Wednesday, 9 May 2012

The Groceries Code Adjudicator Bill or how to raise food prices without helping suppliers


The Queen’s Speech setting out the government’s proposed legislative programme is, as these things always are, something of a curate’s egg. There’s some pretty sensible stuff – pension reforms, some regulatory reform, scrapping (I thought we already had though) the Audit Commission and some reform to the electoral register that will make cheating a little harder.

But there are some bad bits – the blogs will be crammed with comment, even rage, about the surveillance bill so I’ll leave commenting on that to others. However there is another dreadful proposal - an unholy stitch up between metropolitan foodies and the National Farmers Union. It has the quite innocuous title of the “Groceries Code Adjudicator Bill”. It is a bill to put up food prices.

It’s not portrayed in that way of course but rather as a benign measure aimed at stopping the big grocers – let’s be blunt here, the big supermarket chains plus the Co-op – from wielding their market power with suppliers. But no-one asks about what wielding that market power actually means to the British public.

So let me explain. When supermarkets screw suppliers – large and small – down to the floor they do so in their own interests. And in the interests of consumers. That’s right, you and I benefit from the evil supermarkets buying stuff as cheaply as possible and on the most flexible of terms. Not only that but the consumers who gain the most from the evil business practices of the supermarkets are the consumers who need that gain most – the poor. Whatever I may think of supermarkets – and I’m no particular fan – there is no doubt that delivering on their promise of cheap food has been the single biggest contribution to alleviating poverty in the last fifty years.

However much the supply chain likes the proposed Bill and however much the competition (the Association of Convenience Stores are big fans) want it to happen, nothing should cover up the fact that the proposals will result in higher food prices. Maybe not by much but rest assured prices of staple foods – eggs, butter, flour, cheese, bread and so forth – will be higher. Which is why the ACS likes the Bill – it removes, at a stroke of the pen, some of the supermarkets’ competitive advantage thereby making a direct contribution to those stores’ bottom line.

The saddest thing is that – faced with higher prices from UK suppliers – the big supermarkets will look overseas. Rather than having some clipboard wielding jobsworth determining prices, the buyers will head to Poland, to Serbia and to Bulgaria where they’ll by milk, meat and flour to sell in their shops. Far from protecting the livelihoods of hill farmers, these proposals are just as likely to accelerate that vocation’s decline.

The Grocery Code Adjudicator Bill will raise food prices. And there’s no evidence at all that it will make life any better for suppliers.



Klaus Westwood said...


So how terrible that consumers should ever need to pay a penny more for their already absurdly cheap food, but god forbid farmers (and make no mistake, they're the ones that get screwed when retailers squeeze supplier costs) may get a little more protection.

Also, you should probably brush up on your GCSE/O-level maths. The cost of the adjudicator will be around £100/200k per supermarke per year. I think Tescos profits were well over £3bn this year. That will really put inflationary pressure on their customer prices...Are you friends with Philip Davies MP perchance?

Botzarelli said...

Ironically I think the biggest potential losers may be the Association of Convenience Stores. I suspect that the supermarkets will find it difficult to pass price increases on to consumers in the current economic climate so retail prices will stay static while farm gate prices rise, thereby squeezing the margins of the Convenience Stores if they try to compete on price.