Charles Trotman: Farmers need the protection of a retail ombudsman

The Country Land & Business Association (CLA) was the first national rural organisation to formally call for the introduction of an independent ombudsman to deal with the relationship between suppliers and retailers.

Large retailers can impose unrealistic conditions on their smaller suppliers. These suppliers are expected to carry a disproportionate share of the risks and costs, and many have found dealing with supermarkets particularly intimidating. The evidence for an independent ombudsman is compelling. The industry is heavily dependent on the supermarket sector, but the trading conditions they have created have caused great uncertainty for many producers.

Suppliers continue to be squeezed by supermarket buyers with the power to terminate contracts overnight while supermarkets’ profits continue to increase, despite the major downturn in the economy. Someone in the food chain is being squeezed and it does not appear to be the supermarkets.

The history of calling for an independent body to ensure fairer protection for farmers and suppliers is a long one and, unfortunately, could get even longer.

Back in 2000, following a previous Competition Commission inquiry, the Office of Fair Trading put in place a code of practice that sought to regulate the worst excesses of supermarket behaviour.

But the code had no teeth and there was precious little a supplier could do if it wanted to take on one of the big four retailers. The phrase “grin and bear it” could have been created for the past relationships in the food chain. The commercial reality was that a supplier had no choice but to comply with every whim and fancy of the supermarket. If a supplier complained against an alleged unfair practice, such as price discounting or withholding payments, there was a chance they would lose the contract. This was the reality of the market place and the fear instilled by the sheer weight of supermarket buying power.

So what would we hope to achieve with an ombudsman (or to give it its “catchy” title – Groceries Code Adjudicator)?

Firstly, there would be greater transparency in the food chain. There would be a framework through which everyone knows the rules and any breech would lead to sanction.

Secondly, there would be a more equitable business relationship between suppliers and the retailer. The seriously detrimental fear factor that many suppliers experience would be significantly diluted.

Finally, the independent ombudsman would give real effect to the code of practice and ensure that all involved in the food supply chain operate on an equal footing.

We can all sympathise with a Government having to deal with the current public sector deficit, but delay after delay is continuing to seriously damage food suppliers’ businesses, particularly at a time when supermarkets seem to be protecting their margins at the expense of farmers and suppliers.

Nowhere is this more evident than in the beleaguered dairy industry. Recent data suggests that the 26 pence per litre (ppl) the dairy farmer gets for his milk equates to a retail price of between 59ppl and 79ppl when purchased by the consumer in the supermarket. Milk is not the exception but rather the rule, with the differential between what the farmer receives and what the consumer pays actually getting wider. This is why an independent ombudsman is vital and why the Government’s delay is both frustrating and concerning. The announcement by the Business Minister of a delay in publishing a draft Bill is extremely worrying because it is only the first stage of a long legislative process.

There will need to be consultation on this draft Bill, it will then have to be refined before it can become a Bill and then find time in a hectic parliamentary schedule. Those concerned that this could derail the creation of an independent ombudsman have every right to be worried. There was genuine surprise and some elation when the Competition Commission finally accepted the CLA’s argument for independent monitoring and control. When the previous Government accepted the commission’s recommendation, there was a real belief that progress could be made and suppliers would be offered effective protection.

However, although much has changed within society and the country has a new coalition Government, the fear that ministers might now be kicking plans for a watchdog to police the food industry into the long grass brings a saying immediately to mind – plus ça change, plus c’est la même chose.

Today, the coalition Government has a real opportunity to bring much-needed improvement to the retail food chain and safeguard the future of thousands of farmers and food suppliers, but it needs to act now without further delay.

Charles Trotman is head of rural business development for the Country Land & Business Association.