The Commission has just published an order that sets out its new Grocery Supply Code of Conduct, drawn up after an inquiry last year that highlighted concerns in the relationship between retailers and suppliers.
The code, to be included in retailers’ contracts with suppliers, aims to ensure that suppliers do not have unfair or unexpected costs imposed on them by retailers, such as cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding.
However the Commission does not have the power to establish an ombudsman to oversee retailer-supplier relations, and has been trying to get retailers agreement. Since the majority of retailers do not agree, it has taken the step of asking the Department for Business, Innovation and Skills to intervene.
“Whilst some retailers have recognized this, regrettably the majority have not,” said Peter Freeman, chairman of the Competition Commission and of the groceries inquiry. “We made every effort to persuade retailers of our case as it would be the quickest way to establish the Ombudsman. We are now left with no alternative but to set out the new Code of Practice and recommend that BIS set up the Ombudsman to oversee its operation.
“It is clearly desirable that the Ombudsman be established as soon as is practicable. The new Code of Practice will work much better as a result and suppliers and retailers will have greater confidence that its terms will be observed.”
Freeman said that if the relations between retailers and their suppliers are left unchecked, consumers will end up suffering. He added that the current economic climate reinforces the need to act on an issue that has dogged the industry for years.
The Commission expects the ombudsman to cost £5m a year, including set up costs. The turnover of UK grocery supplies to retail is £70bn.
The issue of fair dealings between retailers and their suppliers is not unique to the UK. Earlier this year the CIAA, the EU food industry trade association, expressed concern over alleged abusive practices by retailers in their dealings with food manufacturers.
In a communication on food prices in December, the European Commission noted a number of ways in which retailers could act unfairly in their dealings with manufacturers. These include cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding.
The need for an independent watchdog has also been emphasised by civil society groups.
Friends of the Earth's food campaigner Helen Rimmer said: "At a time when many farmers and small businesses are struggling to survive, the big supermarkets continue to post record profits.
"The Government must stand up to the big retailers and set up an independent watchdog to put an end to the supermarkets' bullying behaviour and secure a fairer deal for shoppers and farmers alike."