Double trouble with quangos set to add to costs

Two quangos are poised to add to the costs incurred by food and drink producers by intervening in relationships between suppliers and retailers.

And both are set to pronounce on trading relationships that have been investigated numerous times in the past decade.

The first is the Competition Commission, which wants the UK government to impose an ombudsman system to rule in disputes between the big grocery chains and their suppliers. The commission wants to appoint a referee between the sides because most of the supermarkets and other national chains have declined to participate in a voluntary code of practice.

The proposed ombudsman system, the commission estimates, would cost about £5m a year to run, a sum that many commentators consider remarkably low.

The supermarkets have labelled the plan “bad news for consumers”, warning of higher prices as the costs of the system are passed on to shoppers. They say that the beneficiaries would be multinational suppliers, who are more than able to look after their own interests in negotiations. The implication is that, as in the past, smaller suppliers, including wine producers and shippers, would remain reluctant to make any grievances public for fear of retribution.

In the drinks sector, suppliers regularly face the dilemma of accepting terms imposed by the supermarkets without negotiation or losing their facings. In a sector dominated by price points, this is portrayed as being dictated by customer demand, not retailers’ margins. But no drinks supplier has gone public about a grievance.

Unsurprisingly, the proposed ombudsman system has been criticised by the British Retail Consortium but welcomed by the Food and Drink Federation, both organisations reflecting the well-known interests and arguments of their members. But the key question is what sanctions an ombudsman would be able to impose and whether they would be effective.  

The government is already wary of the proposal, saying the plan “raises complex issues which could impact on consumers and the wider economy” – Westminster-speak for “Don’t hold your breath”. It will respond early next year, which coincidentally or not, is much the same time frame as that which the Competition Commission has given the retail chains to comply with a revised code of practice on relationships with suppliers.

The second quango in action is the Office of Fair Trading, which is considering a “super complaint” from the Campaign for Real Ale (Camra) about the tied house system. The pressure group is able to demand such a probe because it is a recognised consumer body. It wants yet another investigation of the system, pointing to the 50-plus pub closures a week as evidence of its evils. About half the closures are of tenanted pubs.

Pub owners and brewers are aghast at the plan, pointing out that nothing has changed since the previous probe gave them a clean bill of health and that the consumer would bear the cost of the requested investigation. The OFT has until late October to decide whether to undertake a renewed investigation.

Finance on Friday, 14.08.2009