Code of practice and ombudsman needed
Shane Dempsey, head of consumer foods, FDII, outlines why greater regulation in the grocery sector could safeguard thousands of jobs in the food production and agricultural sectors
17 August 2009
The paradigm shift in the grocery sector in 2009 has long-term ramifications for consumers, retailers and suppliers alike. The economic downturn has changed the rules of the game for all stakeholders. In the second half of 2009, these players will continue to try to adapt in this changed environment. In other words, turmoil in the sector is set to become more intense. Job losses are, unfortunately, inevitable, particularly amongst suppliers struggling to cope with a constellation of economic factors. Strained relationships between suppliers and retailers are likely to come under further pressure.
The Tánaiste has stated that she will put in place a code of practice to ensure all players can be viable whilst ensuring consumer prices remain low. This has drawn considerable support from politicians across the spectrum. FDII has advocated the introduction of ‘fair trade’ legislation in the grocery sector for a number of years, our sole intention being to ensure that producers, suppliers and retailers can build sustainable businesses, and the Irish consumer can access quality products at a fair price, now and in the future.
A code of practice that ensures fair trade in the market is essential for the survival of food businesses in this difficult period. Irish food companies export 43% of their product to the UK and have been particularly exposed by the 30% depreciation of sterling. In addition, Ireland’s exorbitant energy costs for large energy users, and the reported reduction in shelf space for some Irish brands, mean many suppliers face the most significant threat to their businesses in years.
Retailers are exposed to more or less the same pressures and have responded. Tesco’s border prices programme and changes to its supplier relationships is a Fosbury Flop: the first high-jumper to jump backwards over the bar changing the sport forever. Other retailers are responding aggressively with their own initiatives to match these moves, as evidenced by the recent NCA report.
In this type of ultra-competitive environment, it’s essential that the Government provides a legislative bulwark against any ‘unfair’ practices that arise from retailer buying power. It’s worth noting, this week the UK’s Competition Commission recommended that the UK Government implement a supermarket ombudsman with powers to proactively investigate the market. This recommendation came after significant efforts failed to encourage UK retailers to sign up to a voluntary code of practice.
The UK has had a grocery supermarket code of practice (GSCOP) since 2002. Indeed, the EU and Members States are increasingly looking to implement legislation in the market to curtail retailer buying power. It is widely acknowledged that the UK Code of Practice wasn’t sufficiently robust to regulate trading relationships effectively. As a result, the UK Competition Commission has recommended that the Government Department for Business, Innovation and Skills set up the ombudsman function to police the code of practice.
FDII’s submission to the Tánaiste and Department of Enterprise, Trade and Employment recommends that Irish policy-makers introduce legislation and establish an ombudsman rapidly, effectively leapfrogging the seven-year learning period where the UK established that a voluntary code of practice isn’t sufficient for any grocery sector. Most importantly, FDII believes that the ombudsman must have legal powers to proactively investigate the market, they must have powers to demand information where appropriate. Providing suppliers with some ‘whistleblower’ structure to speak out against unfair practices as defined by the code is essential if the legislation is to have any impact.
The Tánaiste has stated that she will introduce a code of practice in the grocery sector in the near future. The scope and scale of this code will be hotly debated over the coming weeks in a public consultation period. FDII believes this is an opportunity for policymakers to take an essential step towards ensuring a sustainable food supply chain in Ireland. This will mean a choice of quality products at a fair price for the Irish consumer whilst securing thousands of jobs in Irish food companies and the livelihoods of hundreds of thousands of agricultural producers.