Monday comment
Time for a fair trade
ofconduct if it is to make up for past mistakes and save the food
industryfrom a spiral into anti-competitive practices.
The power of the Big Four - Tesco, Asda, Sainsbury's andSafeway/Morrison - has grown to such damaging proportions that it isdistorting the rest of the supply chain and damaging business. And it is thegovernment's failure to act last time that is to blame.
The Competition Commission investigation in 2000 found more than 30exploitative practices directed by supermarkets at their suppliers. Yetinstead of necessary regulation, a voluntary code, amended by thesupermarkets, was put in place. This has only enhanced and entrenched theposition of the Big Four, who now occupy more than 80 per cent of thecountry's food retail market and can dictate terms to suppliers withimpunity.
The current code does little to protect suppliers. It contains no minimumrequired contract terms between food suppliers and the major supermarkets.
And it renders suppliers impotent. There is no independent ombudsman.Suppliers are expected to complain to the supermarkets themselves: animprobable action in the face of fragile relationships with powerful andfickle buyers.
Moreover, the code's inadequacy has only become more apparent with time.In 2001, a year after the Competition Commission's original investigation,Tesco occupied 15.6 per cent of the UK food market and recorded a profit of£1.07bn. It now occupies almost a third of the market and has topped the£2bn profit mark.
In the face of such unchecked power, and with no redress, food processorsare themselves now consolidating into tight concentrations: hinderinginnovation and consumers' choice, and pushing unrealistic price pressures upto raw material suppliers.
Thus, what began as a successful out-of-town shopping formula isgalloping forwards as the end of a competitive food industry.
But the opportunity for change is approaching. The Office of Fair Trading(OFT) last year quizzed suppliers, trade associations and the Big Foursupermarkets about the efficacy of the current code. More than 80 per centof respondents said that it had failed to bring about any change insupermarket behaviour.
In March, the OFT said it could therefore not 'allay the concerns whichhave been expressed' about the code's effectiveness. Following a complianceaudit, the OFT is now in a phase of consultation.
This then is the industry's chance. It must use this consultation period,which ends this month, to push for the establishment of a legally bindingcode of conduct that protects suppliers from the bullying behaviour of bigsupermarkets - and enables them to speak out without fear of losing theircontracts.
The OFT seeks evidence of the exploitative practices that are nowcommonplace. But the industry must demand more: a new, independent body toconduct the complaints, and real, punitive action in the event of abuse.
If there is to be space in the food industry for competition anddiversity, now is the time to act.
Anthony Fletcher is aspecialist writer on supply chain issues and the former editor ofFoodProductionDaily.com. He contributes to many food industry publications,and has recently been appointed editor of FoodNavigator-USA.com. He holds anMA in International Relations and has lived and worked in the UK, France andJapan.
