Sustain has the following initial comments in response to the Competition and Markets Authority (CMA) preliminary invitation to comment on the anticipated merger between J Sainsbury PLC and Asda Group Ltd.
Sustain is the UK alliance for better food and farming and a registered charity, number 1018643. We represent around 100 not-for-profit national organisations and many more at local level, working together to achieve a healthy, fair, humane and sustainable system for food, farming and fishing. This submission reflects discussions of the alliance and others on this topic but given the timeframe we have not sought official member endorsement of every detail.
We welcome the opportunity to provide a response to your preliminary invitation to comment and we have been working with other organisations (including farmer, environmental groups, international development charities and unions) to consider how to promote measures to stop unfair trading practices in grocery supply chains. We understand the CMA role does not include examination of existing unfair trading practices but could examine the impact of the merger on supply chains and how it will exacerbate already unfair trading practices.
We believe there is sufficient evidence that supply chain problems may be exacerbated as result of this merger. It would be important for this to be investigated in terms of ensuring choice and affordability for customers. We need information on consolidation factors, how many suppliers will be affected and impacted by changes such as proposed and likely price cuts; range consolidation; reduction in the number of buying desks and so on. We recognise the benefits of a diverse grocer supplier network – from UK food producers to global suppliers – who are rewarded adequately to be able to pay workers well and to grow the raw materials safely and sustainably in order to ensure that consumers in the UK have choice as well as affordable food.
We are concerned that the merger will further consolidate the grocery retail sector in ways which will harm society and UK consumers as a whole. The value we pay in the shops is increasingly not reaching those who need it, meaning that workers and the farmed environment here and overseas are inadequately protected from abuse relating to poor investment and rewards in the market.
The following recommendations relate to both the process that the CMA will go through when investigating the proposed merger, and recommendations we have in terms of the possible outcomes that the CMA might propose at the end of its Phase 2 investigation. We make these proposals now in relation to possible remedies, so that the CMA sets its investigation’s scope suitably, and runs its investigations appropriately to determining what suitable remedies to propose if, as we believe to be the case, the merger will lead to a substantial lessening of competition in the UK. Sustain has the following recommendations to the CMA which we have developed with others but which include areas of specific interest to Sustain members:
JSainsbury’s-Asda have already promised that the merged business will reduce prices. However, as the cost cutting is not unlikely to impact directly on retailers’ own staff or shareholders via reduced dividends, then we must assume that most of the squeeze (bar some efficiencies) will be applied to suppliers and their suppliers in turn. This causes us a great deal of concern, given how tight the margins of some suppliers’ businesses already are.
As identified in 2008 by the Competition Commission (CC) the transfer of excessive risks and unexpected costs by retailers will have a longer-term consumer detriment, obviously in relation to range of products, and on other aspects of consumer choice too. The CMA, when it was the Competition Commission in 2008 has already recognised the indirect supply chain impacts of abusive purchasing practices and proposed the extension of the GCA to cover the in-direct suppliers to supermarkets, if the nature of trading relationships didn’t improve. No proper detailed assessment has been undertaken to assess if abusive practices have stopped since 2016 when the GCA was established with fining powers. The GSCOP only started to be suitably respected and enforced once the GCA was established, and had fining powers but only applies to direct suppliers which are a small part of the overall supply chain.
Recommendations to the CMA to explore in relation to Behavioural Remedy:
Option b. would be more logical as it would be unbalanced to regulate supply chains going to one retailer only.
Recommendation to CMA Re: Its Process of investigating the Asda/JS Merger
We hope note is taken of this submission is Sustain will be happy to support the work of the CMA with promotion of the surveys and work and can provide contacts if required.
Farm Campaign Coordinator
Food and Farming Policy
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