Competition Commission Provisional Findings
Published 2 November 2007

The provisional findings of the Competition Commissions investigation into the groceries market reports that the UK groceries market is delivering a good deal to consumers. However, it also states that action is needed to improve competition in a number of local markets and relationships between retailers and suppliers need addressing.

The Competition Commission found that the actions of retailers transferring excessive risk and costs to suppliers through the likes of retrospective changes to supply agreements, could damage investment and innovation within the supply chain. It noted that the lack of competition in local markets was also affecting the offer to consumers nationally as well as those in the local markets.

The Competition Commission is now considering a range of measures to address these issues. The measures include:

• The lifting of restrictive covenants and exclusivity arrangements
• Sales of land holdings
• Recommending changes to the planning system to place greater weight on competition and price.
• Changes to the Supermarkets Code of Practice (SCOP)

Within the report there is a specific chapter on the dairy supply chain, the conclusion to which (below) highlights the role of dedicated supply arrangements in increasing the price paid to farmers for liquid milk:

‘Liquid milk is fundamentally a commodity based product. The retail price has no direct influence on base commodity price. Where there is downward price pressure by grocery retailers, it is generally passed on to farmers by the processors. However, this only affects the premium, not the base commodity price. Conversely there is no mechanism for an increased retail price to lead to an increase in farmgate price. As a result we observe asymmetric pricing. The only upward movements in price appear to be direct increases in premium prices which are specifically targeted to farmers by retailers through dedicated supply agreements’.