Plans to develop a buyers’ charter, proposed by the NFU as a means to improve trading relationships across the supply chain, were given a warm reception by the OFT in its review of the supermarkets code of practice.
The OFT said it welcomed the development of the charter, provided that it complied with competition legislation.
NFU head of food and farming Robin Tapper was delighted with the OFT’s backing: “The OFT supported our view that there is a need for straight dealing and there are issues with transparency. We can now take this forward and discuss it with government.”
British Retail Consortium director general Kevin Hawkins said the charter was “something everybody within the industry could sign up to, rather than something that was imposed from outside”. But he warned
the various parties in the supply chain were “some distance away from drawing it up in a format that is suitable for discussion”.
Many believe that the OFT has been forced into backing a new voluntary charter because, as it admits in its report this week, changing the existing code to make it more effective would entail too many legal and practical difficulties which would make it unattractive. Hawkins said: “The code emerged from findings by the Competition Commission that certain practices were against the public interest, and the OFT couldn’t arbitrarily decide to vary it without going back to the Competition Commission and having another inquiry.”
The OFT also ruled out calls to change the disputes resolution processes tied to the code, effectively dismissing calls for an ombudsman to preside over rows between suppliers and supermarkets.
The NFU’s Tapper said this was welcome because it would not mean more regulation.
He said the buyers’ charter – which will cover the entire supply chain – would get round the problem of suppliers being too scared to report breaches because these would be detected during regular independent auditing that will be at the heart of the charter.
On the face of it, the OFT has given the big chains a clean bill of health when it comes to the code of practice.
However, it says this is largely down to a lack of complaints from suppliers and says the code is not being used to resolve disputes.
The OFT says that while there were some breaches of the code in relation to lump sum payments, mostly to do with Safeway, suppliers did not question the payments.
It revealed that Safeway had demanded loyalty payments of up to £2.5m from its suppliers to guarantee business on 44 occasions in 2003.
There were two similar violations recorded, both related to Sainsbury, which were described as “isolated examples under exceptional circumstances”. The OFT acknowledges suppliers could be reluctant to come forward and complain - thereby jeopardising important trading relationships.
But it adds: “The code’s success depends on it being used. Suppliers should overcome the fear of complaining and use the code’s dispute resolution procedure.”
It says supermarkets and suppliers shoud write down terms of business - “to avoid misunderstandings and ensure that bargains struck are kept”.
Given the lack of complaints, the OFT believes varying the code would be unlikely to deal with its perceived problems and have legal implications.
But it is urging suppliers to contact it by May 31 with evidence of any breaches of the code or other examples of anti-competitive practices.