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 1 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. 2 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 3 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