Mr. Paul Kelly:

I thank the Chairman and members of the committee for this opportunity to address them on the proposed statutory code of practice for the grocery sector. FDII represents 150 companies across meat, dairy, consumer foods and beverages and has consistently called for the introduction of a statutory code to address the unfair trading practices that flow from the imbalance of power between retailers and suppliers. The supply sector, food companies and producers, which employs approximately one in eight people across the economy, is seeing increasing pressure on margins and escalating costs in retailer supports. This is leading to reduced product choices, reduced quality, lack of competition and diversity and, ultimately, poorer value for the consumer.

Examples of unfair trading practices are many and varied but can include retrospective price adjustments, retrospective financing of promotions and other practices that effectively lead to retrospective payments or excessive transfer of risk. This reality has been acknowledged by the European Commission and the UK Competition Commission. Other EU member states, including our nearest neighbour, have introduced measures up to and including legislation to combat these negative effects. We must do so for the sake of the Irish agrifood sector and we must do this by way of a statutory code. The European Commission continues to look closely at this issue and previous speakers before this committee have cited the European voluntary initiative on business-to-business relations in the food chain as an alternative to the Irish statutory code.

I will provide some background on this initiative and the broader context at European level before making some general comments as to why it should not be considered as a valid alternative. In November 2011, 11 representative bodies from the entire food chain - the European associations representing farmers, food processors, retailers, etc. - adopted a set of principles and examples of fair and unfair commercial practices. They were subsequently asked by the European Commission to deliver an agreed framework for effective implementation of the principles, in other words, a form of voluntary code of practice for business-to-business relations at European Union level. Securing agreement on such a framework proved much more difficult. Farmers and secondary meat processors, for example, considered the implementation and enforcement element to be too weak and did not sign up, while others who signed up to the agreement had reservations. This initiative took place in recent months and the process of getting companies operating in the food chain to sign up has begun.

Before the end of the year, the European Commission will decide on whether to propose EU legislation to tackle unfair trading practices. It will base its decision on three factors: the take-up of the voluntary initiative I described; the results of an impact assessment of various possible actions that is being undertaken by the Commission's directorate general on competition; and the results of a consultation the Internal Market directorate general is undertaking based a Green Paper on unfair trading practices in the food and non-food supply chain.

It is worth noting the following points at this stage. The European process is very much in its early days. As I will detail shortly, we in Ireland have gone through an unsuccessful process, facilitated by Mr. John Travers, to determine whether a voluntary code could be introduced. While the European voluntary initiative is principle based, it is also the case that the draft Irish statutory code circulated for consultation by the Minister for Jobs, Enterprise and Innovation in 2011 also has four governing principles, namely, consumer interest, fair dealing, strong supplier base and a competitive retailer sector. The opposition of the Competition Authority to the statutory code has also been cited in earlier hearings of the joint committee. While the authority is opposed to a code, this misses the point in that the issue here is unfair trading practices as opposed to competition rules.

To illustrate the point, I will cite the Report on Competition Law Enforcement and Market Monitoring Activities by European Competition Authorities in the Food Sector, which was published in May 2012 by the European Competition Network, a body comprising of national competition authorities, NCAs, from across Europe. The report states:

In their monitoring investigations a large number of NCAs have also identified as an issue the existence of certain practices linked to imbalances of bargaining power between market players that are deemed unfair by many stakeholders. Although this is an issue which has been identified regardless of the level of the chain, particular focus has been devoted to this type of practice in the context of the commercial relations between suppliers and retailers. However, the NCAs have found that most of these practices do not fall within the scope of competition rules at the EU level or in most of the Member States. Consequently, a few NCAs have proposed alternative solutions to tackle them, such as the application of national laws against unfair trading practices or the adoption of codes of conduct or good practices with effective enforcement mechanisms. A few NCAs have also expressed concerns about the potential anti-competitive effects that certain of these practices may have in the long term, should they ultimately negatively affect the competitive process in the supply chain or consumer welfare by reducing investment and innovation or limiting consumer choice.

While the development of a voluntary initiative at European level is to be welcomed, it is far from perfect and also questionable in terms of effective enforcement. The initiative is part of a process to ascertain whether European wide legislation is the correct approach to take. While Food and Drink Industry Ireland observes and participates in this process, it should not distract from the immediate priority of implementing an Irish statutory code of practice.

A major concern for Food and Drink Industry Ireland is the length of time it is taking to draw up and implement the code. The groceries order which banned below cost selling was revoked in 2006. In the absence of any legislative framework, the food industry began to highlight the buying power of retailers, incidents of unfair practices and the need for a grocery code. In 2008-09, political commitment to introduce a code was achieved. The proposal by Government was to try and introduce a voluntary code by agreement and if this was not possible, to introduce a statutory code.

Between 2009 and 2011, an unsuccessful attempt was made to reach agreement on a voluntary code of practice for the grocery sector. Consequently, the Minister for Jobs, Enterprise and Innovation gave a commitment to introduce an enabling provision in primary legislation before the end of 2012 which would allow him to introduce a statutory code soon afterwards. He issued a draft code for consultation in mid-2011. Food and Drink Industry Ireland fully supports this course of action, which we would like implemented as a matter of urgency, with a view to introducing a fair trading framework, restoring a degree of balance to trading relationships and underpinning the continued growth of Ireland's agrifood sector.