Archived press release

Oft fails to act on unfair supermarket practices

22 March 2005

Campaigners are urging the Department of Trade and Industry (DTI) take urgent action on supermarket abuses of power. The call comes as the Office of Fair Trading publishes the results of its audit today on how the top four stores comply with the Supermarket Code of Practice. The audit revealed that supermarket practices had not changed significantly since the introduction of the Code, and that the position of suppliers has become weaker.

The OFT admits that that they cannot `allay the concerns which have been expressed' about the codes effectiveness and are unable to tackle the social and economic problems caused by the dominant position of the large retailers. Astonishingly, despite the huge difficulty they had in getting evidence from suppliers, who are too scared to complain, they have not recommended a new independent ombudsman [1].

The need for action has never been greater as analysts predict yet greater concentration of supermarket power in the year ahead.

Friends of the Earth Senior Food Campaigner Vicki Hird said:

"It is hardly surprising that the OFT has been unable to uncover significant breaches of this flimsy Code of Practice. The supermarkets have effectively written the rules, and these require them to do almost nothing at all. DTI Minister Gerry Sutcliffe must now call for a complete overhaul of this spineless code. The Government should champion the environment and society and tackle the supermarket bullies that are causing so much damage."

The OFT is calling for responses to its report by May. But the `Breaking the Armlock' Alliance, which includes environment, development, consumer and farming groups has written to Gerry Sutcliffe MP, DTI Minister, urging him to act on the Code and wider concerns without further delay [2]. The Alliance says that enough evidence of unfair supermarket practices already exists to demonstrate that the Code in its current form, will not work [3]:

• The Competition Commission Report in 2000 listed 52 kinds of abuse.
• The OFT's 2004 review of the Supermarket Code of Practice found that 80 to 85 per cent of respondents claimed the Code has failed to bring about any change in supermarkets' behaviour.

As the OFT mention, there also have been a number of dramatic changes in market concentration since the code was introduced in 2002. Most recently:

• A number of major takeovers in the convenience store market have led to even more concentration in the market and an increasing imbalance of power in the food chain.
• Tesco is expected to hold 30% of the UK groceries market by June 2005 [4], and to lead the convenience store market by the year end.

The Alliance is demanding an independent and confidential watchdog, which will allow suppliers to bring forward complaints in confidence. Under the current system suppliers are unlikely to report abuses as complaints must go through the retailer, putting their livelihoods at risk.

The Alliance believes regulation is the only approach that will to stop supermarket abuse of power. Evidence shows that even the most robust voluntary initiatives with supermarkets do not work. Farmer, development, environmental and consumer organisations across the UK and globally are now calling on their governments to introduce regulation to protect suppliers, consumers and independent retailers from increasing supermarket power.

Andrew Simms, Policy Director of nef (the new economics foundation) said:

"The danger of the rise of the superpowers retailers is that the process becomes a one way street. Once small independent stores get sent to the wall, there are often insurmountable barriers to get back into the high street. Our biggest supermarkets are killing off diversity on our high streets while the regulators stand idly by. If the Government is to be the entrepreneur's friend andsave space in the market for smaller, independentbusinesses, it needs regulators with teeth and it needs them now."

The Code is also failing to protect overseas suppliers. The UK Government promotes market access, but when developing country producers start to supply the UK supermarkets they are often forced to accept prices below costs of production, cover the cost of discounts, and make 'donations' at the whim of the supermarkets. Bananas are the single biggest profit making item sold in supermarkets and yet prices paid to suppliers makes it impossible to pay workers a living wage on some plantations supplying the British market.

In the UK, farms and farm workers are being lost at an alarming rate, with an average of 25 farmers and farm workers leaving farming every day. Farmers' share of the food pound has dropped to 7.5p from 50p fifty years ago.

Several members of the Alliance believe a market study on the impact of the changes on suppliers, consumers, and high street retail diversity, is now essential [5] and have written to the OFT to request this new analysis. The OFT is expected to announce its decision when they release their findings on the Code.

Notes

1. Supermarkets: The code of practice and other competition issues March 2005 (OFT). Essentially the report The report concludes `Although the audit has found that, by and large, the supermarkets comply with the Code, we recognise that this will not be seen by all stakeholders as giving them a clean bill of health; nor does it allay the concerns which have been expressed about the Code's effectiveness. Wider-ranging concerns have also been expressed about competition in the supply and retail of groceries.'(para 5.2)

`It is an inescapable fact that no code can be effective in dealing with allegations of breaches unless evidence of those breaches comes forward'. (para 3.30)

2. Friends of the Earth is part of an alliance of 15 organisations calling for a strict Statutory Code of Practice to protect supermarket suppliers and an independent Retail Regulator to enforce it. The new Code would replace the existing weak and voluntary code introduced in 2002. The Office of Fair Trading is due to report on its audit of supermarkets compliance with the code in late February/March and a response from DTI is expected soon after. The `Breaking the Armlock' alliance says that it is already clear the existing code is not working and it must be changed without further delay. See www.breakingthearmlock.com

The Alliance includes Banana Link, British Independent Fruit Growers Association, farm, Farmers for Action, Farmers' Link, Farmers' Union of Wales, Friends of the Earth, Grassroots Action on Food and Farming, International Institute for Environment and Development, National Federation of Women's Institutes, nef (the new economics foundation), Pesticide Action Network UK, Soil Association, Small and Family Farms Alliance and WyeCycle

3. See for instance www.racetothetop.org.uk and ww.corporatewatch.org.uk/?lid=705 . Also see Homeworking in Britain: Flexible working or exploited labour?, National Group on Homeworking, 2004 .

4. Friends of the Earth press release 17th Jan

5. Friends of the Earth also wants a moratorium on any further takeover of other chains by Tesco. Over the last two years Tesco has been allowed to take over the T&S and Adminstore convenience store chains with no investigation by the competition authorities. It is growing its market power in this way and further reducing consumer choice. Along with the Association of Convenience Stores, the National Federation of Women's Institutes and FARM, Friends of the Earth has called for a new investigation into new trends in the grocery market including the impacts of the big four taking over convenience store chains.

Call for New Investigation into Big Four Supermarkets

New national planning policy guidance about town centres (Planning Policy Statement 6) was published on Monday by the ODPM now out. This planning guidance is welcome support for existing town centres, but it continues to require local authorities to identify sites for large stores. Hugh Ellis of Friends of the Earth says: "It's down to local authorities to make a stand. If they don't, big supermarkets may force them to release land in town centres for development, even if this restricts consumer choice by damaging local shops. "While we welcome any attempt to sustain and regenerate existing town centres, government planning policy should have gone much further to restrict the domination of our high street by an aggressive group of large retailers. Examples of the negative impacts of new retail stores are available from Friends of the Earth or see
www.foe.co.uk/resource/briefings/pps6_damage_town_centres.pdf (PDF)

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Published by Friends of the Earth Trust