Chaos rules in supermarket shake-up

14 February 2002
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14 February 2002

Proposed last-minute changes have thrown guidelines for disputes between suppliers and the UK's biggest food stores into confusion, writes Robin Parker

Supermarket buyers and suppliers will be disheartened that after nearly 18 months' wait, the direction of the guidelines for settling trade disputes has again been thrown into doubt.

For all the criticisms levelled at the Department of Trade and Industry's code from both sides, it is a laudable attempt to monitor relations between the four retail giants and their thousands of smaller suppliers.

In a multi-billion pound industry, there are bound to be constant enormous pressures on supply chains, and guidance is vital to ensure that everyone acts fairly. So it is surprising that, only a month before the code comes into effect, another government department has called for several key changes.

As our lead story reports, the Policy Commission on the Future of Farming and Food wants changes to the way buyers and suppliers use external mediators in long-term disputes, and has also called for a formal review of the code after two years.

Since the DTI only announced the final guidelines in December after extensive talks with supermarkets and supplier groups, its reaction is understandably somewhat cool.

The intervention of the commission, a recently established wing of the Department for Environment, Food and Rural Affairs, strikes an odd note in this age of supposedly "joined-up government".

Since the code was intended as a legally binding version of long-standing voluntary agreements between supermarkets and their suppliers, this should have been a simple process. It was born out of a Competition Commission investigation in October 2000, which sought to regulate 12 areas of supplier relations, such as prompt payments and banning retrospective discounts, to stop supermarkets acting against the public interest.

At first, the supermarkets resisted the interference, but once enforcement became inevitable they worked with the Office of Fair Trading to ensure that the spirit of their voluntary codes was being adequately carried on. Many suppliers have yet to be placated by the code, maintaining that supermarkets will be able to flex their dominating muscles long before independent mediators are brought in.

But after such a long wait, all parties are eager to get into the spirit of open supply relations that the code aims to provide.

K-Mart reminder

They know that agreeing terms and conditions up front, and in writing, will at least bring more formality into trading relations. The recent bankruptcy of the US chain K-Mart provides a timely reminder. After it failed to make millions of dollars worth of payments on time, key suppliers deserted a rapidly sinking ship.

While the latest proposals are unlikely to delay the introduction of the code any further, the importance of the policy commission's report should not be underestimated.

Agricultural suppliers have only recently emerged from the foot and mouth crisis, which crippled the industry for a full year and jeopardised many a farmer's livelihood.

And they are not taking it lying down. In the past fortnight, Tesco has been in discussions with Farmers for Action, a nationwide protest group that threatened to repeat last year's blockades of its depots if demands for extra payment for supplies was not heard.

Tesco will be pinning hopes on its monthly producer club meetings, which provide a forum for suppliers to vent their concerns. A similar commitment has been pledged by Sainsbury's since 1991, with its Partners in Livestock Scheme.

Some supermarkets have said that external intervention to settle disputes with suppliers will be the exception rather than the rule. However, the same retailers admit that priority suppliers - the multinational conglomerates - are unlikely to be subject to the code in any practical sense, as they talk to them directly.

But the code reaches to the heart of the UK food supply chain, and the 400 complaints received by the Competition Commission in its investigation should not be taken lightly. While it is unlikely to allay some of the smaller suppliers' fears, the code will at least force supermarkets to think and act responsibly or face the consequences.

For this to happen, buyers will be praying that government departments stop their in-fighting and tackle the long-term needs of an increasingly competitive industry.

SMfeb2002

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