Is regulation of the grocery sector imminent?
The Competition and Consumer Protection Bill 2014 is intended to introduce major reforms in consumer protection, the grocery goods sector and media mergers. Can we actually believe that there will finally be real regulation in the grocery sector or is this simply another step in the unending cycle of promises that has come from the government on the issue? Fionnuala Carolan reports
22 April 2014
How long have we been talking about the introduction of a Grocery Code of Conduct? It seems like forever and we were starting to believe that the government were just paying us lip service on the issue, so it was surprising this month to see some real movement on the matter. Described as ground breaking legislation (we’ll reserve judgement for now), the Minister for Jobs, Enterprise and Innovation, Richard Bruton published the Competition and Consumer Protection Bill 2014 on 31 March. It is intended to deliver on two Programme for Government commitments and to introduce major reforms in consumer protection, grocery goods sector and media mergers.
This legislation, if passed, would see the merging of the National Consumers Agency and the Competition Authority and is expected to create savings of approximately €170,000 per annum, according to the Minister, as there will be no fees needed to pay a board or chairperson (or associated costs such as travel and subsistence for board members).
On publishing the legislation, Minister Bruton said that this was a major piece of reforming legislation that had three main objectives. He said: "Firstly, as part of the programme of reform we are implementing across the Department of Jobs, it will merge the Consumer and Competition Agencies to create a powerful watchdog with real teeth acting to protect and vindicate consumers. New criminal investigation functions are being added to the significant powers that already exist to combat serious white-collar crime and ultimately combat higher prices and protect consumers.
"Secondly, we are introducing strong regulations and powerful new investigation and enforcement powers to ensure fairness between suppliers and retailers in the grocery goods sector. There is potentially a real inequality of arms between these players which can be abused in a manner that is not in the interests of jobs, consumers or sustainable safe food. Relationships will continue to be based on commerce and prices will continue to be set by hard negotiations – this is in the interests of consumers. However new legal requirements for record-keeping and the inclusion of certain terms in written contracts together with strong enforcement powers will ensure that these relationships are fair and sustainable.
"Thirdly, diversity of content and diversity of ownership across the media remains an important part of a healthy democratic society. We are retaining the basic model of current laws, based on the principle of avoiding intervention by government in media ownership except in specific circumstances following procedures determined by law."
What does the new bill hope to achieve?
The new merged body will comprise a chairperson and between two and six members. The structure is modelled on that of the Competition Authority and there will be no board. The initial members of the new merged body will be the chairperson and members of the Competition Authority and the CEO of the National Consumer Agency.
The bill gives the Minister the power to make regulations about procedures that must be followed in commercial relationships in the grocery goods sector. It is aimed at preventing practices such as unilateral alteration of contracts by retailers, requiring ‘hello money’ for space on supermarket shelves, suppliers being required to bear the cost of promotions by retailers or for wastage or shrinkage. However the supermarkets believe that this sort of legislation is not needed and that the sector can regulate itself. Willie O’Byrne, managing director of BWG says that they are concerned that every additional layer of statutory obligation imposes further cost on the industry. Retailers would be more in favour of a voluntary code of conduct than anything of a statutory nature.
However, the Minister believes that regulations would be more appropriate than a Code of Practice as these will have full legislative force and be enforceable by the Competition and Consumer Protection Commission (CCPC).
The Minister intends to draft regulations soon after the enactment of the bill and intends to liaise with the Department of Agriculture, Food and the Marine and to take into account the contributions to the Oireachtas during the passage of the legislation.
The Minister may also introduce an initial series of regulations reflecting some of the powers open to him and assess how these work in practice in the market for a period of time before amending or adding to them. Among the matters which he has the power to make regulations are:
• the circumstances in which a contract may be varied, terminated or renewed;
• the manner in which specific terms such as payment or sale of goods on promotion are to be incorporated into contracts for the sale or supply of grocery goods;
• the manner in which payment for the resolution of a customer complaint may be determined between grocery goods undertakings;
• whether they may or may not seek payment from a supplier to secure better positioning or an increase in the allocation of shelf space for that supplier’s goods
Failure to comply with a contravention notice constitutes an offence and is liable for fines from €3,000 to €100,000 and/or imprisonment from six to 24 months.
The CCPC will have the power to publish a list of relevant grocery goods undertakings and name and shame those who have been found guilty of contravening the regulations.
The bill states that the introduction of any regulations does not guarantee anything in relation to the prices received by any given link in the supply chain. Negotiations on price will remain an issue between the suppliers and retailers as happens in any commercial relationship. The Minister stressed that the new regulations are intended to regulate certain practices, not set prices.
Reaction to new bill
Food and Drink Industry Ireland (FDII), which represents the suppliers in the Irish food sector has welcomed the publication of the bill and its provision to allow for a statutory code of conduct in the grocery sector.
FDII director Paul Kelly told ShelfLife that if it was introduced, it would have to be effectively enforced. He said: "Food and Drink Industry Ireland (FDII) has consistently called for the introduction of legislation to address the unfair trading practices that flow from the imbalance of power between suppliers and retailers. The supply sector – food companies and food producers – which employs approximately one in eight people across the economy is seeing increasing pressure on margins and escalating costs in retailers’ supports. This is leading to reduced product choices, reduced quality, lack of competition and diversity and ultimately poorer value for the consumer.
"Unfair practices faced by food companies include a failure to respect contractual terms, de-listing threats and unilateral deductions off-invoice without sound business reasons. In the short-term these demands impact on individual suppliers, but ultimately they are also bad for consumers.
"Consumers are best served by a grocery market that is both fair and competitive, one that offers choice and convenience, and provides an outlet for new products and suppliers.
"Across Europe, authorities are taking steps to better regulate trading relationships to stop large retailers making unfair demands of suppliers. The UK last year appointed a Groceries Code Adjudicator to enforce its code.
"The bill has taken an unnecessarily long time to be published. It is now critical that the regulations in the bill are implemented urgently by Minister Bruton and that there are no further delays."
Director of Retail Ireland, Stephen Lynam said that retailers should have nothing to fear from sensible regulation. He said that Retail Ireland has always been supportive of fair practices in the food supply chain and is committed to the provisions of the recently introduced European voluntary code of practice in this area. "Our position has always been that retailers have nothing to fear from sensible regulation. As such, we welcome the fact that the bill does not provide for an expensive, cumbersome and bureaucratic code of conduct.
"While we continue to study the contents of the bill, and its impact on retailers, we urge the Minister to ensure that all decisions ultimately made under the bill are reasonable and proportionate. Given the very narrow margins retailers are operating under, any move that would increase business costs would likely lead to increased prices for consumers," said Lynam.
Retailers are still wary of any new legislation on the matter and would prefer if the sector was self-regulated. Willie O’Byrne, managing director of BWG describes the proposed code as "superfluous" and says that the company has outlined its views in a written and oral submission to John Travers who compiled the report which has ultimately led to this bill.
O’Byrne said: "Our overarching concern is that every additional layer of statutory obligation imposes further cost on the industry. Unnecessary bureaucracy can impact on the pace of business and at least right now, the pace of overall economic recovery."
When asked whether he believed that the bill was skewed towards the supplier and will interfere with existing commercial arrangements with suppliers, he answered: "We do believe the bill is skewed towards the supplier and in our submission we made the case for putting in place reciprocal protections. For example, at the time when the euro almost reached parity with sterling we cited difficulties with changing exchange rates being passed on in wholesale prices and ultimately to the consumer.
"As far as BWG Foods is concerned, we have always acted in accordance with the highest standards in our dealings with suppliers and there is nothing in the bill which will impact on our day to day activity."
Meanwhile Musgrave told ShelfLife that it was still reviewing the bill and its sentiments were similar to that of BWG.
"Musgrave is still reviewing the Competition and Consumer Protection Bill. We have, however, been consistent in our view that we would welcome an initiative which takes a balanced approach to the relationship between suppliers and retailers, is pro-consumer, does not involve excessive regulation or cost and would not create a situation where retailers would increase sourcing from the UK or further afield."
Tesco has said that it welcomes the bill but stresses that it supports a voluntary code of conduct. A spokesperson for Tesco told ShelfLife: "We welcome the publication of the Competition and Consumer Bill and we will now take some time to study the contents of the new bill and we will await the publication of draft regulations by the Minister. Tesco adheres to the highest business standards and is a signatory to the voluntary code of conduct."
So in essence we are closer to a code than ever before but yet it is still difficult to believe that this will ever cross the line and become law. Whatever happens over the next few months will be hugely significant for the future of the grocery trade in Ireland. We will follow the progress of the bill with interest and hope for a timely resolution.