Business and Trade Committee
Oral evidence: Food and fuel price inflation: will prices come down this year?, HC 1595
Tuesday 27 June 2023
Ordered by the House of Commons to be published on 27 June 2023.
Members present: Darren Jones (Chair); Jonathan Gullis; Antony Higginbotham; Jane Hunt; Ian Lavery; Anthony Mangnall; Andy McDonald; Mark Pawsey.
Environment, Food and Rural Affairs Committee members also present: Sir Robert Goodwill; Ian Byrne.
Questions 90 - 106
Witnesses
II: Mark White, Groceries Code Adjudicator.
Examination of Witness
Witness: Mark White.
Q90 Chair: Good morning, Mr White. Thank you for bearing with us. We are running a little over, so we are grateful to you. We will have to finish at midday today, I am afraid. Just for the record and for people watching, could you please explain what it is you and your organisation do?
Mark White: I am Mark White. I am the Groceries Code Adjudicator. I am the person appointed to regulate the Groceries Code between the 14 designated retailers, selling more than £1 billion a year each of groceries, and their direct suppliers.
Q91 Chair: What specifically does your organisation have in terms of powers around food price inflation?
Mark White: Food price inflation in terms of pricing itself is not part of the code, so either retail pricing to consumers or retailers pricing with suppliers. However, inflation clearly is a concern across the economy and in this sector in particular, and I am very conscious of everything that the Committee has heard today in terms of consumer pricing.
Having engaged with suppliers about the process for setting cost price increases, I set out in January 2022 to agree seven golden rules with retailers to regulate the way those cost price negotiations are conducted, to provide transparency and detail about how long the process would take, to ensure that the process is fair, although I cannot set price.
Q92 Chair: One of the things that I am left with, having listened to the evidence just now, is a concern that, although we might have a competitive market at the customer front door, in the supermarkets, the resilience of the structure does not feel like it is in the right place. They are all very exposed to international events, whether it is climate, supply chain disruption, energy prices, paperwork or tariffs. All of that type of stuff seems to be adding a lot of cost, with a lack of resilience underpinning the supermarkets. We have seen that in the energy sector recently and had to deal with the consequences of that. Are you worried about the resilience of our food supply chains in the UK?
Mark White: My priorities are informed by what is going on in the sector and also by what suppliers are telling me. They tell me things in confidence because I have a statutory obligation of confidentiality. Since my appointment there have been all sorts of issues that have faced the sector. During the pandemic it was really about suppliers and retailers working constructively together to deliver product on shelf for consumers.
As we began to come out of the pandemic, some of those issues that you have just spoken about have come to the fore. We have seen shortages of raw ingredients. There have been issues around HGV drivers and labourers. That morphed into inflation generally. The Committee heard a few minutes ago about the cost of feed and how that has fed in. Shortages on raw ingredients and packaging costs have all led to inflation.
This is a very dynamic sector. Energy prices, as you have just mentioned, have really impacted it. What I am hearing from a number of suppliers that I am engaged with is that this could result in insolvencies in their businesses, putting them out of business. Therefore, there would not be supply to retailers and therefore choice for the consumer on the shelf.
Q93 Chair: I do not know whether this is Government, you or the industry, but has anybody done an assessment of the security of the food supply chain in terms of a resilience assessment? Have they looked at that holistically?
Mark White: At the Farm to Fork summit that was held in Downing Street last month, the issue of food security, bringing suppliers and representatives from the supply side and producers together with some of the retailers was very much the theme, to begin to look at how we address that holistic issue of making sure there is proper supply, and local supply perhaps, to provide consumers with choice.
Q94 Antony Higginbotham: I have three hopefully quite quick questions. Looking at the 2023 survey, it is obviously good to see that the percentage of code compliance is increasing, but I wonder what the severity of non-compliance is. Is it the case that, while compliance has increased, the severity of non-compliant cases has increased?
Mark White: The results of the 2023 survey, as you said, show an improvement in code compliance, notwithstanding the very difficult year that we have seen in the sector. If I look back 10 years, code compliance was at 73% in 2014. On average, it is 92% in my 2023 survey. To your point about individual issues, 79% of respondents in the 2014 survey reported that they had had code issues with retailers. In 2023 that was 36%, so a reduction.
Eleven out of the 13 retailers that were part of the 2022 survey increased their compliance scores, with eight out of 13 increasing by more than 3%. If I look at M&S, its score of 99% was the highest ever score achieved in the survey. Year on year, there are always pockets of issues that arise. The way I deal with those is to engage with each retailer on their results and to work on an improvement plan to deliver an improvement. It is very bespoke, because quite often the issues are very individual to individual retailers.
Q95 Antony Higginbotham: Take a typical supermarket. It has done all the low-hanging fruit, for want of a better phrase, and so the only issues left for non-compliance are the really complex, serious breaches. That is not what you are seeing?
Mark White: No.
Q96 Antony Higginbotham: Amazon was included for the first time in 2023. It is at the bottom of the table, but historically, when the code first came out, that is where you would expect it to be. What plans have you got to work with Amazon to increase that?
Mark White: As you say, Amazon is at the bottom of the table, and it is of course concerning. If you look back at 2014, that score is not too dissimilar to what retailers were scoring 10 years ago. Retailers’ scores have improved across the 10-year period since the survey started. Amazon has made changes to its processes, so it has made changes to de-listing. It has made changes to notification of deductions on forensic audit claims.
What the survey helps me to do is really to pinpoint those areas for Amazon that it needs to work on, and I will be engaging with Amazon to work up an improvement plan. That is no different to the approach that I will adopt with all of the retailers.
Q97 Antony Higginbotham: Do you feel you are getting the right level of engagement from Amazon to dramatically increase its compliance in short order?
Mark White: I am getting the right level of engagement. There is sometimes a little time delay between taking action to correct something or to correct a perception, and it delivering results. I would very much encourage Amazon to look at its communication to suppliers and to really tell them what it is that it is doing to change. May I use this opportunity to remind suppliers to please come and talk to me if they are experiencing issues with Amazon? I have an absolute obligation of confidentiality.
Q98 Antony Higginbotham: What you just said leads me on to another point. Have you a significant increase in the number of suppliers coming to you since Amazon was brought on to the code?
Mark White: At around the time of designation, which was in March 2022, there was an uptick in the number of suppliers coming not just to me, but also going to the code compliance officer at Amazon. I very much encourage suppliers to go to the code compliance officer to raise issues. That then plateaued and has come down.
Q99 Antony Higginbotham: I just want to turn very briefly to indirect suppliers such as a dairy farm. What is your general view on expanding the code to include them?
Mark White: I recognise that such a change would be welcomed by some primary producers. Primary producers provide me with very detailed and very useful insight. I do not differentiate in my engagement with suppliers between indirect and direct, because, as far as I am concerned, all of their information is very helpful.
I hope the existing work I do benefits primary producers. I hope my seven golden rules in terms of clarity on a CPI process filter down to the primary producer. I have interventions with retailers, asking them to have buyers in role for two years to improve their understanding of the category. Crop-growing cycles is an example where I am really hoping that buyers will better understand the challenges that are faced by suppliers.
Commercial models adopted by the retailers change. Many retailers adopt a model where they go through a consolidator or a buying desk, but other retailers contract directly. Today’s primary producer is tomorrow’s direct supplier, and a little bit vice versa.
Any changes to scope would require an examination of whether the powers that the GCA has are appropriate for a wider scope. We would need to look at resourcing. At the moment I am regulating a relatively small number of retailers with a relatively small team. If that were to change we would just need to understand what the financing implications would be and how the operating model for the GCA would need to be adapted to ensure that it was both effective and efficient.
Q100 Antony Higginbotham: You could see a benefit to bringing it into your remit, providing you were resourced appropriately to do so?
Mark White: Indeed, but the assessments would need to be done first.
Q101 Andy McDonald: You mentioned the word “power”, which interests me, because you have talked an awful lot about engagement and encouragement, but there is a power imbalance, is there not, between retailers and suppliers here, which is fundamental to this? We heard from the EFRA Chair that people risk going out of business. You said it yourself, Mr White, about those goods not being on the shelves. Is there something to address there, fundamentally, in this relationship? What sort of work would need to be done to correct it, if indeed you think it needs correcting?
Mark White: The code exists to address that power imbalance, as identified by the Competition Commission back when it reported in 2008. At its heart, it is about transparency in the relationship. It is about not transferring unexpected costs and risks to suppliers. Fundamentally, it works, but a number of retailers say to me that there are several suppliers to them that are exponentially larger than them, so the power imbalance is not always necessarily retailer on supplier. Sometimes we see it the other way around.
Q102 Andy McDonald: What is the proportion? Is it more retail, more supplier, or is it invariably retailers with power and suppliers without?
Mark White: As a general proposition, retailers are bigger than suppliers, but there are pockets of suppliers that are much bigger than retailers as a whole, perhaps in certain categories.
Q103 Ian Lavery: In line with what Andy has just been saying with regards to the suppliers and the GCA, in the past suppliers have reportedly been in fear to come forward with any evidence of any non‑compliance to the GCA. I surmise that this is largely because they might lose the contract, and that is understandable. It appears to be slightly better now than what it was. I am just wondering what assurances you can give to the suppliers, in the main, that are coming forward with evidence. The legislation and regulations that you have in place are actually there to protect them.
Mark White: My statutory obligation of confidentiality is absolute, and I take every opportunity to remind suppliers that that exists and that I will protect their identity. I have worked with the retailers because I recognise this issue. I secured the retailers’ agreement in 2021 that code compliance officers at the retailers will listen to the concerns of all suppliers on a confidential basis, effectively extending my confidentiality obligation to the retailers, and to pass control over confidentiality to the supplier. It is up to the supplier to decide when or if it is comfortable with information being shared further within the retailer organisation.
Earlier this year I extended that CCO confidentiality commitment, with all of the retailers agreeing that suppliers would not face any negative consequences should a supplier come to a retailer to report a code issue. There should be no retaliation and no negative consequences, and that is being policed within their organisations.
In 2021 I set up a completely anonymous 24/7 Tell the GCA reporting platform. It is available in numerous languages to enable overseas suppliers to contact me. It enables those suppliers that still do not wish to come to me and tell me their name to report a practice or an issue completely anonymously. I make it known to suppliers that I will meet them in any way that they feel comfortable, be it online, face to face, telephone, email or however they wish to engage, and reassure them of that obligation of confidentiality that I have.
Q104 Chair: Mr White, you sat through the first session and heard the answers from the supermarkets. Do you have any reflections on their answers to our questions?
Mark White: What I heard from suppliers as inflation began to take off was the difficulty of penetrating the retailer organisations. Who do you speak to? How do you get a cost price increase agreed? The sheer volume took people by surprise, hence I worked with them on the seven golden rules to improve the processes.
Although retailers’ answers to cost price increase requests, as shown in my 2023 survey, are not always the answers that the supplier wants, the processes now are much smoother. They have understood the volume. They have organised themselves to make sure that they are able to touch the data that they need in order to make their decisions.
We heard from Ms Bartlett about the potential for inflation to have plateaued. That does not mean prices are going down; it just means they are going up less fast but then perhaps coming down. I am keen to make sure that my seven golden rules and those principles that we have established work on the way down as they did on the way up.
Q105 Chair: One of the interesting changes in the supermarket market is the change in ownership structure. We have a couple that are still publicly listed, Tesco and Sainsbury’s, and then we have Asda, which has just been bought privately but with a very heavy leveraged debt purchase method. We then have Morrisons, which has just been bought by a private equity company. Do you have any early signs that the change in ownership or corporate governance is affecting the behaviour of the supermarkets in any way?
Mark White: No.
Q106 Chair: Not yet. Is there anything else you wanted to say to us before we wrap up?
Mark White: If the businesses in your constituencies need to contact me, could I please ask you to share my name and my details? That would be very helpful.
Chair: We would be very happy to do that. Thank you for bearing with us today. Sorry that it was so short at the end, but we are very grateful to you. We will now call the session to an end.