Page last updated at 01:20 GMT, Thursday, 4 February 2010

Supermarkets face tougher suppliers' code of practice

The big four supermarkets
Previously, only the "big four" chains were covered by the code

A new code of practice has come into force which is intended to help farmers and food companies when they do business with the main supermarkets.

Practices such as big chains altering supply terms retrospectively or asking suppliers to fund promotions such as two-for-one deals will be outlawed.

Supermarkets will have to keep written records of negotiations with suppliers.

The National Farmers Union has welcomed the code but says an ombudsman is needed to help enforce the rules.

The government will begin a 12-week consultation on Friday to decide how the new ombudsman would work.

Unfair dealings

For years, suppliers and farmers have been complaining of unfair dealings and unreasonable demands from the big supermarket chains.

The new Groceries Supply Code of Practice will give them access to independent arbitration and protect them from practices such as being asked to cover the cost of theft.

Regulated by the Office of Fair Trading, it also requires retailers to train staff to use the code and appoint compliance officers.

It covers the 10 biggest grocery retailers - those with annual sales of over £1bn - whereas previously codes only covered the four largest chains.

An investigation in 2008 concluded that a stronger code of practice was needed.

The Competition Commission found that that large grocery retailers were passing on excessive risks and unexpected costs to their suppliers.

In August 2009 it recommended that the government take steps to set up, as soon as practicable, an ombudsman to levy penalties on large grocery retailers for non-compliance.

Consumer Minister Kevin Brennan said the new code would be a "great improvement" on the current system.

"However, the power that large grocery retailers remain able to wield over their suppliers can still create pressures on small producers, especially in these difficult economic times, which ultimately may impact on consumers," he added.

"Free and fair competition is the key to a healthy market and it is right that there should be an enforcement body to make sure that consumers are getting the best value for money."

Terry Jones of the National Farmers Union said the reforms were intended to "protect the consumer interest".

He said they addressed "a number of practices which if left unchecked would damage suppliers' ability to innovate and invest".

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