No Need for More UK Supermarket Regulation, Says Watchdog Group

LONDON -- The UK's largest supermarkets caught a break yesterday when the Office of Fair Trading, an independent organization that promotes and protects fair and competitive UK business practices, concluded that the Supermarkets Code of Practice should remain unchanged.

Suppliers, however, particularly those who campaigned to have the Code more strongly enforced, were not at all happy.

The OFT launched an audit of the code of practice last year following widespread complaints that it was failing to protect farmers and suppliers from abuse by the four major U.K. supermarkets: Tesco PLC, J Sainsbury PLC, Wal-Mart Inc.'s Asda, and Safeway (now owned by William Morrison Supermarkets PLC).

While the watchdog group said that consumers are benefiting from competition in grocery retailing, and that evidence has not come forward that the code is being breached, it did maintain that the code can be used more effectively.

"Natural justice and common sense do not allow regulatory intervention in markets without proper evidence," said OFT chairman Sir John Vickers. "Our review, including public consultation on the findings of the audit of supermarket compliance, has not yielded substantive evidence to show that the Code is being breached or that competition is being restricted. Competition and straight dealing are the keys to the market working well for consumers."

Without clear evidence that the Code is not working, or that competition in the market is being restricted or distorted, the OFT does not have grounds to refer the market to the Competition Commission or to launch a new market study, the chairman said.

According to the OFT, the Code is not meant to shield suppliers from hard bargaining driven by supermarket competition, but to help ensure that suppliers' deals with the supermarkets are honored. Effective competition and straight dealing promote quality, keen pricing, and consumer choice, the Code says.

The decision has led to a loss of trust in the Code by smaller suppliers, who say they are getting more than just a hard bargain. A consortium of groups called "Breaking the Armlock Alliance," which includes several farmers groups and bodies that promote organic produce, said the OFT investigation has failed to protect them, according to published reports.

The OFT will continue to encourage the use of the Code and work with supermarkets and suppliers to improve its practical usefulness. This initiative will include:
* Working with supermarkets to ensure written records of supermarket-supplier dealings are kept, allowing for greater transparency in the terms of business
* Regularly monitoring supermarkets' Code compliance procedures
* Confirming that trade associations can take group actions on behalf of their members under the Code with sufficient evidence.