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Nick Herbert: I am determined to curb the power of the supermarkets

HERBERT NICK NW Nick Herbert is Shadow Secretary of State for the Environment, Food and Rural Affairs and uses this Platform to answer the TaxPayers' Alliance and others who criticised his recent proposals for a supermarket ombudsman.

Once again, Ministers are playing catch-up.  After dithering for almost two years, the Government has finally announced that it favours the creation of a body to oversee the new Grocery Supply Code of Practice, due to come into force next month.  What sort of entity this would be and what powers it would have, the Government couldn’t say.  They promised – you’ve guessed it – to “consult”.

This belated announcement followed my speech last week to the Oxford Farming Conference where I committed the next Conservative Government to establish a supermarket ombudsman to curb abuses of power by the major food retailers.

While the announcement generally went down well, a few robust contributions to ConHome demurred.  My good friend Shane Frith of Progessive Vision was convinced that we were trying to please British farmers.  For a proud Kiwi where agriculture (as I saw recently) is unsubsidised, that’s clearly a particular sin – and I agree that we should never drive reform in the producer interest.

Spiked Online’s Neil Davenport perceived a deep patrician strain in Toryism that despises supermarkets (of course we don’t) and wants to wage “war against cheaply priced food for the masses” (actually, we’re quite keen on persuading people to vote for us).  But my comrades at the TaxPayers’ Alliance went further, suggesting – ludicrously – that we were advocating a return to the price-fixing established during the First World War.

As the co-founder of the Reform think-tank, I confess that being lectured on economic liberalism is a new experience.  So here, offered in the same spirit, is a little rebuttal.

Point one.  The creation of an Ombudsman was the principal recommendation of the Competition Commission – hardly a body known to seek to stifle free and fair competition in the marketplace.  Their 270-page report in April 2008 warned of problems of supermarket behaviour, such as retrospectively demanding price cuts from suppliers, which could not go unchecked.  Since most critics (Neil Davenport excepted) failed to mention this report, I doubt they had read it.  Perhaps they should.

Point two.  The Competition Commission found that “the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers”.  Here’s the key argument: consumers could face higher prices unless action is taken. 

As Professor Roger Clarke, a specialist in competition policy at Cardiff Business School, concluded, an ombudsman is likely to “lead to more choice, better quality products and lower prices”.  So the TaxPayers’ Alliance claim that we were “ …a few months or weeks before an election, arguing that recession-hit Britons should be made to pay higher food prices” was complete tosh.  Indeed, the Chairman of the Competition Commission, in urging the Government to act months after their report was published, said: “The current economic difficulties if anything reinforce rather than reduce the need for action.”

Point three.  I’m sure the TaxPayers’ Alliance knows what an oligopsony is.  However, for the benefit of those of us who aren’t so clever, it’s a market in which the number of buyers is small while the number of sellers is large, giving the buyers a major advantage, so that their actions can have a significant impact on prices and the market in general.

I don’t know if our apostles of the free market object to such imperfect competition.  Perhaps, instead, they think we should abolish the competition authorities and let market dominance rip.  But for all the years in which I’ve tried to promote market solutions in place of government failure, I also believe there’s such a thing as market failure, and where the public interest is threatened, government has a responsibility to act.

Point four.  Those who characterise the policy as an attempt to regulate prices have the wrong target.  It’s the Liberal Democrats who can be relied upon to advocate such absurdities.  Their spokesman, Tim Farron MP, has called for a “Food Market Regulator” with the power to “guarantee that [suppliers] are given a fair price for their produce”.  Can Vince Cable really have agreed this?

Point five.  The supermarkets are great businesses that have delivered real benefits for customers.  But that can’t mean that any check on their activities must be a bad thing.  As the Competition Commission said: “We wish to ensure that grocery retailers are able to negotiate the best possible price from their suppliers, while guarding against those actions by grocery retailers that will ultimately impose costs on consumers through harming investment or innovation in the supply chain.”  If anyone has a reasoned argument against this aim, let’s hear it.

Final point: I’m not in favour of creating new quangos.  That’s precisely why we said that the supermarket ombudsman should be located within the existing Office of Fair Trading.  Nor do we propose that the taxpayer should pay.  The cost is estimated to be no more than £5 million a year, levied on the major supermarkets whose turnover is around £150 billion.  If anyone doubts my commitment, restated at the recent Party conference, to have fewer rural quangos, all I can suggest is that they watch this space.


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