Environment, Food and Rural Affairs Committee — Oral Evidence (HC 589)
1/25Time marching on is probably a reflection of my poor chairing, but it is also a reflection of just how much there is to talk about in this space at the moment. Jenny, can you lead us in the questioning on fairness in the food supply chain?
Thank you, Chair. There are a few sections that we will now go on to: profitability, the Groceries Code Adjudicator and other issues that specifically sit within the supply chain. I am not going to spend too long on my question because I appreciate the issue with the time, as the Chair set out. This is a topic that I and many in this Committee are very passionate about. We skirted around this debate a bit earlier in our conversation: the key challenge facing the farming sector is profitability, and we cannot have a viable, functioning sector without really addressing those root concerns. DEFRA has argued that equally over the last few months, making the case that the supply chain needs to be fairer. Can you talk to us about some of the proposed changes to tax and subsidies that you are looking at to come on board to really tackle this issue as a Department?
To tax and subsidies?
Where the Department’s thinking is on subsidies and shifting towards a more profitable sector, and a broad outline of what you are considering to increase profitability for the farming sector.
I am not sure I quite follow the question, but basically it is obviously a market-driven system, so it depends essentially on the relationships within the sector. I am perfectly happy to pay tribute to the Chair and his predecessors for intervening in this a decade ago, introducing the Groceries Code Adjudicator and GSCOP and so on, but there has been a clear sense over time that more needed to be done. As a consequence of the Agriculture Act, we now have the ability to introduce these fair dealing regulations, and we are taking that in a sector-by-sector approach. I am very hopeful this will actually improve the relationships through the supply chain. Without that, you are absolutely right to say that our aspiration to get the agricultural sector into a strong position as a business sector will depend upon the ability to get a fair price for the product.
Excellent. You announced that the fruit and vegetables aid scheme for producers will end in England on 1 January 2026. What engagement are you having with the industry and devolved Administrations to design an alternative to that?
That is one of the legacy European Union schemes; we are currently looking at what we would do to replace that. We are in conversation with people on that, but it was a legacy scheme that came to an end.
I appreciate that. In Scotland and Northern Ireland, similar schemes have been extended by the devolved Administrations. Why are you taking a different approach, and what are the potential implications of this?
We want to look closely to make sure it provides good value for money. Obviously, decisions that devolved Governments make are their decisions, we do not always take the same decisions.
We are now going to cover off the Groceries Code Adjudicator in some more detail. At the heart of this is the supermarkets and the profits they make at the expense of the farmers, the farming industry and producers. Can I get you to comment, Minister? Of the big six supermarkets, we saw Tesco make a profit of £2.8 billion, Sainsbury’s £700 million, Morrisons £835 million, Asda £1 billion, Lidl £43 million and Aldi £536 million. Of those big six, neither Morrisons nor Asda paid a penny in corporation tax over the previous year. Can that be seen as fair or right? We will go into some more detailed questioning on this, but for me and many farmers in my constituency, that sits at the epicentre of the challenges facing the farmers and producers who struggle to make a profit.
I suspect that I am going to answer in a similar way on a number of these questions. Some of these issues fall far more within the Department for Business and Trade remit, and that is who the GCA actually is accountable to. But my understanding is the Competition and Markets Authority did do an investigation into supermarket practices. They are very big businesses, and they do make profits, but that is what you would probably expect from some of our major businesses in the country. The issue for me is to make sure that we get a good, fair deal for farmers, and that is why we are looking at these changes to help achieve that.
I will be cheeky and raise another point before I pass on to my colleagues. I appreciate all of that and what you are saying about those excessive profits, but there is also the issue of farmwashing—where some of those supermarkets that I have just named will reframe some of the goods on their shelves as coming from family farms, when they are in fact coming from mega farms, and are sometimes imported, which is incredibly misleading to consumers. I appreciate that there was a consultation out for review that was started under the last Government and that has closed, and we are waiting for the results. But I really would urge the Minister that these issues do sit at the epicentre of some challenges facing farming. We have to tackle profitability, but we also have to tackle fairness and what the consumer sees as fair and right. It is actively misleading consumers when supermarkets—trusted supermarkets—are actively implying that something comes from a family farm when it does not. That is a real issue for me and many of my constituents, and we would urge you to address it in the context of profitability as well.
I understand the point you are making. What I would just gently say is there is a fairly clear legal system around labelling, and labelling should not be inaccurate. Where it is inaccurate, there is a legal issue. But we are, as you rightly say, looking very closely at the whole issue of labelling and it should always be accurate.
Thank you.
We are coming to Josh to lead some questioning on the Groceries Code Adjudicator, but can I just be clear what your starting position is here? Do you think that supermarkets and suppliers are treating farmers fairly?
There is unhappiness, clearly, within the agricultural sector about the way they are sometimes treated. But I would not want to characterise the food system as being anything other than actually, overall, successful. We do have a successful food system in this country. I am trying to choose my words carefully here because, sometimes, very successful businesses are unfairly castigated. But, quite clearly, there is a market power issue, and I hear regularly—
You are not concerned that that market power is being abused?
Whenever you have a situation where there is a strong level of power, there is always the possibility that that is hard for others who are price takers, essentially.
Do you understand why this matters?
Absolutely I understand why it matters, and it goes to the heart of my and the Secretary of State’s vision for the future: that farmers’ farms are successful businesses. But I also would not want to unfairly criticise other parts of the food chain, whether it be the food manufacturers or the retailers that, in my view, do a good job in keeping the country supplied with affordable food. But, exactly as has been described, there are power imbalances, and that is why we are addressing them and why there is a case for Government intervention.
And it is this tension between domestic production and cheap food?
Not necessarily; we have very efficient producers in our country.
Josh, you are going to pick up on the GCA.
Yes, thank you, Chair. The Groceries Code Adjudicator obviously exists to uphold standards in the supply chain and to tackle bad practices such as changing supply agreements retrospectively, late payments, and stopping or significantly cutting the volume of goods being sold without a genuine commercial reason and reasonable notice. So it is a really important body, but what has your Department done to look at whether the adjudicator has enough resource to proactively enforce the groceries supply code of practice?
Well, two things. As I say, it is actually directly a DBT responsibility, but my understanding is that there is a current review under way, the fourth statutory review, which began on 20 March 2025. I am told that Ministers in the DBT are still finalising the exact arrangements for the review, but it is in line with the Groceries Code Adjudicator Act. I cannot really tell you any more about that, but DBT tell me that it will provide an opportunity for stakeholders to share their feedback, and that this Committee’s interim report and the published evidence will also inform that process.
As I understand it, the adjudicator himself is able to set his fees and has not complained of a shortage of resource, and he can raise those fees on the retailers.
That is useful for us to know and maybe something for us to pick up. We have heard from some farmers—this was featured a “Countryfile” episode on Sunday—that they are afraid to complain about breaches in the code for fear of being delisted and therefore losing their income. That is despite the fact that the adjudicator can guarantee anonymity. I am sure you would agree that that is very concerning: we want people to be raising these bad practices where they exist. Because of that, there have been calls from the sector for the adjudicator’s functions to be broadened out, so it can proactively monitor the sector and investigate potential breaches of compliance, without the need for specific complaints to be raised. Do you see any merit in doing that? Would you be supportive of changes that enable a more proactive adjudicator?
Again, this will come through the review that is being carried out. But the case that has been made in the past against widening it is that its effectiveness has been that it has concentrated on those relatively few relationships directly with the retailers. On the anxiety about raising complaints, I absolutely understand that, but my understanding is that the Groceries Code Adjudicator, and certainly the Agricultural Supply Chain Adjudicator, have introduced processes whereby people can speak to them confidentially.
Often farmers feel that they are still identifiable, so the call from the sector is for a more proactive adjudicator, which would enable these things to be looked into in the round, without people needing to effectively stick their neck out and risk their income. I hope that is something that the Government are going to look at.
We will probably come on to the individual sector arrangements that are being made. It is at that level that we can have closer dialogue.
Another point of debate in the sector is the scope of the adjudicator. Currently it only covers the big players with turnovers of a £1 billion or more. There are lots of views on this, but evidence that we and previous Committees have had clearly suggests that there is merit in the Government lowering the threshold to bring more groceries businesses into the code of practice. The NFU, for example, has suggested that it be half the current level—£500 million. While this comes under the DBT, as you said, it clearly does affect the remit of your Department for the most part. I have laid down several written questions about lowering the threshold, and all I have had back from the DBT is that it is a matter for the Competition and Markets Authority. Clearly, the CMA is not going to take the decision to lower the threshold itself—decisions of that magnitude are a matter for Ministers. So can I ask you, Minister, whether you would be supportive of lowering the threshold?
I am afraid I am going to give you the same answer that you got from the DBT, which is that it is a matter for the Competition and Markets Authority, and for the reason I explained earlier: we think the Groceries Code Adjudicator is working well.
You think it is working well?
I think it is working effectively, yes.
In terms of the coverage—again, as I understand it—and the £1 billion threshold that it has, the 10 largest retailers cover 97% of groceries sold in the UK, so its remit is very large. There is a different question then about scope and other parts of the supply chain, which we think is addressed by the Agricultural Supply Chain Adjudicator. But in terms of scope for the retailers themselves, the biggest ones are already in and they are most of the sales of the UK.
That is what I wanted to come on to really with my final question. As you said, while the code covers most retailers, there are several individual players who also have got a direct relationship with farmers, aside from retailers, but who are outside the remit of the adjudicator currently—in particular, the food service and manufacturing sector. By most measures, as you said, the adjudicator has done a good job in increasing compliance, but because of its remit we are only looking at retailers, and that is only a part of the sector that the farmers are dealing with. The concern is that there is bad practice elsewhere that is not being tackled because of the remit. So would you support an extension of the scope of the code to include, for example, wholesalers and food manufacturing businesses?
Again, I would say this can be raised as part of the current review that is going on. Alongside that, we have the new regulations that are coming in that deal with the Agricultural Supply Code Adjudicator. But I hear the point about the wider issues, and I am certainly happy to look at that if evidence comes from your Committee to show there is a problem.
Thank you; I appreciate that. A lot of us feel that when we are trying to raise this, it very much affects DEFRA and DEFRA’s functions, but it sits with the DBT, as you said. The DBT keeps saying it is a matter for the CMA but, as I said, I do not think the CMA are going to be making major decisions around a potential widening of the code, which is something that the sector really seems to be clamouring for. So anything you can do to contribute to that, and help us contribute to that, would be much appreciated.
Can I just take you back to your assertion that you think the GCA is working well? In the last 12 years, there have been 13 arbitrations where the GCA has settled an issue between a supermarket and a supplier. On the “Countryfile” programme, the adjudicator himself was asked about an incident where his predecessor had told an applicant, “If you start an adjudication process it will have implications on your business.” He was then asked, “Who, if you’re a supplier, is there to protect you?” The answer was given, “Nobody.” Is that a system that is working well?
When I say the system is working well, what I mean is, in terms of the way it has been set up and what it has been asked to do.
How many people work for the GCA office?
Not many, in my experience. I do not know the exact number—I would have to go away and find out.
About seven?
Yes, exactly. If the Groceries Code Adjudicator comes and says it has passed its review and more resource is needed, then clearly that will be listened to. When I say—
Does natural curiosity not make you want to ask some of these questions without a review?
That is the purpose of having a review: that you look at it.
The problem here, Minister, is that if you do not think there is a problem, I cannot see much energy being put into finding a solution.
What we are doing is putting a huge amount of energy into introducing the fair dealing regulations, which we have the capability of doing, and it is really important that we concentrate our energy on that. That seems to me a very productive way forward on what we have been asked to do. There is no complacency here; I absolutely understand the problem within the overall system, but there are a number of different ways of addressing that. When I say that I think the Groceries Code Adjudicator is working well, I mean he is doing his job effectively within what he has been asked to do.
Farmers are seeing their basic payments turned off early, and they see the closure of schemes like the SFI leaving them with a cash-flow crisis. The Government tells them, “We want to make your business more profitable in order to make up for that,” but I am not seeing any urgency in regulating the market to make that possible. How long do farmers have to wait before they see this change?
There absolutely is a sense of urgency because that is what we are doing and getting on with. Only in the last few weeks some of the secondary legislation has been laid, and it will go on being laid as we work with the sector. What I would say is that it is very important that we get these things right, because they are very important to securing our food security and making sure the food system continues to operate effectively.
What we are hearing from a lot of farmers is that they feel like it is a real David and Goliath situation with the supermarkets, right? They do not feel that they have enough backing on their side to give them the voice to stand up to bad practices, essentially. That is a massive part of the concerns around fairness in the supply chain today. I would like to hear us being more proactive about that and doing more. It would go a long way to restoring a lot of confidence in the sector if people see that we understand the concerns and believe that more needs to be done. I would like that to be looked at more, if possible.
Before you pick up that point, we have 30 seconds from Sarah Dyke.
Very quickly, farmers often receive a very small portion of the retail price of their produce. Some reports suggest that they only get about 1% of the profit, while processors, transport companies and retailers take the majority. Is that fair?
That goes to the heart of the whole discussion we are having, and it goes right back to the beginning, about how we allocate the resources available. Some comes from the taxpayer, quite a lot comes through the food system. But we need to make sure that we have proper fairness. I actually think that the key to a lot of this is transparency and not getting the kind of surprises from purchasers that were described earlier. That is why we are putting in place the fair dealing regulations. It is a very complicated set of issues, which is why there is not one blanket answer. When you look at each different sector, they are genuinely different. That is why, in my view, it is appropriate to do it sector by sector. Only time will tell whether this works, but we have had it in the dairy sector already, moving on to the pig sector. We will see over time; we will assess it, and if more action is needed, we will take more action. I would not want people watching this to think that we are somehow describing a system that is not, overall, effective. It is a very effective food system overall, but we need to make sure there is fairness all the way through it and that the primary producers absolutely get their fair reward. I quite hear and understand why people feel that that is not always the case, and that is what we are seeking to address.
The other element of this is the Agricultural Supply Chain Adjudicator. Charlie, you are going to lead some questions on this.
Yes. I will keep this very brief so we have plenty of time on fisheries. The failure of the GCA was, in a sense, that it did not really take into account the complexity of the supply chains; it almost assumed that there are farmers and supermarkets, which of course we know is not the case. But we cannot undo what is done, so the Agricultural Supply Chain Adjudicator is obviously a welcome addition to trying to address fairness in the supply chain. What reassurances can you give us today that that will be sufficiently resourced and will work very closely with the GCA to ensure that producers are protected going forward throughout this supply chain?
First, I pay tribute to the hon. Gentleman, because he did a lot of this work before he came into Parliament, and he and I used to discuss it. It is relatively early days for the ASCA, and we will see what is needed, but at the moment I am confident that he is happy with the resources that he has to do the job. There is a long way to go on this.
It comes out of my budget—I have allocated a budget to him. At the moment, he is obviously only covering the new dairy contracts. When the existing dairy contracts come into his scope in July, that will be a bigger remit, and then as we add the additional sectors, they will be bigger remits. So, again, the work is sized right at the moment, but we may need to allocate more resource in future.
Is it possible just to outline to the Committee the progress each sector is making towards that at the moment? Just so we are clear on the timelines.
I thought you might ask this, and I do not have the exact details, but basically 7 July is when the dairy additionals arrive. The pig SI has already been laid, is that right?
Yes.
We have finished the consultation on fresh produce, so we are just working that through. In fact, that is where the overlap between the Agricultural Supply Chain Adjudicator and the Groceries Code Adjudicator is most relevant, because fresh produce suppliers actually often go direct to supermarkets, and that is where the ASCA may be able to add some significant value. The other thing I would mention, obviously, is that we have done these sector-by-sector consultations, and we have had some excellent feedback. Often, we have had 350 or 800 people and organisations responding to the consultations and giving us very detailed views. We are then tailoring the approach according to what they have said. In the pig sector, for instance, there are particular issues about ending of contracts and spot supplying and so on, which we are trying to address. In dairy, it has been about transparent pricing and so on.
Many hours of my life have been spent on the pig sector.
You know more about it than I do, by the sound of it.
Anyway, we will move on.
Janet and Emily, thank you for your participation thus far. We are going to move on to our third panel and we will have a very swift changeover.