Safeway decision must wait for code review

17 February 2003

Friends of the Earth is calling on the Office of Fair Trading (OFT) to ensure that its recommendations on the proposed Safeway merger take into account the review of the Supermarket Code of Practice. The OFT is inviting comments on the Code of Practice - introduced a year ago to protect suppliers from unfair trading practices - until the end of March but it is expected to make a recommendation to the Secretary of State on the bids for Safeway by the middle of March.

The OFT said today that its review of the Code "will be treated as a separate issue from the supermarket mergers currently under consideration". But Friends of the Earth says that because the supermarkets' relationship with their suppliers is a key issue in the merger decisions, further consolidation in the market shouldn't be allowed if the Code is found not to be working. Friends of the Earth has already called for a full investigation into the merger proposals by the Competition Commission and is now stressing that evidence from suppliers about the effectiveness of the Code should be a key part of the investigation.

There is already considerable anecdotal evidence that the Code of Practice, which applies to the four supermarkets currently in merger talks (Asda, Safeway, Sainsbury's and Tesco), is not working. It has been slated by Friends of the Earth, the Fair Deal Group (which represents supermarket suppliers) and the NFU which called it "flawed and ambiguous".

The Competition Commission report in 2000 concluded that the existing market power of the biggest supermarkets already enabled them to engage in practices which are anti-competitive and against the public interest. It pointed out that the resulting loss of smaller suppliers, and suppliers fearful of introducing new products, would lead to a decline in consumer choice and quality of goods. The Code of Practice between supermarkets and suppliers is the only action the Government has taken to address the problems highlighted by the Competition Commission report and even that does not seem to be working. Friends of the Earth is concerned that the additional buyer power that a merger would create would be disastrous for farmers and consumer choice.

"The Government cannot allow a merger between Safeway and a rival whilst the Supermarket Code of Practice is still under review. The issue of how supermarkets treat suppliers is fundamental. The Code is weak and vaguely worded and anecdotal evidence suggests that it is not working. If this review confirms that supermarkets are still abusing their power, tough new rules should be introduced and the Safeway merger should be stopped," said Friends of the Earth Food and Farming Campaigner, Sandra Bell.

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