The Department for Business, Energy and Industrial Strategy (DBEIS) yesterday launched two closely related consultations regarding the Grocery Code Adjudicator (GCA). The first, which is a statutory review, will consider the GCA's performance and effectiveness so far, whereas the second takes the form of a call for evidence, focusing on the scope of the GCA's current role. Interested parties are invited to respond before 10 January 2017.
The Groceries Supply Code of Practice (the Code) was introduced in 2009 as a result of the Competition Commission's grocery retail market investigation between 2006 and 2008 and regulates certain dealings between groceries suppliers and the ten largest UK groceries retailers (being those which have UK grocery retail turnover in excess of £1bn and which have been designated by the CMA). The GCA was established in June 2013 to oversee and enforce the Code and its first formal investigation, into Tesco, concluded in early 2016 (see here). Since 2015, the GCA has also had the power to impose fines of up to 1% of a retailer's UK turnover to sanction breaches of the Code (though these powers did not apply to the Tesco inquiry).
1. Statutory Review
The Groceries Code Adjudicator Act 2013 (the Act), which created the role of the GCA, requires the government to conduct periodic reviews of the GCA's performance. The consultation launched yesterday is the first such review, covering the period from the creation of the GCA in June 2013 to the end of March 2016 which includes the completion of the Tesco inquiry. The objective of the review is to assess the GCA's performance and to consider:
- How much the GCA's powers have been exercised;
- How effective the GCA has been in enforcing the Code;
- Whether to make an Order prescribing the information the GCA may consider when deciding whether to begin an investigation;
- Whether to amend or replace the Order that specifies the maximum fine the GCA can impose;
- Whether some or all of the GCA's functions should be transferred to a public body;
- Whether to close down the GCA altogether.
As required by the Act, the consultation seeks the views of certain specific stakeholders (the GCA, the CMA, retailers that currently fall within the scope of the Code, suppliers and consumers), though other interested parties are also invited to respond. The consultation sets out a number of questions that are specific to each stakeholder group as well as inviting more general comments. In particular, BEIS asks whether suppliers have experienced issues of the kind regulated by the Code, whether they raised those issues with the GCA and whether they were satisfied with the GCA's handling of those issues.
2. Call for Evidence
BEIS was not required to launch the second limb of its dual consultation, which takes the form of a call for evidence, but it has chosen to do so in response to concerns expressed by some about the limited scope of the GCA's jurisdiction. In particular, the GCA only has jurisdiction to enforce the Code, which applies to dealings between groceries suppliers (i.e. direct suppliers) and the relevant groceries retailers: The GCA has no jurisdiction in relation to dealings between even the largest groceries suppliers and their upstream suppliers (i.e. indirect suppliers). In the call for evidence BEIS indicates that some have suggested to it that such indirect suppliers can also be vulnerable to unfair trading practices that force them to bear excessive or unpredictable risks and that they ought to benefit from the same degree of protection against such behaviour as the direct suppliers currently enjoy in their dealings with retailers.
The issues which the call for evidence is intended to explore centre on the existence of broader market failures in the UK groceries supply chain and the extent to which such failures can be addressed by the CMA's competition powers or through other existing channels. The review will also consider whether further regulation is required, what the cost of any such regulation would be and what the broader implications for the supply chain would be of imposing further regulatory costs.
BEIS explains that a change in the overall scope of the GCA's role could only be brought about through one the following mechanisms:
- The Code itself could be expanded expressly to include dealings between direct and indirect suppliers, if the CMA were satisfied that changing circumstances meant that the Code no longer appropriately addressed the adverse effects on competition identified during the previous market investigation and that it needed to be amended;
- Equally, the Code could be expanded or replaced if the CMA conducted a fresh market investigation and identified different adverse effects on competition that needed to be remedied;
- The jurisdiction of the GCA could be expanded without any amendment to the Code itself if government were to implement legislation following appropriate consultation.
Although there is no statutory requirement to target particular stakeholders, BEIS has chosen to direct the consultation, in particular, to the same stakeholders as the statutory review, as set out above. Amongst the questions specifically addressed to suppliers, the consultation asks respondents to identify unhelpful behaviours which are not currently regulated by the Code, either because the forms of behaviour fall outside the Code, or because the behaviour arises in the context of relationships which are not governed by the Code (i.e. dealings between direct and indirect suppliers).
3. Process and Next Steps
Interested parties are invited to respond to the consultations by 10 January 2017 and can do so either online or by post or email.
As soon as practicable after the consultation, BEIS will publish a report of its findings and lay a copy of the report before Parliament.
Both limbs of this consultation process have been anticipated for some time and in many respects they contain no surprises. Given broadly positive industry reaction to the GCA's work so far and, in particular, to her collaborative approach to changing unfair trading practices, it seems unlikely that the statutory review will culminate in any harsh criticism and the prospect of the GCA being closed down altogether seems very remote. On the other hand, some might question whether the consultation will generate sufficient responses to allow a detailed assessment of the GCA's performance, given that some of the questions focus on the prevalence of behaviours that would breach the Code. One of the GCA's frustrations has been suppliers' reluctance to provide her with information about Code breaches: It seems unlikely that those same suppliers will now be willing voluntarily to provide that information to government if they have historically been reluctant even to share it with the GCA.
It is also interesting that the call for evidence appears to take quite seriously the possibility of expanding the role of the GCA to cover dealings between large consumer goods companies and their upstream suppliers. Some in the industry, such as the NFU, are of the view that the Code should be expanded in this way and they may be encouraged to see that the terms of the BEIS call for evidence explicitly recognise their concerns. On the other hand, the consultation also hints at significant hurdles to achieving any such change, which would likely require either a further two-year CMA market investigation or the submission of a body of evidence that was so compelling that government could justify intervening directly through legislation.