflationary environment? And could trading relationships in the foodservice sector be brought closer into the regulatory sphere?

GCA on the block?

The answer to both questions is ‘probably not’ given the noises coming out of the UK government. Ministers are in fact considering scrapping the GCA altogether or folding its responsibilities into the Consumer Markets Authority (CMA) as part of a current review.

In some ways this isn’t surprising – the government is legally required to review the role of the GCA every three years. Two reviews to date found that the GCA had been effective in enforcing the Code and had made a significant difference in ensuring fairness between the large retailers and their direct suppliers. The latest review, published in 2019, found that “large retailers, most suppliers and other parties in the grocery supply chain reported that the GCA has created a more level playing field and it had not limited the ability of the UK’s groceries retailers to compete and provide a good consumer offer”.

The first review from 2016 also considered whether the GCA’s functions should be abolished or transferred to another public body and found no evidence that the latter option would increase the effectiveness of public functions or accountability to ministers. Now, the government says it wants to consider those questions again “in light of the need to ensure efficiency of public bodies”. Ominously for the GCA, the new prime minister, Liz Truss, promised to “clamp down on arm’s length bodies” during her campaign to be leader of the Conservative Party.

Fairness under threat

Campaigners for fairer relationships between producers and retailers believe neither option is appropriate in the current climate. Sustain, the alliance for food and farming, has said the “backwards slide on fairness” identified in the GCA survey needs to be addressed. “Abuse stops farmers and growers from being able to innovate, invest in sustainable and higher welfare approaches, and it harms consumer food choice and quality,” it noted.

By scrapping the regulatory body, Sustain argued the government would be “putting food producers and consumer choice at greater risk at the worst possible time”, and called for the GCA to be “continued and enhanced”.

The call to retain the GCA is echoed by Food Ethics Council executive director Dan Crossley. “Maintaining, and ideally further strengthening, the Groceries Code Adjudicator is vital for suppliers of major food retailers,” he says.

Foodservice focus

But what about foodservice? The out-of-home sector is far more fragmented than retail and therefore power is less concentrated, but there are still businesses of significant scale and buying clout. Compass Group, for instance, recorded revenue in Europe of £4.6bn in 2021; Greene King turned over £1.3bn in its latest financial year; while the UK arm of wholesale giant Bidcorp, which includes the Bidfood and Bidfresh businesses, generated £1.9bn in revenue for the year ended June 30th 2022.

As Crossley notes, “issues relating to power imbalances exist in the foodservice sector too. Foodservice mustn’t remain the neglected distant cousin of retail.”

Sustain argues that wider supply chain regulation is needed to cover buyers in between the retailer and farmer, such as food manufacturers, as well as the foodservice sector. Expanding the remit of the GCA to include major foodservice companies is one potential mechanism for achieving this. Another is via the Agriculture Act 2020 which included a provision to set up legally-binding fair dealing obligations on buyers of agricultural products.

Yet the prospects of government taking action at this moment in time appear slim. The new codes of conduct are designed to cover supply chains where problems are considered sector-specific rather than the wider food and drink sector. The UK government, for example, has said it will develop a statutory code of conduct for the dairy sector to address imbalances of power it believes to be causing instability for dairy farmers.

Meanwhile, the current review of the GCA makes no mention of extending its remit nor of foodservice specifically. Against the backdrop of a hospitality sector facing severe cost pressures and a new government eager to pursue a growth and deregulatory agenda, foodservice operators can surely rest easy that measures to regulate trading relationships are not in the pipeline.

But that shouldn’t give businesses a green light to squeeze suppliers to the point of suffocation. Recent reports have highlighted the challenges currently faced by food producers, including spiralling input costs and a shortage of workers due to Brexit. The Guardian reported this month that cucumber growers in the Lea Valley were applying for permission to turn glasshouses into housing estates as the business of growing salad becomes uneconomical.

Buyers and suppliers exist in mutually dependent relationships: it’s in everyone’s interests that businesses along the food and drink supply chain find ways to avoid confrontation and work constructively together for the greater good.

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