Response from Traidcraft to the Consultation on “Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit”

Response from Traidcraft to the consultation on “Health and Harmony: the future for food, farming and the environment in a Green Brexit”

Contents

Introduction to Traidcraft ...... 1 Summary of recommendations ...... 1 Response to Agriculture Command Paper section 12: Ensuring fairness in the supply chain...... 2 Producer Organisations recommendation...... 2 ‘Codes of conduct’ recommendation ...... 3 Transparency recommendation ...... 7 Response to Agriculture Command Paper section 14: International trade ...... 8 Recommendations ...... 8 Details ...... 8 Contact details ...... 12

Introduction to Traidcraft

1. Traidcraft is a medium sized UK plc with a turnover of £11 million. For over 35 years we have imported grocery and homeware products from suppliers in over 30 developing countries. We are headquartered in Gateshead and employ over 100 staff there. We operate on fair trade terms which include provision of advance credit, minimum pricing, development premiums, and long term stable trading partnerships.

2. Traidcraft also comprises a development charity, Traidcraft Exchange (number 1048752), which provides support to small enterprises and farmers groups in East Africa and South Asia. Our policy team conducts research and lobbies on trade and investment policy and corporate accountability issues.

Summary of recommendations

1. That the Agriculture Bill does not promote Producer Organisations at the expense of enforcing fair business to business relationships in agricultural supply chains

2. That the Agriculture Bill introduces a properly enforced statutory code of conduct to ensure fair purchasing practices in the groceries supply chain

3. That the Agriculture Bill includes a provision for legally obliging companies to disclose the names of their suppliers, the farmgate price and the lowest wage paid in their supply chains

4. That UK trade policy is transparent, subject to parliamentary scrutiny, and gives due regard to the effect of trade on the economies of poorer countries

5. That agricultural trade supports the UK’s international obligations under the Sustainable Development Goals

6. That the UK conducts agricultural trade in such a way that supports ‘brand UK’ – a country that buys and sells internationally in a manner which is fair, sustainable, and which protects workers, consumers and the environment

Response to Agriculture Command Paper section 12: Ensuring fairness in the supply chain

Producer Organisations recommendation

7. To 12.a) on ‘Producer Organisations’: That the Agriculture Bill does not promote Producer Organisations at the expense of enforcing fair business to business relationships in agricultural supply chains.

Commentary 8. Producer Organisations (POs) and other formal structures can be useful ways to rebalance power in agricultural supply chains in favour of small-scale sellers, especially in developing countries. However, POs are a partial solution and will not solve endemic issues of unfairness in agricultural supply chains without supportive regulation.

9. A functioning PO is not always achievable for a range of reasons from the practical to the commercial to the personal. It may be that membership of a PO is the best way for an individual farm to command the highest possible price for their goods. However, POs should not be presented as the only way for farms to avoid being subjected to unfair trading practices. There should be a regulatory floor that prevents such abusive purchasing from occurring (irrespective of how well-organised the farm business may or may not be).

10. Furthermore, establishing strong POs would be a UK-only solution. There are issues of unfairness in international supply chains that require resolution.

11. In order to achieve fairness in agricultural supply chains, government must include in the Agriculture Bill regulation to prevent unfair trading practices, rather than hoping that POs will remove the need for such regulation.

‘Codes of conduct’ recommendation

12. To 12.b) on ‘codes of conduct’: That the Agriculture Bill introduce a properly enforced statutory code of conduct to ensure fair purchasing practices in the groceries supply chain

Commentary

13. It is welcome that this Command Paper includes mention of fairness within agricultural supply chains. Traidcraft believes that agricultural supply chains can and should operate in such a way that farmers, processors, manufacturers, retailers and customers are able to get a fair deal whatever their size and wherever they are situated around the world.

14. Many agricultural supply chains are characterised by market failure. The Command Paper correctly identifies the structure of supply chains as the reason for this: ‘most farmers are comparatively small-scale sellers, dealing with a smaller number of comparatively large-scale processors and retailers.’ This creates an imbalance of power in which processors and retailers are able to purchase from their suppliers in such a way that systematically transfers unfair risk and excessive costs onto the least powerful part of the supply chain.

15. These unfair purchasing practices may include late payment of invoices, unexplained deductions from invoices or requiring suppliers to pay fees above and beyond those previously agreed in a contract. The UK government has already recognised the prevalence of such practices in the relationships between the UK’s largest supermarkets and their direct suppliers and has introduced the Groceries Supply Code of Practice (GSCOP), enforced by the Groceries Code Adjudicator, to support fairer purchasing.

16. The Agriculture Bill should introduce a code of conduct to support fairer purchasing practices in the parts of the agri-food supply chain not covered by the GSCOP, along with an enforcement body to ensure compliance. By offering protection from unfair trading practices, this will give producers greater predictability as to their income and enable them to plan and invest with greater certainty. This will also ensure that the UK is consistent with a forthcoming Directive from the European Commission requiring Member States to tackle unfair trading practices in their groceries supply chains.1

17. This code of conduct must be properly enforced and ensure fair treatment for suppliers regardless of where they are and which sector they work in.

Why is enforcement needed?

1 https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key-policies/cap/draft-proposal-unfair-trade- practices-com2018-173.pdf

18. The transfer of risk and cost onto suppliers is typically very lucrative for large retailers and food businesses are able to capitalise on their market power. Experience indicates that large buyers will only desist from such practices when there is a likelihood of strong financial reprisals. Additionally, the history of the UK’s efforts to regulate purchasing practices in the groceries supply sector demonstrates that proper independent enforcement is critical.

19. The Supermarkets Code of Practice (SCOP) was a legal code drawn up by the Office of Fair Trading (OFT) and introduced in March 2002 which attempted to prevent abusive purchasing practices by the UK’s four largest supermarkets. This was not effectively enforced, with no financial penalties for supermarkets which transgressed.2 Indeed, according to the Office of Fair Trading (OFT):

“The OFT also noted that concerns had been expressed about the Code's effectiveness. Those concerns essentially related to the lack of prescriptiveness of the standards in the Code, and the apparent reluctance of suppliers to raise complaints under the Code, perhaps out of fear of commercial reprisals.”3

20. The Groceries Supply Code of Practice (2009) did not successfully change supermarket behaviour prior to the appointment of the Groceries Code Adjudicator to enforce its provisions. James Paice MP, the responsible Minister at Defra, summarised the issue in 2011:

“While the revised Groceries Supply Code of Practice (GSCOP) is a great improvement on the previous regime, the power that large grocery retailers can wield over their suppliers can still create pressures on small producers, which ultimately may impact on consumers. We therefore propose to establish a Groceries Code Adjudicator (GCA) to monitor and enforce the GSCOP. The Bill to establish the GCA will be brought forward in the near future.”4

21. Farmers and food suppliers have long been in favour of regulation to tackle unfair trading practices that covers the entire supply chain.5 However, if the government is not convinced that the available evidence comprises a sufficient case for such intervention, it should consider conducting or sponsoring an in-depth and confidential survey of suppliers.

22. This would not be without precedent: when the Competition Commission gathered evidence of abuses in supermarket supply chains during its Groceries Market Investigation 2006-2008, it not only commissioned a research company to conduct an in-depth survey, but also had to place legal orders on suppliers and others to get more precise evidence (which was then kept confidential). Prior to the publication of a proposed Directive on Unfair Trading Practices, the European Commission conducted a full and thorough consultation summarised as follows:

2 https://www.foe.co.uk/sites/default/files/downloads/farmers_supermarket_code.pdf 3 http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/reports/comp_p olicy/oft845.pdf 4 https://www.theyworkforyou.com/wrans/?id=2011-01-20a.34453.h&s=groceries+code+adjudicator#g34453.r0 5 The National Farmers’ Union, National Farmers’ Union of Scotland, Tenant Farmers’ Association, Ulster Farmers’ Union, Country Land and Business Association and British Independent Fruit Growers’ Association have all called for the extension of the Groceries Code Adjudicator’s remit so that it covers indirect suppliers to supermarkets.

‘The consultation process included consultations on the inception impact assessment, an open public consultation, targeted food supply chain stakeholder consultations (undertakings in the food supply chain and consumer organisations), a consultation of Member States, an academic workshop on UTPs in the food supply chain (organised by the Joint Research Centre), ad hoc meetings with food supply chain stakeholders, and engagements with CAP Civil Society Dialogue groups.’6

What are the characteristics of good enforcement?

23. An enforcement body must preserve the anonymity of complainants

The imbalances of power in many groceries supply chains create a climate of fear in which suppliers are unwilling to speak out for fear of commercial reprisals. This reticence is understandable. The UK’s largest supermarkets and manufacturers dominate the market and many suppliers rely on a single buyer for large proportions of their business – sometimes 100%. Even where a regulator is in place, suppliers still have concerns about coming forward.7

24. An enforcement body must investigate malpractice based on reasonable suspicion

The effective enforcement of any code of conduct requires an enforcement body that is able to hold the trust of suppliers and keep any evidence confidential. To achieve this, an enforcement body should also have the power to investigate potential transgressions under its own initiative (rather than requiring submission a complaint before it acts). This means that the spotlight is taken away from suppliers and potential complainants. The Groceries Code Adjudicator can act based on reasonable grounds for suspicion.

25. An enforcement body must have the ability to penalise transgressions

To effectively disincentivise unfair and illegal trading practices, an enforcement body must be able to apply financial penalties. The Groceries Code Adjudicator, for example, has the power to fine supermarkets up to 1% of their UK turnover. This greatly increases its heft as a regulator.

Consistency between supply chains

26. The Command Paper refers to ‘codes of conduct’, suggesting that the Agriculture Bill might introduce a number of codes that would govern purchasing practices in different agricultural sectors. Having several codes, all with slightly different provisions, risks confusion and makes it likely that some sectors would be more vulnerable to abusive practices than others. Furthermore, farmers of multiple products may find themselves receiving different levels

6 p7, https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key-policies/cap/draft-proposal-unfair- trade-practices-com2018-173.pdf 7 YouGov’s 2017 survey of the supplier community asked suppliers whether they would raise an issue with the GCA. Half answered ‘no’ or ‘not sure’, and of these 47% feared that the retailer would find out and there would be retribution. Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/623564/GCA_Annual_Sector_Su rvey_Results.pdf

of regulatory protection for different parts of their business, all for no obvious reason. It would be simpler – both for government and for the businesses affected – to propose a single code covering purchasing practices across all agricultural supply chains. Although the exact nature of common unfair purchasing practices does vary from sector to sector, a well- designed single code could provide the necessary cover across the board.

27. For example, Part Two of the Groceries Supply Code of Practice gives a general definition of ‘fair dealing’ that applies to different supply chains. Similar wording, incorporated into a code covering the parts of the supply chain not currently under the GSCOP, could be interpreted in such a way that would debar the main types of unfair trading practice suffered by suppliers. For instance:

‘A Retailer [Buyer] must at all times deal with its Suppliers fairly and lawfully. Fair and lawful dealing will be understood as requiring the Retailer [Buyer] to conduct its trading relationships with Suppliers in good faith, without distinction between formal or informal arrangements, without duress and in recognition of the Suppliers’ need for certainty as regards the risks and costs of trading, particularly in relation to production, delivery and payment issues.’ Brackets suggest alternative wording that could make this paragraph applicable to different parts of the supply chain.

28. Any code should aim to provide suppliers with the security and certainty to plan their businesses by preventing buyers changing terms without explanation and reasonable notice. These terms should include:

• Price paid and terms of payments • Volume of order • Technical specifications

A level playing field: Consistency for UK and overseas producers

29. A comprehensive code of conduct should have the widest possible application and offer protection from unfair trading practices to producers regardless of where they are based geographically. A code that covered only UK farming would not be appropriate for a number of reasons:

• Exempting the relationship between UK buyers and sellers overseas from regulation would lead to the undercutting of UK producers as unregulated exporters based overseas could be subjected to unfair practices. This is unfair on sellers both in the UK and overseas. • If the UK is going to set a standard of fairness for its supply chains, that standard should apply regardless of the location of the producer or seller. • Having guarantees that UK regulation will support sellers in the event that they are subjected to unfair practices will make the UK a more attractive market to sell to post- Brexit. • Allowing UK buyers to purchase from businesses in poorer countries in an exploitative manner would be in contravention of the UK’s commitments as a signatory to the Sustainable Development Goals.

Interaction with other parts of the supply chain

30. The code of conduct, and the body introduced to enforce its provisions, must take into account that the relationships in supply chains are dynamic and fluid. Simply taking a view on the fairness of purchasing practices between, for example, a dairy farmer and a dairy processor, risks failing to correctly identify that the pressures leading to unfair purchasing practices may come from elsewhere (unfair treatment of the processor by a supermarket, for example).

31. Therefore, any code of conduct should complement the Groceries Supply Code of Practice, and any enforcer should have a collaborative working relationship with the Groceries Code Adjudicator.

Transparency recommendation

32. To 12.c) on ‘transparency’: That the Agriculture Bill includes a provision for legally obliging companies to disclose the names of their suppliers, the farmgate price and the lowest wage paid in their supply chains.

Commentary

33. The Command Paper correctly notes that there is a lack of transparency in agricultural supply chains. Many producers are unable to access market data around pricing, placing them in a weaker negotiating position and reinforcing unfair relationships in the supply chain.

34. However, focusing on provision of market data will not achieve the government’s goal of ‘ensuring fairness in the supply chain’. Full supply chain transparency is difficult to achieve: data quickly becomes less current, whilst issues of commercial confidentiality can stymie full transparency.

35. However, there are three pieces of data that are both easy to obtain and have direct relevance to ensuring that a basic level of fairness is achieved in the supply chain. The Agriculture Bill should require large-scale purchasers of agricultural products to report a) the names and addresses of their suppliers b) the farmgate price paid and c) the lowest wage paid in their supply chain.

36. Transparency on these three fronts would create a situation in which it would be possible to identify where those engaged in agricultural supply chains are not able to receive a living income, which should be the minimum aspiration for a fair supply chain.

• Names and addresses of suppliers: Retailers and manufacturers already record the name and address of each supplier for food traceability purposes. This data should be placed in the public domain to ensure that any ethical claims made by a retailer or manufacturer can be thoroughly scrutinised.

• Farmgate prices: The price paid to a farmer for their produce should reflect at least the cost of production plus sufficient surplus for farmers and farm workers to receive a living income • The lowest wage paid: The lowest wage paid to workers in a supply chain should reflect the living wage.

37. This data is already recorded by all businesses as a matter of course, and transparency would allow civil society to focus scrutiny on situations in which farmgate prices or wages did not support living incomes.

38. A legal transparency requirement would be building on pre-existing best practice: Sainsbury’s names the supplier and country on consumer packs of many fresh products; Unilever has published the names and locations of 1400+ palm oil mills in their supply chains8; many brands publish the farmgate price paid to milk suppliers.

39. Furthermore, in recent years both the Modern Slavery Act and amendments to the Equalities Act around gender pay discrepancy have required companies to publish certain relevant data.

Response to Agriculture Command Paper section 14: International trade

Recommendations

40. That UK trade policy is transparent, subject to parliamentary scrutiny, and gives due regard to the effect of trade on the economies of poorer countries

41. That agricultural trade supports the UK’s international obligations under the Sustainable Development Goals

42. That the UK conducts agricultural trade in such a way that supports ‘brand UK’ – a country that buys and sells internationally in a manner which is fair, sustainable, and which protects workers, consumers and the environment

Details

Introduction

43. The government’s recognition of the significance of international trade as an element of agricultural policy is welcome.

8 https://www.unilever.com/news/news-and-features/Feature-article/2018/we-take-a-radical-step-on-palm-oil- supply-chain-transparency.html

44. The UK imports most of its food, and consumer demand for non-UK agricultural produce shows no sign of abating. It is critical, therefore, that agriculture policy takes into consideration the UK’s trading relationships with farmers and food businesses around the world.

45. It is in the UK’s long-term economic interest to have vibrant trading partners, with the money to purchase our goods and the capacity to produce goods domestically that will provide choice and value to the UK consumer. Defra has a responsibility for ensuring that the UK’s agricultural trade policy does not undermine the development of new trading partners.

46. There are two elements of the UK’s international trade priorities, as laid out in Chapter 14 of the Command Paper, that require clarification.

‘Any such future trade relationships must work for consumers, farmers, and businesses in the UK’

47. Traidcraft welcomes the proposal to ensure that trade relationships work for UK consumers. Maintaining high product and safety standards to protect consumers is important. Lowering regulatory standards to secure trade deals would be bad for UK consumers, producers and the environment. In addition, future trade relationships must work for the development of our most economically vulnerable trading partners.

48. The UK is committed to the achievement of the Sustainable Development Goals. These including ambitious aims such as eradicating poverty and hunger, as well as those specifically relating to trade relationships.9 For the UK to make meaningful progress against these goals will require a truly cross-government effort. Furthermore, the UK is a world leader in committing 0.7% of GNI to Overseas Development Assistance spending.

49. To maximise the impact of this spending, and ensure progress against the SDGs, the UK government must ensure that other elements of government policy do not undermine the cause of international development. If executed responsibly, our trade relationships are a significant way that the UK can help to realise sustainable global economic development in which the benefits are shared across society.

‘Government is fully committed to maintaining high standards of consumer, worker and environmental protection in trade agreements. We will adopt a trade approach which promotes industry innovation and lower prices for consumers.’

50. It is welcome that the government is committed to high standards in the agricultural sector. However, the maintenance of these may not be compatible with another of the government’s stated aims: lower prices for consumers. In our opinion, lower consumer prices should not be prioritised at the expense of workers in the world’s poorest countries. Many agricultural supply

9 9 SDG 17.12 is ‘Realize timely implementation of duty-free and quota-free market access on a lasting basis for all least developed countries, consistent with World Trade Organization decisions, including by ensuring that preferential rules of origin applicable to imports from least developed countries are transparent and simple, and contribute to facilitating market access’

chains are marked by low prices and tight margins and have little immediate scope for reduced prices without cutting corners and compromising on workers’ rights, food safety and environmental protections.

Transparent trade policy with proper scrutiny

51. The government’s stated aim of ‘working with industry to open new markets’ in agricultural products could have profound implications for developing countries’ economies and therefore policy development must be transparent, and decisions subject to parliamentary scrutiny.

52. Our recommendation is that future trade agreements are negotiated and signed following a thorough and democratic process including consultation with stakeholders, assessment of impact, scrutiny, full debate and approval by both Houses of Parliament. This would ensure that relevant voices are able to be heard, improving UK trade policy and balancing the competing demands of various interest groups by ensuring that influence is not concentrated in the hands of a few powerful lobby groups.

53. Furthermore, a transparent approach would help to ensure that trade policy and agriculture policy do not undermine the UK’s cross-departmental commitment to the Sustainable Development Goals and the effectiveness of the UK’s Overseas Development Assistance spending.

54. This is crucial since, just as it has the potential to lift people out of poverty, trade also has the potential to entrench economic inequalities. Trade arrangements allowing UK farmers to export produce tariff-free and quota-free to developing countries may have a damaging effect on food security and the development of domestic markets in those countries. Furthermore, the possibility of an altered trade relationship between the UK and EU means that consideration must be given to the effects of trade displacement: UK producers seeking alternative markets for their goods. Two examples illustrate the potential impact of trade arrangements that do not give due regard of their effect on development.

55. The Ghanaian tomato sector Structural Adjustment Programmes required trade liberalisation in return for support from the International Monetary Fund, leading to low import tariffs on agricultural produce. This created a crisis in the mid-2000s, in which heavily-subsidised EU farmers were able to export cheap tomatoes to countries such as Ghana. Oxfam estimated that 65% of the price of European tomatoes was being subsidized by the EU, allowing European exports to undercut the domestic tomato sector and leading to widespread bankruptcies amongst Ghanaian farmers.10 The UK must ensure that trade policy post-Brexit learns from these mistakes.

56. Trade displacement in poultry There is little UK demand for low value poultry parts such as necks, heads and feet and much of this meat is exported to other members of the European Union. However, reduced access to the EU market may render this trade unviable owing to the EU’s protectionist agricultural tariffs and standard import controls. Therefore, UK poultry farmers might look to expand in markets such

10 http://allafrica.com/stories/201711120018.html

as sub-Saharan Africa (currently the recipient of 65% of the UK’s non-EU exports of poultry meat). This poultry meat would be sold at prices which undermine local producers in African countries undermining local poultry sector development. This trade displacement has already happened when trade barriers between the EU and Russia (including sanctions over Russia’s role in the Ukraine) meant that EU28 farmers needed to find alternative markets for their poultry meat (see table 1).

Table 1 - Trade Displacement: Declining EU Poultry Meat exports to Russia leads to increased exports to Sub-Saharan Africa

2009 2010 2011 2012 2013 2014 2015 2016

Extra-EU Total 885,289 1,124,301 1,266,244 1,274,794 1,268,956 1,330,487 1,331,506 1,442,683

Sub-Sahara Africa (SSA) 205,789 333,461 447,204 503,882 531,438 601,899 627,279 674,831

% share SSA total 23.2% 29.7% 35.3% 39.5% 41.9% 45.2% 47.1% 46.8% extra- EU Russian 179,758 208,401 85,083 82,736 73,714 52,130 2 50

% share Russia 20.3% 18.5% 6.7% 6.5% 5.8% 3.9% 0.000% 0.003%

57. The dangers of trade displacement will be particularly acute if the post-Brexit relationship between the UK and the EU does not replicate the current terms of trade. With reduced access to the European markets that they rely on, UK farmers may opt to export their produce further afield – with potentially serious effects.

58. The same principle applies to the practice of subsidising agricultural exports to allow UK exporters a competitive advantage in overseas markets. This was banned by the World Trade Organisation in 2015.11

59. Practically, of course, subsidies are not separated into those that support exports and those that do not, and a heavily subsidised agricultural sector will in all likelihood be better positioned to export produce cheaply. To combat this, we support the principle that the largest direct payments should be capped to prevent big landowners benefiting disproportionately from the subsidy regime.

60. Developing countries should also be empowered to reject imports that threaten their domestic industries. To facilitate this, the UK should advocate for the proposed Special Safeguard Mechanism at the WTO, which if agreed would offer developing countries the opportunity to restrict agricultural imports as a way of protecting domestic production.12

11 As announced at the 2015 Nairobi Ministerial meeting: https://www.wto.org/english/thewto_e/minist_e/mc10_e/briefing_notes_e/brief_agriculture_e.htm#exportcomp etition 12 https://www.wto.org/english/tratop_e/agric_e/guide_agric_safeg_e.htm

Considering development in all trade policy

61. It is not just direct trade with developing countries that risks undermining their economic development. Future free trade agreements (FTAs) that the UK might negotiate with developed countries could have significant implications for developing countries. For example, it is likely that a UK-Australia FTA would lower tariffs for Australian beef exporters to the UK and would provide significant competition for beef exporters in countries such as Namibia. Therefore timely, comprehensive and publicly available impact assessments should be undertaken at the beginning of any new trade negotiations. These would not necessarily block trade deals but could identify likely impacts and facilitate the planning of mitigating actions (in this example, DfID might choose to provide support to Namibian beef farmers adapting their business to the new trading landscape).

62. This approach would ensure that future trade policies align with the Sustainable Development Goals, and other UK commitments on human rights, modern slavery, environmental protection and climate change. The promise to undertake this kind of exercise should be embedded within legislation, building upon the existing EU Sustainability Impact Assessments (SIAs).

Trade and agricultural policy that supports ‘brand UK’

63. The appeal of British businesses and goods is that the UK is viewed as a country that trades in a fair and sustainable way, protecting workers, consumers and the environment. This adds value to ‘brand UK’ when businesses are trying to market themselves abroad and must be protected in future trade policy.

64. The best way that government can support the promotion of ‘brand UK’ is by maintaining and, where possible, enhancing the UK’s standards of food safety, animal welfare and environmental protection.

65. The UK should, as a minimum, meet the European Union’s existing regulatory framework concerning food safety, environmental standards and food labelling. Attempting to undercut these standards would create unnecessary non-tariff barriers for exporters to the EU based in developing countries, who would then have to produce food which conformed to different sets of standards.

66. Divergence would put up non-tariff barriers to those exporters based overseas which currently export to the European Union, who would then have to produce food that conformed to different sets of standards. This would constitute an entirely unnecessary expense.

Contact details

To discuss any of the content of this submission, please contact Tom Wills, Policy Adviser.

Email: [email protected]

Phone: 02037525719

Address: Traidcraft Exchange The Foundry 17 Oval Way LONDON SE11 5RR