Good morning, and welcome to this meeting of the Environment, Food and Rural Affairs Committee. We are delighted to be joined this morning by colleagues from the Groceries Code Adjudicator and the Agricultural Supply Chain Adjudicator. Welcome, gentlemen. For the benefit of those who are following our proceedings and, indeed, for our own official record, I invite you to give us your roles.

I am the Agricultural Supply Chain Adjudicator at DEFRA.

Thank you, Chair, I am the Groceries Code Adjudicator.

You are both very welcome. It has indeed turned out to be a timely appearance for all manner of reasons, not least, Mark, because you are now going to be coming under the umbrella of DEFRA rather than the Department for Business and Trade. So welcome to the DEFRA family; you are one of ours now.

Thank you.

Quite apart from that there are, of course, any number of pressures on household budgets coming from geopolitical events, which we will no doubt touch on later, with yourself and others who are appearing. This morning I want to look at the question of the respective roles of the GCA and the ASCA first. Starting with you, Mark, can we just go right back to ground zero and the code of practice? The mischiefs that that code of practice are designed to address include harmful conduct such as the retrospective variation of supply agreements, delay in payments, and ceasing or significantly reducing the volume of purchases without a genuine commercial reason and/or without giving reasonable notice. Are those still roughly the areas in which you are operating?

The code applies to the direct suppliers of groceries to the retailers that are designated by the Competition and Markets Authority to fall under the code. My role is to enforce the code and encourage compliance with it. The code was needed to prevent retailers with buyer power from transferring excessive risks and unexpected costs on to their suppliers, and has led to fairer relationships between suppliers and the 14 retailers. As you have already mentioned, Chair, one of the examples is delisting as a specific issue; retailers are not able to delist products from purchase from suppliers unless they have genuine commercial reasons and give suppliers reasonable notice.

Is it your view that you have made a difference in that regard?

I believe that there has been a difference.

I saw that you recently described the code of practice as, “Gold standard” in relation to a court case in which you intervened?

That is correct, yes.

In terms of market regulation, is this as good as it gets?

I believe that it is as good as it gets within the remit that has been given to me.

Okay, so that is not quite the same thing. Then what are the remedies that you have at your hand?

I spend a considerable time engaging with suppliers to understand what their concerns are and taking those suppliers’ issues to the retailers to seek to resolve them. If the issues are not resolved there are ultimately various methods by which suppliers may seek redress. For example, I might launch an investigation if I have a reasonable suspicion to believe that a retailer has breached the code. Suppliers are free to come to me and ask me to arbitrate in a code-related dispute that they have with a retailer. They are also able to launch civil litigation against retailers—as you mentioned, Chair, with the high court case last year.

You are doing a fairly significant job there on quite a limited budget. What is your budget now?

The budget that I raised a couple of weeks ago was £3.5 million.

What was it previously?

It was £2.2 million.

Does that come from a levy on supermarkets?

It is a mandatory levy on the supermarkets.

So you set the levy and it is approved by the Secretary of State, is that correct?

Indeed.

How many staff do you engage on that budget?

I have nine colleagues who are seconded from other Government Departments.

Okay, and with those nine staff you have had two formal investigations and 13 arbitrations since you were founded 13 years ago, is that correct?

The up-to-date figures are three investigations.

You have now started one into Amazon?

I have indeed, and 15 arbitrations, one of which is currently ongoing.

As a gold standard, is that the extent of the difficulties in the supply chain? For 13 years, 15 arbitrations and three investigations: is it really a market with no problems?

I do what works to drive up compliance among the retailers. My priorities are informed by what suppliers tell me confidentially through my annual survey and what they tell me directly. My collaborative approach with the retailers enables me to vary my engagement proportionately with the retailers without breaching suppliers’ confidentiality. Engaging with the retailers before suppliers have suffered any detriment or incurred any cost is a method of securing prevention before the fact, rather than cure after the fact.

As you are describing it, essentially your approach is that you run with the foxes and ride with the hounds at the same time?

Indeed.

Is that one that you think inspires confidence?

I believe that it does. If you look at the results of my annual survey, suppliers believe that retailers comply with the code at 92%, as revealed in my 2026 survey results that I published last week. That is nearly a 20% increase from the first survey in 2014.

Are you alive to the possibility that there are those who just do not feel that they can come forward?

I am, yes.

What are you doing to address it?

I talk to all participants across the supply chain, whether they are direct or indirect suppliers to the 14 retailers. I keep everything that suppliers tell me completely confidential, as I am required to by law. I need suppliers to raise issues in order to resolve their particular concerns with the retailers.

That is where we come to the nub of the issue, is it not? People feeling that maybe they do not have confidence because you are taking what you describe as a collaborative approach with the retailers in the first place.

I take a collaborative approach to get to resolution. To encourage suppliers to come forward I have secured a confidentiality commitment by each of the 14 code compliance officers—employees appointed by each retailer to effectively be a point of contact with suppliers over code issues—who have confirmed to me that they will engage with suppliers on their issues in complete confidence. The control about whether information is released wider into the retailer’s business rests solely with the supplier. I have backed that up with the retailers’ commitment to there being no negative consequences for any supplier that raises an issue.

What do you do to enforce that commitment?

After the issue has been resolved with the supplier I work with each of the code compliance officers to ensure that they are checking back in with the supplier to check that there has been no negative consequence as a result of the supplier coming forward. Hopefully the relationship has improved because of the engagement between the parties and, of course, I want to hear from any supplier confidentially if they believe that that commitment by the code compliance officer or retailer has in any way been breached.

You will be aware that there has been fairly widespread scepticism about the ability of the office to actually manage that relationship to inspire confidence to bring people forward. We referenced earlier the Clappison case, which is now resolved. I understand that it is something that we cannot put into the public domain, but I will read to you from an email that I received in relation to that case in March of last year. It says, “In my case, Mark White’s office pointed me in the direction of Aldi,”—that was the supermarket with which he had been delisted—“Who, in turn, said they had done nothing wrong. At no time did I ever get any help or encouragement from the GCA, just when a bit of hand-holding and assurance would have gone a long way.” Does that sound like the gold standard of market regulation in terms of this particular market?

Obviously I do not know the detail of that email but it is very disappointing to hear. The code compliance officers are very important in the context of resolving disputes between suppliers and retailers. Given the confidentiality commitment and the commitment to no negative consequences, they are ideally placed to deal initially with suppliers’ concerns.

Are they doing that effectively enough?

I believe that they are. As part of our collaborative approach they report to me regularly, and I meet with those code compliance officers on a regular basis.

Are you really alive to the consequences for businesses of bringing these matters to your attention? Mr Clappison, at this point, had already spent £200,000 in legal fees and he was facing the prospect of a court action that was going to cost him at least £1 million. There are not many people in farming who have the means or the determination to risk that.

I understand the frustration that Mr Clappison had. I applied to intervene in the High Court proceedings in order to assist the court with the interpretation of the code.

That case was eventually concluded by a settlement when Aldi settled the case.

It was discontinued, yes.

Having originally told Mr Clappison that it had done nothing wrong.

I am not aware of the individual detail of what the office may have said to Mr Clappison.

Have you done any follow-up on that case?

I have met Mr Clappison.

Yes, but have you done follow-up on the specifics to look at how you dealt with the initial engagement, and compared the outcome to the initial assertions of the supermarket sale?

I am not aware of the detail of the settlement or the agreement that was reached, only the fact that the civil proceedings were discontinued. We are always reviewing how we engage with suppliers and the assistance that we give them in order to resolve their issues.

Notwithstanding their initial stance, would your collaborative approach allow supermarkets to openly discuss the actual outcome with you? Would that be a good collaborative approach?

As part of the regular engagement with the CCOs, I would normally see the outcome that had been reached: for example, where there had been a dispute over reasonable notice, how long that should be, and the processes and changes that the supermarkets have made to ensure that their processes are refined and enhanced.

How did the discussions go between yourselves and the supermarkets in relation to the levies?

The levy is approved by the Secretary of State and imposed upon the retailers. I inform the retailers of the methodology that has been used in determining the levy and, as I say, I raised the invoice two weeks ago and payments are beginning to come in.

Okay. When it comes to the point of making a decision about how to handle an individual case, what are the bases on which you decide about a formal investigation or an informal engagement?

I have described my collaborative approach with the retailers. The backstop is an investigation. If the behaviour does not change after I have taken the issues to the retailer, or suppliers continue to come forward and report issues, at that point I would consider whether to launch an investigation.

Yes, but we have a massive power imbalance here. You understand, recognise, and accept that, do you not?

I do.

In the circumstances of pushing informal negotiations or informal engagement, you can understand why people who are supplying supermarkets would be reluctant to do that, do you not?

I do.

But you still you do it? Mr Clappison was told to go and talk to Aldi.

The foundations of a good collaborative relationship between the retailer and supplier require communication. There will always be issues in the contractual relationship. It is more beneficial for retailers to engage with the suppliers directly, to hear those issues confidentially to resolve them.

By the time they come to speaking to you, do you not think they have maybe passed that stage?

That may well be the case.

If you were sitting there as a police officer and I was asking you about the treatment of women making a complaint about coercive controlling behaviour, you would not expect a police officer to say, “Go home and speak to your husband about this,” would you?

Of course not.

Do you see the parallel I am drawing here?

I do.

But still you think that is the sensible opening point?

Supplier confidentiality is paramount in terms of the information flow to me and taking issues to the retailers. When a supplier has reached a point where they feel that they are not getting any traction with the retailer, there are options open to them in terms of arbitration or civil litigation.

Yes, and this is where it comes down to the practicalities of it, is it not? Mr Clappison had already spent £200,000. Aldi played litigation hardball in that case, did it not?

I cannot comment on the particular case.

You were moved to intervene.

Indeed.

Presumably because you felt there was a public interest to be served.

Indeed.

But do you think there would be many people in Mr Clappison’s position who would bet the farm—to use the term—on going to court?

I would hope that there are other avenues that suppliers could adopt.

This is what the power dynamic means. As an adjudicator, do you feel you are sufficiently alive to the operation of that power dynamic?

I believe I am.

Is it consistent with you taking your collaborative approach?

I believe it is.

Okay, and do you feel the fact that you are funded by supermarkets does not have an impact and is an adequate way of negotiating this?

I do not believe it has an impact.

You have a staff of nine to regulate some of the biggest corporates in the country. Do you really feel that is adequate? Or is it in the corporates’ interest to keep you starved so that you are not going to be able to be effective in the execution of your duties?

I have always sought—

The point is, why do you not ask them for enough resource to staff 100 people to carry out these functions?

I have always asked for the amount of levy that I believe is adequate.

Do you believe that a staff of nine is adequate to regulate?

It is adequate to execute my remit. The Secretary of State has never declined to approve the quantum that I have sought. It is a mandatory levy on the retailers; they have no choice.

Has no supermarket ever complained that you are asking for too much?

No.

I wonder why that would be. Richard, you are the new guys on the block. Have you learned any lessons from the criticisms of the GCA in terms of building trust and confidence with the industry? You are not overstaffed either, are you?

We are a small team: I have four full-time staff in DEFRA who support my office. It is early days and we have expectations to grow organically, certainly as I take on similar powers in other sectors in the future. The nature of our workload is we are both reactive to the issues and complaints that are brought to us, and we have to match our resource to that demand. Of course we also have a proactive role in engaging extensively across the industry to try to drive some of the positive behaviours. I definitely recognise a lot of the tensions that you and Mark have described in navigating the role of an adjudicator and the exercise of formal powers. I am particularly conscious in the role that I have, focused on trading relationships—at the farm gate directly with farmers—to be user-led in terms of the outcome.

Who is the user in this context?

The producer. My powers are exercised by a producer coming forward, and my formal powers are only engaged through a producer making a formal complaint. But one of the key issues that I have encountered in my time in the role is the expression of worry and fear that farmers may have in stepping forward and bringing a formal complaint.

Do you see the collaborative approach of the GCA as being one that has anything to recommend itself to you, or do you intend to do things differently?

No, there is a lot to be said for the collaborative approach. In this sort of role as an adjudicator you ultimately have a toolkit and a set of options to deploy. Part of the role is exercising judgment on which option you think is most likely to achieve the best outcome. In my own context, with individual farmers raising issues with me about, often, the single trading relationship that will be the lifeblood of their farm and their business, there is a significant concern about raising an issue that may risk that relationship going forward. What I meant by user-led is that farmer will be looking for resolution of the issues, but in the vast majority of cases they will also be hopeful that that relationship can be maintained and continued going forward. The options that I choose in terms of how I would engage will be very much based on what that producer may be looking for.

You are also dealing with a power dynamic. In dairy, for example, it will be the relationship between the farmer and the company to whom they supply. It is maybe not as dramatic as the relationship that you would have with a supermarket that sits at the top of the food chain in this particular market, but are you both content with the concept that you can address a power imbalance by an even-handed approach?

Impartiality is at the core and the heart of my role; it gives me credibility in the industry on both sides. What helps is to be able to demonstrate the outcomes you are able to achieve. I do not think it is a binary choice.

Granted, but what are the outcomes that you would point to so far?

It is not a binary choice, I do not think, between a collaborative approach and a more interventionist approach using powers. It is a selection of the appropriate approach to the circumstances presented to you. In terms of what we have been able to achieve since I was established, we have had more than 20 referrals through an in-confidence channel that we set up, borrowing from some of the best ideas of Mark and his team at the GCA, whereby producers are able to raise issues with us with a guarantee that their details will be kept confidential. We will not even raise the issue with a processor unless they wish us to do so. In the majority of those cases we have been able to find a way to raise the issue directly with the processor concerned without revealing identity, and we have been able to secure changes to the issues within the contractual terms that were being raised with us. That has been a very effective, quick and informal way to secure some meaningful changes. We have only had one formal complaint raised by a producer—a producer who is prepared to put their name to a formal complaint. Being new I am also mindful I am probably in something of a honeymoon period as an adjudicator; no one wants to be the first to be subject to formal investigation, and everyone may be playing nice at the moment. I am not naive enough to think that may always be the case, but my starting point is always thinking what the best option to pursue is, in order to achieve the best outcome for the farmer who has come forward with the issue they are articulating.

That is a fine approach to take but it does not really pass the test of would anybody support the opposite, does it? Everybody wants the best approach for the best outcome.

Yes, and so you must make sure you make the right judgment.

We will move on to the question of scope and powers.

I feel like I could be sat on either side today, given my role in the campaign to create the GCA and then my role in the pig supply chain regulations. I am going back to one of the biggest errors in terms of the way in which your body was created, Mr White, in the fact that it did not perhaps properly recognise the supply chain and the relationships within the supply chain. Thirteen years on, is that a fair reflection?

As I hope I explained a little earlier, Mr Dewhirst, I talk to everybody in the supply chain to make sure that I am understanding the challenges and the issues that they are all facing. I understand that some people would support an extension of the GCA remit to cover indirect suppliers, but the purpose of the code back in 2008 was specifically to address the buyer power that the large retailers exerted over direct suppliers. While my survey results show continuous good improvement in the levels of co-compliance, it is probably not the GCA’s place to undertake a detailed assessment of the work that would be necessary to look at whether code-like protections were required elsewhere in the supply chain.

Without wishing to do Richard out of the job before he has even really started, could you not have brought all those powers under one body that would have made more sense, in terms of what you could both do together?

The way we are set up and our remits are very different. We work collaboratively to make sure that we are delivering on those remits. If suppliers are uncertain about where they should go, we are more than happy to engage with them to make sure that they are dealt with by the right adjudicator.

Just on the specifics, I am sure you have read Minette Batters’ recent review, particularly her recommendations around the cost price increases, and those being enshrined in some statutory way. How did you reflect on that?

The code is very flexible and principles-based. In late 2021 to early 2022 we had had a spike in inflation across the sector. I saw that cost price increase requests were being made, and I was hearing some concerns among suppliers about how retailers were engaging with them over cost price increase requests. So I developed my seven golden rules, which I agreed with the retailers, covering areas such as ensuring very clear communication of the retailer’s process for agreeing a cost price increase request, with no fishing expedition for information that is not really required by the retailer to make the cost price increase decision. Those rules have been embedded by the retailers in their training programmes for their buyers and buying teams in their internal processes. It was then relatively easy to adapt those rules when we went from an inflationary to a deflationary environment, and we saw retailers asking suppliers for cost price decreases. I know that Baroness Batters has talked about enshrining those seven golden rules in the code, but they are effectively already there and operating, and the flexibility of the code enables me to bring them forward in short order.

Is there a concern that you simply should not be forcing producers into such a rigid contractual relationship? It is not up to them to negotiate that with whomever they are supplying, whether a processor or retailer.

My concern is to ensure that the process by which the negotiation takes place between the 14 retailers and their suppliers is fair. It is not for me to set price. That is not within the remit. I am seeking to ensure that the process is fair.

Richard, what would your view be on that? You are obviously going to be closer to some of that contractual framework going forward in terms of dairy and pigs and other sectors as they come online.

The reality in the dairy sector and the pig sector that I am familiar with in my role to date, and one of the very evident things, is how exposed farmers are to what are essentially global commodity prices, and how that feeds through the supply chain. The industry provides some mechanisms to seek to address that exposure: farmers supplying liquid milk to the major retailers, for example, will be on what are known as aligned contracts, which are cost-plus models. There is a debate in the industry about whether those are a good thing or not, and other farmers prefer the freedom of choice, but it is very apparent how exposed farmers—particularly smaller farmers—are to those global commodity prices and how they flow through. The regulations that I enforce seek to provide much greater transparency and certainty for farmers about how those pricing changes will flow through into the price a farmer receives at the farm gate; so what publicly available information is used to calculate the price should be transparent in contracts. Farmers should have a much better opportunity to be able to both predict but also reassure themselves that those prices are moving in line with those key factors. One of the frustrations that has often been described to me of what has happened in the past is that farmers feel that price decreases have been passed on to them rather more quickly than subsequent price increases. That is something that the regulations should prevent from happening, but at the moment the dairy market is obviously in a downturn, and when the market turns there will be a key test of the regulations, to see whether that indeed happens.

Those regulations have come in in the last couple of years; it is all new. When I was working on the pig side of it through the drafting exercise there was certainly a concern that we were not going to get everything right, and that once it came into force there would potentially need to be some adaptation just to reflect the reality on the ground. Drafting legislation is one thing; how it impacts the market and so on is another. Have you had those discussions with DEFRA about being able to adapt, should there be unintended consequences of the creation of your body?

Yes. The way my office is set up within DEFRA is, as far as possible, aiming to be operationally independent of teams around us. We work closely with colleagues in policy teams responsible for fairness in the supply chain in particular, without revealing detail of our casework, with the insights and learning we get from our casework, but also engagement with farmers in the industry, to feed into future reviews. My understanding is that the team responsible will be looking to carry out a first review of the fair dealing regulations next year, obviously by which point we will have had a period of time under the dairy regulations, the pig regulations, and current plans for some of the regulations in eggs, which in the current timetable, I believe, are due to be, if you will excuse the pun, laid this autumn. There is certainly an expectation and desire to review the effectiveness.

Certainly anecdotally, the pig sector is going through a downturn at the moment, obviously due to the European market being flooded with Spanish pork because it has ASF in a certain region, and so on. I have heard of practices reminiscent of 2021, 2022 reoccurring, where processors renege on contracts at short notice, and so on. Are you in a position to act right now with those cases, or is it still a case of wait and see?

We are in the transitional period with the pigs regulations, so the regulations will apply to new agreements entered into from August last year, but the regulations apply to the entirety of existing agreements from August this year. So I would expect the reality will be that the majority of those purchases are taking place under the pre-existing contracts, which the regulations will not bite on until August of this year.

As we all know, there were some issues with the pre-existing arrangements in many cases, which is why you are here in front of us today. In terms of your resourcing, is your team in place and up to speed now? What does your team look like in terms of its structure?

We have a small team of four supporting my office, as I said. We do a mixture of reacting to the work that comes to us from producers and third parties. The in-confidence channel that we created is not just for producers; we also get others within the industry bringing issues to us through that route. My team do a combination of responding to those and responding directly to farmers. One of the things I am very keen to establish is for us to be as accessible and easy to use as possible. You do not need to fill in a form in order to engage with us; in the first instance just drop us an email or give us a call. The first thing we will do is have a chat and try to find out, first and foremost, if it is something we can help with and, if so, how we can take things forward and what a producer’s options may be. The other half of our work that my team help with is planning our engagement strategy across the industry. Since I was appointed into the role I have been to more than 40 agricultural shows, farm visits, conferences and trade shows, and a similar number of direct meetings with individual producers, processors and industry bodies, first to try to build awareness of both obligations and new rights and protections for producers under the regs, but also to introduce my office and myself and, particularly importantly, try to build confidence among farmers that we are a team that you can get in contact with and talk to. I know one of the particular challenges is that as civil servants we can seem quite remote from the realities of the day job and the farm, so particularly important for me is working with key stakeholders who producers will turn to in their time of need and then can signpost on to us.

Just for the avoidance of doubt, nobody ever needs to apologise to this Committee for a good food-based pun. Henry, we have some specific supermarket concerns.

Mr White, you have mentioned your survey a couple of times, both to Mr Dewhirst and to the Chair. Your annual survey was released last week, is that right?

It was, yes.

There were quite a lot of small regressions. If we look at invoice discrepancies, that was an increase of 3% from the previous year, and with delays in payments you again have an increase of 3%. Delisting without reasonable notice was unchanged, but you still have an increase in costs with inaccurate forecasting. You have been giving answers to Mr Dewhirst and the Chair saying that you are relying on the surveys, but actually, if you look at the one you released last week, you are seeing increases in respect of issues that your suppliers are reporting to you.

The annual survey that we have conducted over the years is one of the most important ways that suppliers can tell us, confidentially, about their experience of dealing with the 14 retailers; again underlining the confidential nature of the survey. The results that I released last week continue to show a high level of perceived compliance at 92%; but as you have pointed out I am obviously concerned that there are a number of issues where concerns have increased, and a number of retailers where their overall code compliance score has fallen year on year. It is a critical reminder of the need for retailers to focus on compliance with the code and I am determined that they do so. It is very important to look at the context against which the survey results have been collated and published. Looking at individual retailers, they are very different, many of which have invested heavily in new systems and software and are transitioning from one system to another. Sometimes there are teething issues when those transitions take place. You will have read about the sector suffering a number of cyber incidents across the last 12 months; unfortunately they have an impact on things such as delays in payment on occasion. I should point out that I am not seeing any deliberate attempt by retailers not to pay their suppliers; it has been more of an administrative issue. Regardless of what the headline issues are, I work—as I do each year—with each individual retailer, examining with them the detailed results of their individual survey results so that they can develop an action plan to correct the issues that suppliers have identified. I am ensuring that the retailers investigate, draw up the action plan and then, as part of the collaborative approach through the balance of the year, I will be looking with the retailer at what they have done to correct the issues that have been identified in the survey. Obviously the market is very dynamic, and so issues pop up at all times during the year.

That sounds a little like an apologist or a PR machine for the supermarkets; rather than saying, “This is unacceptable, this is what you need to do for compliance,” it is, “We appreciate that you have some issues with your back office and with your systems and this is the reason; we understand that and that is okay.” It seems a little as if you are looking through the wrong end of the telescope.

I am absolutely not an apologist. The survey is a really important way for suppliers to tell me in detail what is happening in their experience with the retailers. The retailers have the results and I work with them to ensure that they are addressing each individual element. I was trying to explain to the Committee that there may be some wider issues that have impacted the results this year.

When you look at the surveys and you see those discrepancies, why do you think the new entrants have a bigger issue in respect of compliance versus those that are a bit more long-standing?

What we have seen in the past is that it takes a little time for some of the newer entrants to get up to the levels of perceived compliance that we see with the longer-standing retailers, and suppliers experience. I am working with each of the retailers on a proportionate basis to bring their compliance up.

Amazon for example, has consistently performed poorly in your surveys and shown little improvement. Have you launched an investigation?

I did, yes.

Why do you think Amazon is performing so poorly in respect of your surveys?

As you correctly identified, Mr Tufnell, I launched an investigation on 20 June last year. I targeted investigation into potential delays in payment by Amazon based on a range of evidence that I had received. It is in respect of the period 1 March 2022—when Amazon was designated as a retailer—through to 20 June 2025. I had reasonable grounds to suspect that Amazon had breached the code. The investigation is ongoing and I will update everybody when I am able to. In the meantime, I welcome suppliers coming forward confidentially to tell me about their experiences with regard to Amazon and potential delays in payment or any other code-related matter.

You warned Amazon, but then why did it take you 12 months from that warning to launch the investigation?

That was part of the collaborative approach that has been adopted with all retailers. We take the issues to them, ask them to investigate and improve their systems. But if I am still hearing that behaviours have not changed or suppliers are still experiencing concerns, then I will consider launching an investigation.

Do you think you have enough teeth? You have told the Chair you have nine staff and—what was it—£3.5 million?

It is £3.5 million, yes.

Do you think you have enough teeth to go up against an organisation such as Amazon?

I believe I have.

If you go into some of the details about the business model that Amazon is operating and you think, for example, of the lack of access to the resources to discuss, mitigate or resolve issues that suppliers are having, or you think about their short and strict delivery requirements, that is a very unique type of business model it is operating in this space. If you have outlined a compliance collaboration-type model to address some concerns or the way in which you work in terms of your own internal processes, do you think you need to have a more robust attitude to challenging certain business practices and models within this sector, in order to try to gain compliance?

Across the 14 retailers there are very many different business models, from the traditional bricks-and-mortar retailers to discounters with perhaps limited range, to online-only such as Ocado, or a combination of those types of business model. I believe that the code is flexible enough to encompass all the commercial models that the retailers adopt. We have seen a perceived high compliance with the code across the sector, regardless of the business model that has been adopted.

In 2024 you had less than half of Amazon suppliers reporting they believed the retailer to adhere to the supply code of practice, so that is stretching flexibility, it seems.

There is a process to be gone through in terms of launching an investigation, but the results that I published last week showed that Amazon had improved to 69%. It is still not at the high levels that other retailers have achieved.

The majority are at over 90% and Morrisons is 89%, but that is quite a big discrepancy as an outlier. I know you have launched the investigation, but in terms of being more active and rigorous in trying to enforce and make Amazon adhere to your code, does it not give you cause for concern?

It does, and I launched the investigation.

In terms of looking into what the practice actually is in its business model and the mechanisms by which Amazon is acting in the marketplace to cause the suppliers concern, it seems that the collaboration approach that you have taken is perhaps not forceful enough in getting change, in holding Amazon to account and allowing the suppliers to be able to have trust and confidence in their own businesses and profit.

The investigation is looking into all those issues that you have identified in connection with delays in payment.

The Chair touched on the High Court issue in respect of Aldi. In the High Court case, Aldi spent significant time and money to stop you intervening. What do you think that says about the supermarkets’ view of you as the adjudicator?

I made the application in December 2024 in order to assist the court in the determination of the civil litigation between the parties, to help interpret the code for the court, which was granted on 16 June last year. I cannot answer for Aldi’s actions but, as the Chair pointed out, the civil proceedings were discontinued after the intervention was allowed.

Collaborative when it suits the supermarkets. Amazon in the United Kingdom had a revenue of £29 billion in 2024. It employs 75,000 people. You have a staff of nine and a budget of £3.5 million. Do you really think you are set up to take on a corporate of that size?

I believe I have the appropriate budget to conduct the investigation that I launched last year.

You have no concern about that at all?

No.

I am a Liberal Democrat, I survive on optimism, but we shall keep an eye on that one. We are going to move on and look at the relationship between you both and DEFRA as a Department.

I think it is right to move on at that point. The GCA’s statutory review notes ongoing supply fears about reprisals, limited use of formal investigatory powers and confusion between the remits of the GCA and the Agricultural Supply Chain Adjudicator. Riverford’s campaign revealed that 67% of farmers fear being delisted if they speak out against supermarket behaviour, while often being left with just 1% of profit from the food that they produce. They are also tied into contracts that can be changed at short notice with little transparency and are obviously very one-sided. Do you think the fear from farmers is justified?

Thank you, Ms Dyke. Farmers who are direct suppliers to the 14 retailers benefit from the retailers complying with the code. My surveys show high degrees of compliance across the sector, but also in particular categories such as fresh produce. I work with those direct suppliers, but also indirect suppliers such as farmers and producers because today’s indirect suppliers could be tomorrow’s direct suppliers. I encourage engagement with farmers and producers. I have, for example, considered whether intermediaries have been inserted into the fresh produce market in order to circumvent the code, but I did not find any evidence of that. I have encouraged retailers, buyers and their teams to go out on to the farm to understand the challenges and the risks that farmers face in their day-to-day business.

What does that look like?

Putting on their wellies and going out and talking to the farmers and producers who are there tending to their crops and delivering to perhaps an intermediary and on to the supermarkets.

Have you heard their findings from that investigation work?

Yes. I have encouraged and seen buyers going out, regardless of the commercial model that has been adopted.

What impression have they brought back to you?

That they have a close relationship with those farmers and producers. I have encouraged the retailers to consider whether longer-term contracts might be a possibility to enable the suppliers to have the certainty necessary to invest in and grow their businesses but also give the retailers security of supply. Over the last couple of years we have seen an increasing number of those longer-term contracts. I encourage all suppliers, whether they are farmers or producers, direct or indirect, to come and talk to me confidentially about the issues that they are facing.

Did it bring any changes to how you carry out your enforcement activity?

Where I am hearing about individual retailers, or perhaps individual behaviour, I am taking that as part of my collaborative approach to the retailers, and I am checking back with them that changes have been made.

I often hear that communication is an issue between suppliers and the adjudicators. Do you feel that is warranted?

I would obviously welcome any suggestions that might improve the way in which we communicate.

Do you not hear that from the feedback that your team are taking out on to farms, to suppliers?

No, I am not personally hearing that.

We have heard that the ASCA’s fair dealings codes and the GSCOP should be more aligned to address unfair trading practices. Do you agree, and how would this work in practice?

From my perspective, I am confident that we are working together effectively in our very different roles. I am keen to continue to focus on fair treatment of direct suppliers. I hear the arguments for a merger, but I am not convinced that the perceived benefits of a merger outweigh overcoming our very different powers, staffing models and resourcing models.

Recent volatility has seen milk prices fall well beneath the cost of production. We have seen milk literally being thrown down the drain over the course of the last few months. Many in the industry are saying that poor communication between farmers and dairies has exacerbated the problem. I have met with farmer producer groups in my constituency in Glastonbury and Somerton. They have all said that a single adjudicator would have more teeth in terms of enforcement. Do you not feel that their voices carry any weight on this?

Of course they do. My concern would be to ensure that if there was a merger, those complications that I have just described would be overcome and dealt with to make sure that as a merged entity, it was delivering those teeth.

How are you going to go about that?

That is not for me personally; it would be a matter of policy, presumably within DEFRA.

Perhaps I can comment a bit more directly in relation to dairy, as that is a particular focus for my role. The issue raised about the critical importance of communication is absolutely right. I mentioned the fact that dairy farmers are ultimately exposed to global commodity prices and we have seen that price fall dramatically over the last six to eight months, driven by oversupply, not just in the UK, but globally. Some is predictable and foreseeable. I have seen some great examples of processors who have worked with their milk pools and their farmers to provide a heads-up for what is about to happen; what is coming down the track. Equally, that does not happen on all occasions and sometimes farmers are left trying to work this out for themselves, which, if you are a busy dairy farmer, you are probably unlikely to have too much time to do. One of the positive developments we have seen since the introduction of the fair dealings regulations is a greater move towards farmer organisation and representation. In dairy, we saw the launch of the Association of Dairy Producer Organisations last autumn, which represents just under 2,000 dairy farmers, and over 4,000 dairy farmers are part of a co-operative group. As one way to provide some countervailing power to the greater power of purchasers in the supply chain, having that farmer representation organisation is really crucial. It helps with the communication both ways because farmers need information on which to plan their investments, how much to produce and how big their herds should be. Processors also need to understand what farmers’ plans are so they can adapt themselves accordingly. One of the things I am very focused on is working with industry to encourage development of some clear minimum expectations of what good communication looks like. Q133 Sarah Dyke: I agree that the agricultural supply chain is a step in the right direction, but it does not seem to be shifting the balance in the system enough. Talking to farmers in Glastonbury and Somerton, they are still telling me that they are hesitant to raise their concerns because they fear losing their contracts or damaging their relationships with the buyers. It is really important that the adjudicator is properly resourced and able to act proactively rather than reactively. If farmers do not feel confident using it then it is not delivering the protection that it was designed to provide them. Do you agree with that? The current trajectory is suggesting that many dairy farmers are likely to go out of business over the course of the next year. How is that giving them confidence and enabling them to plan for the future? Richard Thompson: I agree: it is absolutely critical that farmers have the confidence to come forward and tell us about the issues. As I have already referred to, I fully understand the reluctance and worries about coming forward and making a formal complaint. The farmers I have spoken to clearly articulate the fear that they may have of reprisals, but very often it goes beyond that. Many farmers supply a smaller local processor and the relationships involved may be cross-generational and heavily community-based. Many farmers express to me a reluctance to raise a formal complaint, not just because of worries but also the impact it may have on the processor that ultimately is the lifeblood for their business. That is why we have sought to establish different ways that farmers can get in contact with us directly including, and really importantly, the in-confidence channel. Farmers can come to us direct. They can come through a farming union, or representative, or anyone they want to represent them. They do not need legal representation to use us or come and talk to us. When farmers take that step and share details, where possible my team and I will endeavour to use that information to make positive changes. We have examples, over recent months, where issues have been raised with us. We have been able to engage directly with the dairy processor concerned without revealing the confidential identity of who has raised it with us and have secured changes to contractual provisions accordingly. There is a lot we can do but it is absolutely critical that farmers have the confidence to come forward and talk to us in the first instance. Q134 Sarah Dyke: Once farmers have given you that information, given the threats and damage it could bring on their businesses, do you feel it is really important that the data, the information that farmers are giving you, should be shared between the Agricultural Supply Chain Adjudicator and the GCA? Should it be mandatory? Richard Thompson: Where there are issues that impact across our jurisdictions, we already have good and effective working relationships and well-established lines of communication. Our teams meet on a monthly basis and I catch up with Mark every six months or so. To date, our jurisdictions do not directly overlap. For the sectors in which my powers are established, there is very little direct supply to supermarkets. That may change in the future with additional sets of regulations. To date, I have not encountered any issues with us being unable to share relevant information with the GCA. If we did encounter any then it is certainly an issue we would look to raise and address. Q135 Sarah Dyke: If farmers have stepped up to take that big step, given the risks they face, then it is only fair that information is properly used. The move has now been taken to transfer the Groceries Code Adjudicator’s sponsorship to DEFRA. Do you think it is going to make a difference to suppliers? Mark White: I have had an effective and constructive relationship with the Department for Business and Trade over its sponsorship and oversight of the GCA. I have also worked with DEFRA over the last two or three years. I look forward to continuing an effective and constructive relationship with DEFRA to ensure the fair treatment of direct suppliers. Q136 Henry Tufnell: It may be my own ignorance and lack of understanding of the milk market but, picking up on what Sarah mentioned, I was wondering why there is such a discrepancy between the price the farmers are paid for their milk and the milk on the supermarket shelves? Richard Thompson: The milk on supermarket shelves is, for the major retailers, almost exclusively through what I referred to earlier as aligned contracts, which are paid on a cost-of-production model. The discrepancy between the price a farmer receives at the farm gate and the ultimate retail price will be determined by the additional costs within the supply chain. The milk price dairy farmers receive for other supply routes into manufacturing and other products are driven by the market, by the nature of the product that a processor is seeking to process the milk into, and the markets in which it is sold. The milk on retailers’ shelves—certainly those the major retailers— is defined by the cost of production model. Q137 Henry Tufnell: Is there anything you can do to protect the farmers in these circumstances? Richard Thompson: The contractual relationship required to see liquid milk appear on major retailers’ shelves is with the dairy processor as opposed to the retailer itself, and the full provisions of the fair dealing regulations apply to that relationship as well. Q138 Henry Tufnell: Is there no role for you in these circumstances? Richard Thompson: In terms of addressing the retail price of milk at the supermarkets no, that is beyond my remit. Q139 Sarah Dyke: Do you feel that point of origin labelling would help support British farming? There are a lot of unlabelled products coming in from New Zealand and America on that point. Richard Thompson: The opportunity for imported goods to compete is a clearly expressed frustration among UK farmers. It is not an area of expertise for me in my remit but I hear very strongly that it is a concern and a particular issue in pork markets at the moment. Chair: Juliet, you are going to lead the questioning in relation to your role in preventing temporary price increases becoming embedded. Q140 Juliet Campbell: Have you seen an increase in complaints or concerns in recent months following the conflict in Iran and supply chain shocks? Mark White: I monitor issues across the sector that might strain relationships between retailers and suppliers. What is clear is that retailers must comply with the code and not transfer excessive risk or unexpected costs to suppliers. Cost input pressures are a significant concern to suppliers, but I am not hearing from many suppliers at the moment about those concerns. That may not be too surprising because most suppliers know that I do not regulate price. There is also a time delay between suppliers seeing and experiencing those input cost pressures and formulating a cost price increase request that is made to the retailers. My seven golden rules for negotiating cost price increase requests have been embedded within the retailers’ processes since 2022 and should be operating to ensure fair negotiation of any price increase requests that come through. I am reminding retailers of the need to make sure that their buyers are trained on those seven golden rules as we see a potential increase in requests. Q141 Juliet Campbell: You are saying that you have not seen— Mark White: I have not. Q142 Juliet Campbell: Should you see price increases, what would you do to prevent those temporary price increases becoming embedded? Mark White: As I mentioned, price is not within my remit. My concern is to ensure that there is a fair negotiation between suppliers and retailers over the cost price increase requests that come in. Q143 Juliet Campbell: Let us talk a little about how you monitor whether retailers are using cost pressures to justify practices that breach the code of practice. Mark White: I confidentially engage with suppliers, trade associations, and people such as Richard so that I monitor the pressures that the sector is experiencing. I ensure that the retailers have those seven golden rules embedded to ensure that negotiations take place fairly between retailers and suppliers. Q144 Juliet Campbell: What impact could price gouging or dynamic pricing have? Mark White: Studies that have been undertaken in the past in relation to price gouging have concentrated on retailers. If your question is about suppliers’ price gouging then that would be a matter for the Competition and Markets Authority to look at. Given that retailers have buyer power, it is unlikely that suppliers would be able to price gouge if there were unreasonable requests being made of retailers. Q145 Jenny Riddell-Carpenter: Mark, I am really concerned that what looms on the horizon is going to be the biggest test to the GCA because we potentially face the biggest crisis in farming that we have seen in a considerably long time. The war in Iran is already having an impact on energy prices. Experts are predicting that the cost inflationary pressures on food alone are going to be from 9% to double digits. I am really concerned, and indeed many of us are concerned, that supermarkets will choose to push down on growers and farmers—they have a prior history of doing this—in order to maintain their profits; most likely at a time when, as we have seen in recessionary periods before, supermarkets do incredibly well through their profits. We saw the top six supermarkets produce £5 billion in pre-tax profits two years ago, and Asda and Morrisons did not pay a penny of corporation tax for that same period. We are facing a context where we potentially have a looming crisis in farming and inflationary pressures on food that could be up to double digits. I am really concerned that this is going to be your biggest test. How will you rise to that test? Are you concerned, as I am, that the GCA will not have sufficient powers to protect farmers in the way we all hope you do and that you should? Mark White: In 2023 and 2024, the Competition and Markets Authority undertook some investigations into supermarket profitability and did not find that retailers made unusually high margins.

Did you say in 2023-24? Mark White: At that time, 2023-24. It is very clear that the designated retailers cannot make any profit from treating their farmers, who are direct suppliers, unfairly in breach of the code. It is also very clear that designated retailers cannot pass on excessive risk or unexpected cost to their direct farmer suppliers. Any investigation that looked at whether supermarkets were making more profit at the expense of suppliers would be a matter for the Competition and Markets Authority. Q147 Jenny Riddell-Carpenter: You said to my colleague, Juliet, and others earlier that one of your main powers is that of convening in order to enable growers/farmers to negotiate. What does that look like in practice? It is David and Goliath really. If we have British growers and farmers potentially on their knees with the crises they are facing, how can they negotiate with a supermarket that holds all the power and profit at a time of real crisis? Mark White: I believe that the 2008 Competition Commission inquiry led to the introduction of the code, which did find that large retailers had buyer power over direct suppliers. It also found that there was a potential upside to consumer pricing through that buyer power. My concern is to ensure that the negotiations with the direct suppliers are conducted fairly, but my remit does not cover price. Q148 Jenny Riddell-Carpenter: What does that fairly look like in practice? Give us an example. Mark White: That fairly means having a proper engagement with the retailer, understanding the supplier’s risks, costs of production, and challenges: it might be climate change. It might be the time of year at which the seeds need to be planted. What risks it is taking on. Some challenges are over seeking appropriate labour, getting the produce to the retailer in accordance with the specification that has been agreed to the distribution centre, and so on. Making buyers understand more about those challenges and risks that farmers and producers are taking on. Q149 Jenny Riddell-Carpenter: You have been asked twice in this session if you feel that a team of nine is sufficient. You said yes. Do you think it is sufficient for the challenges that lie ahead in the next 18 months? Mark White: I believe my team is appropriate for the remit that I have, including for the next 12 to 18 months. Q150 Jenny Riddell-Carpenter: My final question: what legislative or operational changes would you like in order to enable the UK to manage the future geopolitical supply shock we are looking at now? Everything we have talked about just now—you acknowledge the constraints that you have and how you are operating within those constraints. What changes would you like to see brought forward legislatively or otherwise? Mark White: Within my remit, I have not recommended any changes to the code. I would not want to see any changes that make the code less flexible or rigid because it does respond to challenges in the sector as they come forward. As I mentioned to the Committee earlier, to the extent there could be a change in the remit of the GCA then my concern would be to ensure that we had the appropriate powers, finances, and resources to deal with that widened remit. Chair: Those are all the questions we have for you this morning. Thank you for your attendance and engagement. It is very much appreciated and very useful for the work of the Committee. Thank you for that. We are going to move on to a second panel of witnesses so if I can invite you to gather your papers we will, without suspending, bring in our next few witnesses. Thank you. Witnesses: Rohit Kaushish, Andrew Opie and Jo Gilbertson.

Good morning to you all. Again, for the benefit of those following our proceedings, can I invite you to give us your jobs, please? Since Jo is busy, I will start with you, Rohit.

Thank you, Chair. I am the chief economist at AHDB. We are a levy board for agriculture, representing pork, dairy, beef and lamb, cereals, and all seeds.

Good morning. I am the director of food and sustainability at the British Retail Consortium trade association for UK retailers.

I work for the Agricultural Industries Confederation as the head of sector for fertilisers.

Welcome everyone. We are going to look at the impact of the war in Iran. Jo and Rohit, could you give us a brief overview of the issues currently facing UK agriculture as a result of the impact of the conflict?

The immediate impact is less on availability and more on price. The gulf of Hormuz provides a large quantity of nitrogen fertilisers as well as petroleum products. The destination of these has traditionally been Asian countries but the hiatus has obviously caused displacement activity, which has caused the hike in price. Our sourcing is a little closer to home, normally from the Mediterranean, European producers, the Caribbean, and the States. Basically, the displacement of availability has caused the hike in prices. If we look at what we were paying this time last year for ammonium nitrate, it was probably around £380 a tonne. At the moment in the UK we are looking at about £525 a tonne. We have also seen a steep hike in the price of urea. Again, prices have gone up from about £400 to £420 a tonne to about £650 a tonne.

It is quite shocking really, is it not?

The immediate impact that we are seeing is the pressure on input costs. We know that the energy price shock is having significant impacts on fertiliser, as Jo just outlined, and on broader input costs such as red diesel for example. That is a big issue at the moment. Where we have seen significant increases, one challenge has been transparency regarding those increases in market prices. In response to asks from Government and industry, the ADHB has gone from reporting monthly fertiliser prices to weekly in response to the conflict. We have seen strong engagement with that publication. Engagement has tripled over this period and it is one of our most-visited publications online, which shows the desire for more transparency around what is happening with input prices. Unfortunately it is a less transparent market for red diesel; it is difficult for us to see what is going on. There are official figures published by DEFRA but they effectively adjust the pump price to a red diesel price. What we are seeing on the ground anecdotally is a lot of divergence from those official figures, with reports of challenges with availability as well. This trickles through to agrochemicals, plastics and a lot of the co-products from oil refining. There is the broader input pressure but as we heard in the last session, in terms of timing it is a very difficult period. We have strong global supplies of agricultural commodities, which means prices are at quite a low point causing margin squeezes for a lot of farmers at the moment. There is a lot of pressure on businesses off the back of low prices, particularly in dairy, cereals, and oilseeds.

You are right. A few of my farmers have mentioned the red diesel particularly; prices have risen by about 60%. Do you think this is a tipping point for farm viability and what happens to the UK food production if the costs remain elevated?

Yes, it is absolutely a huge challenge. We are talking about sectors that are coming off the back of significant changes to policy. We have seen direct payments phased out, which was an important cash-flow buffer that no longer exists. We are seeing increased interest in policies such as SFI to try to respond to that but effectively we are looking at a situation where the confidence to invest is not there due to a history of low scores on farmer confidence, which we have seen in many industry surveys that have been reported. That is going to cause a lot of challenges for a lot of farmers who are on the cusp of viability when they are looking at things such as accessing finance, for example, to borrow to service working capital or for long-term investment. That is one of the key challenges here. It is one thing to navigate a shock but when you are looking at the third shock in six years, from covid to Ukraine and going on to the war in Iran, we can see how that viability is eroding over time. It is a very key watch point, particularly as we head into next year and look at autumn as a key period where we look at the decisions farmers are going to make around planting and cropping.

Our concern really mirrors Rohit’s explanation of how the market is going to work. As a fertiliser industry, we need to supply fertiliser consistently throughout the year in order to keep up with demand. We do not have the capacity to provide it all when a farmer needs it so we need a consistent throughput. Similarly, manufacturers need to be running their plant flat out to be efficient. In the absence of orders or if there is a downturn because of a lack of confidence, plants basically have to switch off and then remove themselves from the market. So what is likely to happen here is a critical time for us, which will probably be in June or July. If we start to see orders dry up because of a lack of farmer confidence, we are going to move into demand destruction and see European and UK-based plants potentially go offline; it becomes quite critical. We end up in a sort of negative feedback cycle where the longer this hiatus continues, the worse the situation gets for local supply and the more reliant we become on supplies from abroad, which are drying up as well because they are not available.

I am sure we will come on to it but obviously for us the issues around fertiliser and other inputs are just a symptom of a much wider problem, which is that energy is at the core of this. I would be very happy to talk to the Committee about energy and how that is underpinning the problems and challenges for food prices, but this is all part of that which will feed into the wider challenge around food prices.

Yes. One of my colleagues will come to that shortly, so you will have a perfect opportunity. I guess the question now then is: what do you think the Government should be doing to be able to support smaller food producers that are obviously going to be disproportionately affected? What sort of measures would you want to see at this stage?

There is a difficulty in that the value of the products that farmers produce, which is where our relationship is, is extremely low relative to the value of the processed food. Therefore even with the increase in the cost of fertiliser, the impact of that fertiliser on a loaf of bread is relatively low because the farmer does not get the value from the amount of wheat; the cost is in the processing, transport, wages, and labour, so it is very difficult. We have asked the Minister four immediate asks in anticipation of demand destruction later on in the year. Clearly, the first one is support for farmer cash flow and access to credit. It is easy for me to say that but the reality is that is what Europe is currently looking at in terms of supporting farmers. We need to sustain demand from June. We cannot wait for this situation in the Gulf to sort itself out. It is a bit like tapping your brakes on the motorway: you get an enormous tailback, traffic comes to a halt almost immediately, and then it will take ages to clear. We need to act promptly on that. We need urgent clarity on UK CBAM for fertilisers and ammonia. The timelines that the Government and the Treasury have put in place indicate that we will not know until quarter four what the default figures and the guidance on carbon footprints and free allowance starting points are. If we are going to price fertiliser accurately and start forward buying, we need to be able to price CBAM in, so we need to know this side of June. This is a controversial one: we need clarity on Russian-owned fertiliser assets that are based and operating in Europe. We seem to be an outlier. There are obvious political reasons why that was brought in but there are organisations operating that are Russian-owned that are legitimately operating and producing fertiliser based in Europe, so the question is if our Irish competitors can access that fertiliser legitimately, could we? The other one is that data is really, really important and although we are quite good at estimating things, granularity is really important, so perhaps consideration of a national fertiliser recording system. Again, if we look over the Irish Sea at the Republic of Ireland, it has a national fertiliser database where suppliers and farmers record their inventories on a monthly basis, which gives instant access to what stockholdings you have so there is no doubt about whether farmers have adequate supplies, where the deficits are, and where the oversupply is.

As the AHDB is a levy board, we do not advocate for certain policies, but we can present evidence and observations on what the market is showing and what policy impacts could be. A few reflections would be, as Jo has indicated, on transparency. I touched on that earlier. There is a real challenge around when there are acute market impacts, which we have seen. I have listed three examples in the last six years with covid-19 and the war in Ukraine. It is very difficult to navigate markets and understand the impacts at both the policy and commercial levels in the short term, which undermines confidence quite significantly. Anything that can be done to support transparency in markets to drive certainty in decision-making would be really key. For example, AHDB has the nitrogen fertiliser adjustment tool. We have a number of tools such as a cost-benefit calculator that we put out just to help levy payers understand and make decisions about the cost benefits of applying fertiliser and what the returns could be. We have the nutrient management guide and some guidance around that. We are doing some work developing an SFI calculator, for example, which is to help farmers understand the implications of getting involved in certain SFI schemes and the potential returns they can generate. Anything that can support decision-making at this crucial time and provide certainty surely needs to be a big focus in the efforts, at least in the short term, as we head into those key decisions being made for cropping for the next season.

Just a final question, which you have touched on because as you said this is the third shock that we have had so we have to look at the immediate support but then also long-term support. What specific long-term interventions would you want to see from the Government to try to help with resilience for any of the future shocks that are coming?

That is probably not one I can comment on.

I am happy to. We have had discussions with Government, prior to the problems in the Iran war and part of the food strategy that is still in abeyance at the moment but connected to that, around the things that put confidence into the UK supply chain. We have seen some policy decisions. For example we saw some statements around planning but we need to see that actually embedded in terms of practice so we can start to expand some of our livestock production in particular and horticulture. We definitely need to address the energy issue and I am sure the Committee will want to talk about that in a minute. The third issue is around labour availability in supply chains, both at the farming level and in the processing level to give some certainty for farmers. If we can give certainty on those long-term investment decisions, they will invest and food businesses will invest in the UK. So they will be critical to underpinning the structure of UK agriculture going forward.

Jo, do you have anything to add?

No, I would support what has been said. Energy costs seem to be the biggest problem from a manufacturing point of view. I totally agree that having long-term strategies for land use, food, farming, and food security is really, really important, and we need to sort out planning.

It is maybe not entirely the aspect of energy that you were meaning but we have basically just closed down the UK bioethanol industry. What impact is that going to have? Does it seem like a good idea now?

That was an unfortunate situation brought about by a tariff agreement, was it not, but the reality is that we are heavily dependent on that for the production of CO2, which is obviously really important from a food production, slaughtering, and food preservation point of view.

We are going to move on to some detailed questioning on fertilisers in a second but before we do, you have given us the four immediate asks: the access to credit to help with cash flow, the clarity on UK CBAM, the clarity on fertiliser assets elsewhere in Europe and the issues around data. You have presumably fed that into Government.

Yes.

What response are you getting?

We had a very useful meeting with the Minister for Food Security and we passed those on. I hesitate to say we have not had a response as yet. It may be that that is forthcoming, depending on how long the hiatus with the Gulf lasts.

Just to be quite clear, we have a tipping point for the manufacture of fertiliser in June or July of this year. Is there any sign of a solution to that or any intervention?

I speak to DEFRA’s fertiliser team twice a week.

I am getting a picture of a rabbit caught in headlights here.

Yes. We have a very good relationship in terms of feeding information in. We are still waiting to hear.

Rohit, your point about confidence to invest comes on the back of an already significant loss of confidence to invest. You are coming on the back of two bad harvests already for arable. How bad could this get in terms of output and food production at the end of it?

There is a lot of uncertainty around that. Within the next harvest, you could see real challenges around cropping. The reason there are uncertainties around that is that the global output for this year is uncertain. We have the El Niño effect, which is a key watch point at the moment in terms of what that does to key exporting nations. To be honest, it can be quite speculative at the moment about what the immediate impacts will be. Crop prices could go either way, for example. There is no doubt that in the long term, there is a question about eroding productive capacity because that investment is not happening on farm. The key watch point here is that the shocks will erode away investment over time. Where the cost of finance is elevated at the moment, it is undermining that investment even further. We could see long-term impacts on key sectors, such as dairy, cereals, and oilseeds, in terms of production as a direct result of the pressures they are facing now.

It feels a bit like the perfect storm is heading our way. I want to get to the point of how this impacts consumers but we will stick with producers for the moment. Jenny, you have some questions around the fertiliser cost issue.

Jo, this will be best answered by you but feel free to jump in, anyone. In 2023, the last UK plant for producing ammonia closed its doors for the very last time. It was completely mothballed, which means we are now fully dependent on ammonia imports, even though we can produce fertiliser domestically. Of course, that means that we are totally reliant on imports of fertiliser. We have alluded to that and talked about it lightly earlier. What is your assessment of that decision? Should there have been an intervention by the Government at the time to ensure that the ammonia plant was not mothballed? As we are now seeing it play out, what are the consequences of that decision, be it totally reliant on imports?

On reflection, I would say that the decision to mothball the plant was made for sound economic reasons, and that is being played out in other European plants at the moment. The cost of production due to the cost of European gas and other energy costs, such as electricity, does not make the production of ammonia feedstock economically viable. Bringing it in from the United States makes sound economic sense because production costs are much lower, despite the additional costs of importing it. Paradoxically, that makes the position of domestic production of fertiliser more sustainable. It also has the advantage of reducing maintenance costs. The maintenance costs of an ammonia plant are absolutely enormous. The plant needs to be closed every two or three years for a major intensive overhaul. Realistically, with the margins that were being operated to, it is very difficult to recover those.

Can I challenge you on that? Arguably, similar arguments were put forward for British Steel but ultimately the decision was that as a nation we are better off producing steel in this country rather than being dependent entirely on imports during times of clear economic crisis and global political volatility. I would argue that the same applies for the domestic production of fertiliser. As we are seeing it play out now globally, we cannot be dependent on an imports market, which is so volatile. There are challenges and there are costs, but supporting the domestic production of fertiliser in the world in which we see it now—not in the world in which we saw it in 2023—would be the right option for it.

You would still have to overcome the cost of gas, which is five times more expensive here than in the States. It is just simple mathematics. I do not dispute the fact that from a strategic point of view, it is desirable to have domestic production. I am just speaking from a basic economic perspective.

I challenge that.

AIC has no viewpoint on domestic or import.

You can say that you challenge that from simple mathematics but I would say to you that it is the equations that you choose to look at versus the other consequences of not investing in it. As you are saying, the cost of gas is significant but you are also disregarding a whole set of equations over here and that we are seeing an issue with fertiliser because we closed down that plant. Looking ahead, is a continued reliance on imported fertiliser sustainable? I think I know where you are going to go with this. I would challenge that it is not. What would you recommend is the long-term sustainable approach?

We have two issues. You can look at the balance sheet and say that there are natural manures, slurries, digestates, sewage sludges, and biosolids, which probably produce 120 million tonnes of material a year that is available to be put on land. That is used and then it is topped up with probably 5% manufactured mineral fertilisers. In terms of nutrient density, those 5% of mineral fertilisers provide half the nutrient content. If you look at the environmental issues related to livestock manures, they are so dilute because they are fundamentally 95% water, so they are highly mobile in the environment causing all sorts of problems from an environmental contamination point of view. The issue regarding sustainability is very difficult. We are reliant on manufactured mineral fertilisers, whether we like it or not. The question is: can you move to decarbonising them in the short- to medium-term? It is feasible with carbon capture and storage utilising gas. That is what the investment in the States has been all about. The idea of having the ammonia plant built in the States was the fact that you could apply carbon capture and storage on a large scale and start to bring that in. Certainly, the factory that you were referring to earlier in the questioning is looking at doing that this year and lowering its carbon footprint as a result of that.

This is CCUS.

Yes. Longer term, it is very difficult to see what the end game is for green ammonia manufactured completely from green hydrogen—getting away from carbon gas altogether, basically—because electrolyser technology does not exist at the moment on a scale that is able to render that economically viable. We are using everything we have. What we need to do is find a way to remove water from our organic manures and slurries to make them pelletisable and easily transportable for more effective use.

I want to go back and revisit the conversation we had a moment ago. We are probably not going to agree on this because I have heard what you have said, but I might bring in Rohit to see what he thinks about this. The fundamental problem I have—the challenge—is that your answer to me when I posed that question reinforced a lot of Treasury orthodoxy, which is that the cost of production is too high, therefore we import because it just is not viable. You could say that about so much in the agricultural industry but the EFRA Committee is incredibly concerned about the future of the growers’ market, the producers’ market, and the agriculture sector as a whole because we fundamentally believe and agree, because food security is national security, that the UK is best served by supporting an agricultural industry that is struggling, rather than relying on imports for food and produce. Q167 An agreed position pretty much across the House is that we need to make sure that we are supporting an industry in the face of cheap imports. An MBA student would be amazed to hear that it is not profitable or viable for these farms to exist and they should not exist. On the face of it, it is not economical or viable, which is the argument that you are using about the domestic production of fertiliser. I am saying it is right for food security to be national security for this country to produce its food and therefore to produce the means of production for that food. That is the point I am trying to make. We have a different perspective on it, and I do not question your numbers. I am saying there is a different argument over here, and if you just went on a numbers game alone, much of the industry would not stack up. Can I bring in other comments about the production of fertiliser within the UK market, rather than being wholly reliant on imports?

As an observation, it probably goes one step beyond that as well in terms of the UK’s energy mix and our reliance on energy and where that comes from. To Jo’s point, it is all interlinked. We cannot isolate the fertiliser sector as functioning without then addressing the energy needs of that sector to produce because effectively we will end up in a position where the costs are too high and farmers cannot source the fertiliser at a cost-competitive rate compared to imports. Effectively, the domestic market has to work compared to imports otherwise we end up in a position where, outside periods of crisis, when markets normalise, imports become the primary source again because they are more competitive. Therefore, where does domestic production stand when markets function? There are challenges in terms of ensuring the long-term viability of domestic production outside times of crisis.

I remember the days when we were outside times of crisis. Essentially, this is an age-old balance to be struck between the price and the value.

Yes.

You have given a very fair estimation of the price politically and strategically for the country. It is for Parliament to decide where the value lies in that.

Jo, you set out all the asks that you have made of DEFRA. You said you speak to DEFRA twice a week. In the context of the domestic production of fertiliser, or lack thereof, being pretty much wholly dependent on the cost of energy and particularly the cost of gas in comparison with our friends and partners in the United States, how often do you speak to DESNZ?

It is very difficult to talk to DESNZ. We are struggling to get clarity on CBAM in particular, which is, as I said, our second ask: urgent clarity on free allowances.

CBAM sits with the Treasury.

But DESNZ sets the parameters for free allowances and ETS policy. Welcome to our world.

Yes, welcome to our world.

I want to explore the future very quickly. Farmers are moving away from fertiliser use as it becomes more expensive; we are growing and using less fertiliser-intensive crops. What impact could this have on food security and how can we support our farmers through this change?

This goes back to Jenny’s point she made earlier. Please do not get me wrong, I am not anti-manufacturing in the UK by any means. The question is very much a political one: how do you choose to support a transition? We have basically decided to transition by removing all support. From my personal perspective—not on behalf of AIC or the fertiliser sector—that might be premature given events that are going on at the moment, and maybe we need to reflect on that and say how much we place as a society on the importance of being able to feed ourselves and how important it is to have a sustainable farming base? Not necessarily a sustainable fertiliser base; fertiliser will supply the demand from farmers, so the sustainability aspect is actually around how you support our customers, who are the farmers.

The point at which the rubber meets the road on this is when consumers start to notice it when they come to the checkout in the supermarket or their local shop. Josh, you have some questions to lead us on that.

You are right: people at home will be most concerned, of course, about what is on the supermarket shelves and how much their weekly shop is going to cost. That is how all this will translate into the real world. We saw from covid that disruption to just-in-time supply chains can lead to shelves going empty pretty quickly. I will start with you, if I may, Andrew. I am sure you have seen the report in The Times that a reasonable worst-case scenario could see us facing shortages of supermarket goods as soon as this summer if the war in Iran continues. What steps would you like to see the Government take to avoid that scenario?

I do not recognise that premise to begin with. If you go back to covid, while there were some problems with availability in the very early days of covid, it was also about whether we could literally get as much food on the shelves as possible to meet an excessive demand in a very peak period. The food was actually still in the supply chain. It literally could not get on the shelves quickly enough for consumers, which remains the same case here. Having said that, I agree that it is absolutely right for the Government to look at all the contingencies at the moment. Bioethanol was mentioned earlier; the Ensus plant has reopened to give at least three months’ security for more CO2 becoming available, which is a vital issue. It is right that we are concerned; it is right that the Government are looking at contingencies. As an organisation, we are having regular discussions with our partners in the supply chain and Government around availability. But as it stands at the moment this is primarily an issue about cost, not availability.

Concerns have also been expressed about out-of-season shortages. Do you recognise those? You think we can cope.

No, I do not recognise those. I take you back to either covid or Ukraine. It is around the strength of the supply chains and recognising contingencies, which could be key inputs, such as fertiliser and sprays that we have already talked about, or red diesel for example. It is absolutely right to be looking at that but in terms of production we are not anticipating problems.

In terms of the pressures on producers, we know that pretty much universally everybody is exposed to the cost of heating, processing, refrigeration, packaging, and getting goods to market. When you drill down into specific sectors, you have fresh produce and glasshouse horticulture that are very reliant on the cost of gas and fertiliser. Sectors such as meat and dairy are particularly hit by fuel price spikes. Pork production is hit by the cost of grain and soya. If you are an indoor producer, energy costs are a huge concern. Given that myriad of pressures, what would be your realistic best and worst-case scenarios for food price inflation as we move through this year?

I am not going to give you an estimate at this stage. It is too early. The market is still too volatile to be able to do that. As we get two or three months into this and there is a bit more certainty, I would be happy to come back or share some thoughts with the Committee. At this stage, we need to put it in the context that we already have relatively and historically high food inflation in this country: about 3.3% at the moment. We have been running higher food inflation since covid. Food prices are currently 40% higher in stores than they were pre-covid. Our real concern is that this will inevitably add costs. You are absolutely spot-on in identifying energy. I would also add production and distribution. By production I mean things such as bakeries, food factories, and breweries. Distribution is trucks taking food around the country, which is energy-reliant. All this will put pressure on prices, and we expect inflation to rise again, just as it was starting to drop. Our message is for customers and food businesses: this is going to be a really challenging time, and not just in the short term. If you look at Ukraine or other events, it takes about 12 months for peak food inflation to come through, for various reasons. We are now going to go into a period of at least a year of higher food inflation than anyone anticipated at a time when customers are struggling with higher energy prices and we have historically high food prices. It is a really challenging situation for supermarkets, manufacturers, and farmers, but particularly for customers.

Do you think that with what we expect to be higher food inflation, we are also going to see higher supermarket profits?

Interestingly, I listened to the evidence given earlier, and I am sure the Committee has seen the CMA’s analysis of what happened post Ukraine. One of the issues was that not only did margins drop at that point but supermarket profits dropped by 41% over that period. I think we are going to see an intense period of even more fierce competition at the retail level because as customers we have less money in our pockets, we are going to see staples go up in price, and therefore that is a signal for intense competition where retailers will be investing even more of their profits back into price caps to try to mitigate it. I come back to the biggest thing that I am sure we will get to. The biggest intervention that the Government could make at this point, as shared with retail leaders by the Chancellor three weeks ago, is on energy and energy support for the food industry. The bakeries I talked about, the farmers, particularly the intensive livestock producers, and horticulture need help with energy and if the Government give that, I guarantee you that will mitigate inflation in stores for customers. There is a direct relationship between the Government giving more support to the food industry and all customers paying less for our groceries. The one thing we should also remember is that we are very fortunate in this country because of the competition among supermarkets and all the studies show we currently pay the lowest grocery prices in western Europe. I do not see that changing but I see a really challenging time ahead and the opportunity for the Government to intervene is absolutely now. They need to get to grips with this energy issue as soon as possible if it wants to make a difference.

Absolutely. The “as soon as possible” point is the pertinent one because we know that although the costs will be felt by consumers further down the road, the opportunity to stop it is now. Are you as concerned as I that when we talk about Government support, there is often a focus on electricity prices and we miss the fact that there are many energy-intensive industries, particularly food and drink, where the price of gas is important and so many other inputs such as fertiliser. They need to be looking much broader than just electricity and one thing that I am particularly concerned about at the moment is red diesel. That is an opportunity for us to directly support producers right now and target that support in a quite concerted way. Is that something you would like to see?

I agree, which is why I talk about it in terms of energy rather than just electricity, but there are some very simple things in electricity the Government could do. For example, they could look at non-commodity costs for food businesses and just take those off or suspend them for a period.

What do you mean by non-commodity costs?

Non-commodity costs are costs on the bill which are not directly related to the actual costs of the energy generation. It is to do with renewables and various other issues. If you look at your bill and the bill for businesses, quite a large proportion of that is actually in these non-commodity costs. People and businesses should only have to pay for the electricity, rather than for all the supplements that go back into infrastructure, development, and other issues. The other area is that the Government have a scheme called the BICS scheme, which subsidises heavy energy users such as steelworks and so on. They should be looking at more targeted support for really high energy users, which could be gas or electricity in the food industry itself. If the Government were to look at those two issues around electricity costs and energy costs more generally, it would make a significant difference to the final cost on the shelf.

I am conscious of time, but Rohit, do you have anything to add on the point of Government support to mitigate the effects of inflation?

Not in terms of direct Government support but a key watch point will be around the livestock sector—particularly red meat—as we approach the winter: issues such as housing costs, energy costs associated with overwinter housing, and feed costs. We know we have a shrinking national herd at the moment in beef and that is going to be exacerbated by the pressure on costs. It is similar with pigs. You mentioned feed being the key driver. The immediate pressures with fertiliser at the moment are actually in the grassland sector because it does not have the ability to forward buy and it needs a good forage to prepare for the winter and support production. We know from our consumer insights work that consumers switch from beef to cheaper alternatives, and we have seen this in recent years: swapping beef mince for things such as chicken, pork, sausages, and fish tends to gain in popularity. Over time that is going to place additional pressure on that sector in terms of margins and viability. On the inflation point that you raised, we know for example with dairy that there is a significant lag between wholesale prices and retail market, which can average between seven and 11 months, based on the research. It suggests that some of this inflation is likely to be quite sticky going into next year rather than being just a short, sharp shock to food prices.

Yes, absolutely. Andrew, I know you said that it is too early to speculate on what inflation might be, but through your members do you have a sense of which categories of food might be under the most pressure? Rohit has mentioned red meat as an example. Are there any others you expect to be under the most pressure, so we can make sure support is targeted in the right way?

Yes. It is no surprise that it comes back to the energy point again. In energy-intensive production at the primary level, you are probably looking at horticulture, some more intensive livestock systems, and poultry and eggs, for example. At the processing end, the big users of energy are bakeries and food factories. Post Ukraine, everything from bread to ready meals was particularly adversely affected as soon as we saw oil and energy prices leap after the Ukraine invasion. I will leave it there, Chair.

Can I just tease this out a little? We are looking at 12 months before it really feeds through to the full impact of food price inflation and you then anticipate a situation where the larger retailers will become a bit more cutthroat in terms of driving down prices for competition. So at that point the price for the consumer becomes an even more persuasive driver of purchasing behaviour, which then leaves us open to the question of what matters more: picking up a piece of meat that has a red tractor on it or one that has a Uruguayan flag.

You captured it really well before, Chair. There will be more intense competition but that is driven by consumers. They will simply have less money to spend.

They do not have the money to spend.

They do not have the money to spend. I think you mentioned it earlier: we talk about value rather than price but price is part of that equation. If you add in animal welfare, environmental sourcing, and so on, it goes slightly down the scale compared to just the price itself.

We will certainly take away your fairly persuasive arguments—to my mind at least—that providing energy support now is the way to mitigate future price increases. There are those who suggest that an alternative approach would be Government intervention to put caps on the price of certain foodstuffs. What impact do you think that might have as a policy?

First, it is totally unnecessary. I spoke earlier about how we already have the lowest grocery prices in western Europe, so competition is working. Again, confirmed by the CMA: competition works really effectively for customers so why would you want to intervene? Secondly, the bit we could not square away was how the primary producer fits into this because the supermarket has to charge a certain price to cover all the costs in the supply chain, including the primary producer. So how can it get the money back through the chain to the manufacturer, processor, and farmer if it is not collecting it at the till? Unfortunately, this is just an inevitable consequence where we have prices at this level and one of our direct inputs—energy—which underpins food prices, is going up. It is unavoidable, unfortunately. The best we can do is mitigate it, as I mentioned earlier. The point that you can drive some kind of intervention with some 1970s price controls is just a fallacy; it just does not work. We will probably end up with producers losing out, or producers dropping out of the market, and people will not get the choice that they have at the moment. Leave it to the market because the market works really well. All the independent assessments of the UK grocery market confirm that.

Put the cap on the price in the supermarket, which then trickles down, or floods down, through the whole supply chain. I do not want to lead you but ultimately are you telling us that it would be the primary producers—the farmers—who would lose out as a consequence?

Absolutely. It is an unsustainable model. Nobody wants to charge consumers more than they can. You cannot get away with it because the market will not allow it. But the maximum price you get then goes back into the supply chain to pay all the suppliers down the chain. If you cannot collect the money that accurately reflects the costs of all the production and sales of the product, where is the money to pay the farmer at the end of the chain?

You have given us an alternative in terms of intervention now in a way that keeps the ultimate food retail price down.

There are other things the Government could do that are in their gift. For example, they could look at large packaging costs. Even if they just suspend it for 12 months, that money would go back into cutting inflation in a market as dynamic as this. They could look at how we roll out new regulation. Do we maybe pause for six months to allow food businesses—farmers, processors and retailers—to adapt to it? There are other ways that the Government could be effective here.

What guarantees can you give us that the benefit is not just absorbed by retailers to the detriment of the producers?

Two things: first, you cannot kid the British consumer. The market is too strong to allow that: the transparency in the market and the ability for us all to shop in one supermarket or another is too strong. Secondly, the CMA, although it conducted the investigation after the Ukraine war, continues to monitor prices and margins in supermarkets, so it will still be there in the background over the shoulder of all the major retailers. But ultimately, the market will drive this.

Gentlemen, thank you very much indeed. It has been enormously helpful and informative evidence for us and doubtless will be heard by our constituents because they are ultimately the people who are most concerned about this and are the ones who will feel it at the end of the day. Thank you for your attendance and your input. With that, I will conclude today’s proceedings.