My Lords, I am sure that we are all extremely grateful to the noble Viscount, Lord Eccles, for giving us the opportunity to test at this early stage some of the principles behind establishing an adjudicator. He used the phrase, “As far as I can tell, it is working.”. The core of this debate is whether having just the rules of the game in place is enough or whether we need a referee alongside the rules at this stage.
My strong view is that we need a referee now in order to enforce the rules and to make sure that everyone who is a part of this market and supply chain understands that if they break the rules, there will be consequences. In preparing for Committee stage I have spoken to a number of suppliers to supermarkets and to people in the supermarket supply chain. The anecdotal evidence I have received is that there are still some considerable problems. If there is a belief that it is working, that may be correct technically in terms of the OFT’s analysis, as we have just heard from the noble Lord, Lord Curry, but the reality for people who are trying to operate within this market is that it is not.
As regards notice periods, in some aspects of this business there are no contracts. Thus, the supermarkets often give very short notice—for example, one week for the complete stopping of ordering goods. A minimum of three months’ notice should be given for changes. There are short-term changes to forecasts. The current system is that suppliers get the forecast from the retailer, which is not binding, and then receive the order generally on the day of dispatch. The supermarkets then charge a penalty for not supplying the volumes on the order—shorting—even if they are massively different from the forecast. For example, the sale of salads on a hot weekend can go up fourfold or the supermarket can choose to do a promotion and not tell the supplier. If the supplier fails to supply the larger volume, it could get a penalty charge.
On the flip side, if a supermarket decides to cut back its orders massively, the supplier can be left with big stocks to write off because, often, these goods are on the supermarket’s own label and cannot be sold elsewhere. Consequently, the supplier loses out. I see the noble Viscount, Lord Eccles, wants to intervene, which will be a pleasure.