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Supermarkets could face fines for failing to treat suppliers fairly, UK government announces

UK supermarkets could be fined up to 1% of their annual turnover if they fail to treat their suppliers fairly, if additional powers proposed for the grocery industry watchdog are approved by parliament.

The Groceries Code Adjudicator (GCA) is currently able to issue recommendations to supermarkets that breach the Groceries Supply Code of Practice, which was introduced in 2009 to govern the commercial relationships between supermarkets and their direct suppliers of food, drink and certain household items. She can also 'name and shame' those that breach the code.

Business secretary Vince Cable described the proposed new powers as an "important final step" that would allow the GCA to address "the most serious disputes" between the 10 major supermarkets and their suppliers". Any fines would be based on statutory guidance and depend on the seriousness of the breach.

"I created the Groceries Code Adjudicator to ensure a fair deal for those who supply goods to supermarkets, such as farmers and small businesses," he said. "I am pleased to be giving the adjudicator the final element in a set of powers that will give this new body all the tools it needs to succeed in this challenging and important role."

The first GCA, Christine Tacon, was appointed in 2013 to enforce the code.

"More than ever grocers have the opportunity to differentiate themselves in consumers' minds based on how they impact the wider community. How they treat suppliers is already a key part of that. This is a great opportunity for grocers to stand out from their competitors, and you can see that already with grocers very keen to discuss publicly how much they pay milk suppliers," said Tom Leman, a retail expert at Pinsent Masons, the law firm behind Out-Law.com.

"The new powers will further encourage retailers to go down this road, if they haven't already realised how important the issue is, by introducing a stick – a serious threat to their reputation -  to go with the carrot of improved consumer engagement. The level of the fines will not be the main incentive, it will be the desire not to be first," he said.

The Groceries Supply Code of Practice imposes an overall principle of fair dealing with their direct suppliers on supermarkets. It includes specific provisions governing terms of supply, timing of payments, marketing and promotional costs and payments as a condition of being a supplier, amongst other issues. It does not govern pricing issues.

The measures must now be debated by the House of Commons and the House of Lords.

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