Last updated: February 2015
Reducing poverty through international trade and reforming supply chains
Fiona Gooch, senior policy adviser at Traidcraft, outlines their work on bringing fairness into commercial practices in agricultural supply chains
What is the problem?
Tesco, the UK’s biggest retailer, has for several years been under-paying and delaying payments to its suppliers. This has been presented as an accounting scandal, for which the company is being investigated by the Serious Fraud Office.
But it also unveils a wider systemic problem that we have in our food supply chains. Back in 2008 Tesco, along with some of the UK’s other large food retailers, was found by the UK Competition Commission to “transfer excessive risks and unexpected costs onto their suppliers.”
The scale of the problem is global. With ten brands accounting for 15 percent of world food sales, and five retailers controlling half the European marketplace, there are risks associated with the food supply chain being captured by just a few companies. This means that abusive trading practices as well as governance of food supply chains needs to be addressed.
Globally, 7 billion consumers are being supplied by 2.5 billion farmers with most of the value of the chain (up to 86%) in the hands of increasingly powerful companies. 
Both inside and outside of Europe there has been a relentless pressure on suppliers, degradation of living conditions of farmers and workers, and needless food waste generated. This creates predictable problems in availability, affordability,and quality of products, and so reduces consumer welfare too. Think horsemeat and nutritional concerns. Polarising the problem into a question of who gains and who loses becomes meaningless.
Why Traidcraft is working on this
Traidcraft, as a fair trade organisation, buys products on fair trade terms from more than 100 producer groups in 30 developing countries. It has practical experience of doing business fairly. We have found that once suppliers and farmers from a developing country are in an international supply chain, it is not a given that they will benefit.
Photo credit: Traidcraft website.
In fact they are often subjected to abusive practices and risks not appropriate for them to bear, which results in precarious incomes. It is common that large retailers do not have contracts with their suppliers. They are also known to change order volumes at short notice, change prices after they have been agreed, and pay suppliers late.
These practices have become normalised in the retail sector, making it difficult for retailers to act alone to improve.
European-wide action is needed five years after Traidcraft supporters began advocating for a UK supermarket watchdog, in 2013 Christine Tacon was appointed Groceries Code Adjudicator (GCA) to stop the 10 largest UK retailers from applying abusive purchasing practices.
However retailers and other food companies increasingly operate at an international level. Four of the UK’s largest retailers purchase the products, which they sell in several countries, from a central corporate hub. This gives them enormous buying-power and enables them to set the benchmark in terms of pricing for the other UK retailers.
In December 2013, a 43,437-strong petition was handed to the European Commission asking for a coordinated tough enforcement mechanism to stop unfair trading practices.  This was signed by Traidcraft supporters as well as campaigners from 16 other European countries, and Latin American trade union members.
In July 2014, the European Commission asked each member country to assess what suitable enforcement mechanisms it had in place to stop unfair trading practices throughout the food supply chain. These are practices that grossly deviate from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another.
The Commission is encouraging collaboration across Europe, by enforcement bodies such as the GCA, to catch up with the reality of pan-European sourcing of the largest retailers. EU action needs to complement progress made in the UK.
The Commission recognised both the widespread nature of unfair trading practices, and the fact that that it is critical to design an enforcement mechanism that recognises the climate of fear of weaker suppliers.
Current situation of the GCA
The GCA, who is responsible for enforcing the Groceries Supply Code of Practice (GSCOP) which came into force in 2010, needs to overcome the issue of the climate of fear. She is able to receive information anonymously and keep it confidential. Recetwntly she appealed to suppliers to come forward with hard evidence so that she may act by applying fines on retailers who break the imposed fair purchasing legal order.
This is the catch 22: suppliers afraid of losing their businesses and livelihoods need retailers to improve their practices, yet they do not have the confidence to come forward with the level of detailed information the GCA is asking for.
Abusive buying practices are continuing to be applied by retailers, according to a survey commissioned by the GCA who recently recruited a member of staff to lead on investigations. In the meantime the GCA and her staff need to take steps to build the confidence of suppliers, as well as continue to undertake their own monitoring and evidence gathering.
The amount the GCA is able to persuade retailers to do voluntarily is already hitting limits. For example, two of the ten retailers, Sainsbury’s and Waitrose, are unwilling to limit auditing to just the previous two years when assessing which suppliers might owe them money. Once the investigations start and it is shown that anonymity can be assured, it is hoped that more suppliers will come forward, and also that retailers will choose to improve their practices rather than risk the ignominy of media shaming and punitive fines.
A structural response
The concentrations of power within food supply chains mean that abusive unfair trading practices are not accidental but structural. The GCA and the newly formed Competition and Markets Authority, along with their counterparts from other countries, have a clear
responsibility to prevent food companies from applying profitable yet abusive practices and to punish them for doing so.
Transactions do not occur in a legal vacuum. National legislation and enforcement mechanisms need to be updated to stop these unfair trading practices, not only when applied by retailers but also by large suppliers. Enforcers need to offer protection to weaker suppliers wherever they are based.
Traidcraft views trade as the sustainable route for workers, farmers and enter prisesin developing countries to move out of poverty. There is a need to shape the framework in which trade is done so that poverty reduction, rather than people becoming impoverished further, is the outcome of the increase in global trade.
Inaction by our government and the European Commission not only has predictable devastating consequences for farmers and workers overseas, but will destabilise food security and harm consumers.
What you can do
Readers can play a vital role as consumers in purchasing fair trade products from 100% fair trade organisations such as Traidcraft, or products which have the Fairtrade label.
You can also support organisations like Traidcraft by campaigning with us to make trade just. Thanks to our campaigners writing to their new Members of European Parliament, the incoming European Commissioners have already become aware of the urgency needed to address the abusive practices outlined above.
The GCA needs help in gathering evidence to be able to launch investigations, so if you are aware of practices by retailers which breach the Groceries Code get in touch with the GCA.
The recent report, ‘Who’s got the power? Tackling imbalances in agricultural supply chains’, highlights how power has become concentrated within supply chains. View it at www.fairtrade-advocacy.org/power
Traidcraft – www.traidcraft.co.uk
GCA – www.gov.uk/government/organisations/groceries-codeadjudicator