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Joint Committee on Agriculture, Food and the Marine debate -
Tuesday, 16 Oct 2018

EU Directive on Unfair Trading Practices: Discussion

Before we begin I remind members and witnesses in the Public Gallery to ensure that their mobile phones are completely turned off please.

Today we are resuming scrutiny of EU legislative proposal COM(2018)173 which is the proposed directive of the European Parliament and the Council on unfair trading practices in business-to-business relationships in the food supply chain. We have already received a briefing from the Department of Agriculture, Food and the Marine officials on the proposal some weeks ago and today we invite a number of stakeholders to discuss these proposals.

In the first session today we have representatives from the Competition and Consumer Protection Commission, CCPC, and in the second session we will meet representatives from the IFA, ICMSA, ICOS and Retail Ireland. I want to welcome to the committee today from the Competition and Consumer Protection Commission: Ms Isolde Goggin, chairperson; Mr. Fergal O’Leary, member of the commission; and Mr. Seán Murphy, director of consumer protection and chief legal adviser. I thank them for coming before our committee today.

Before I begin I have to bring to the attention of witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him or her identifiable. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges either against a person outside the Houses, or an official either by name, or entity by name or in such a way as to make him, her or it identifiable.

I now invite Ms Goggin to make her opening statement, please.

Ms Isolde Goggin

I thank the Chairman and the committee for the opportunity to speak to it today about the proposed directive of the European Parliament and of the Council on unfair trading practices in business-to-business relationships in the food supply chain. I am joined by Mr. Fergal O’Leary, member of the commission and by Mr. Seán Murphy, director of consumer protection and chief legal adviser.

I plan to focus in particular on two areas in my opening statement - the content of the proposed directive and the designation of an enforcement authority.

The CCPC was established in 2014 to enforce competition and consumer protection legislation across the economy. Our vision is for open markets, where consumers are protected and businesses actively compete. Each year we help more than 40,000 consumers via our helpline and more than 1.7 million consumers via our website. We are currently active in the following areas across the economy - motor insurance; household waste collection; mortgages; nursing homes; personal contract plan, PCP, car finance; vehicle crime; bid-rigging in the public transport sector; and ticketing, to name but a few. I think the committee will agree that these are all areas which are of importance to consumers. We also have ongoing work across the economy in fulfilling our mergers and product safety remit. We do this with just under 100 staff across all of those areas.

Over the years, the CCPC and its predecessor organisations, the Competition Authority and the National Consumer Agency, have been active in the food sector in the enforcement of competition and consumer protection law; the publication of grocery surveys; product pricing inspections; assessing a number of mergers; and, in the fulfilment of one of our most recent areas of responsibility which is the grocery goods regulations, which I will speak about in more detail shortly.

We understand that the European Commission’s proposed directive seeks to address imbalances of power in the food supply chain and its goal, as part of number of current initiatives, is ultimately: “to contribute to ensuring a fair standard of living for agricultural producers”. This goal has relevance for all of us as consumers and as citizens. We also note that the proposed directive is based on Article 43 of the treaty.

It is in the context of our work in this sector, particularly regarding the grocery goods regulations, and the experience this has afforded us to date that we wish to share our views which we hope will be of assistance to the committee in its deliberations.

As the members may be aware, while the CCPC's mandate is economy wide, we have one sector-specific remit, namely, that which relates to grocery goods. The regulations in this regard were introduced in 2016 in order to address certain practices in the grocery goods sector with the goal of bringing transparency and certainty to trade relationships. It is important to highlight that price or price levels are not within the scope of the current regulations. When introducing the regulations, the Minister stated, "relationships will continue to be based on commerce and prices will continue to be set by hard negotiations – this is in the interests of consumers". The focus of the regulations is on the relationship between suppliers of food and drink and grocery businesses, both wholesalers and retailers, which have a worldwide turnover in excess of €50 million. To date, 22 grocery undertakings come within the scope of the regulations. These 22 traders are required to have written contracts for all relevant suppliers in which the terms and conditions must be expressed in clear, understandable language. These contracts must be signed by both parties and retained for six years. If certain practices are to apply, they must be pre-agreed and covered in the written contract. Through our work to date, we have found that the contracting models used by traders are different and involve varying levels of complexity. We would be happy to discuss this aspect in more detail later, but I will not dwell on it now.

Since the introduction of the regulations, the CCPC has adopted a phased approach by promoting awareness of the new requirements under the regulations and allowing the traders involved to bring their practices into compliance where necessary. Following an assessment of annual compliance reports received from 22 operators earlier this year, officers from our consumer protection division have been conducting on-site inspections and meeting relevant industry players.

In light of our experience to date, we see substantial differences between the existing regulations and the proposed directive. Of particular significance is the aim of the directive to "ensure a fair standard of living". This is a significant departure from the aim of the current regulations. Of equal relevance is the proposed scope; the Commission’s model would apply throughout the supply chain and to buyers not currently covered by the existing regulations, including those in the food processing and food service sector. I will return to this later.

Although the CCPC is currently the enforcement body for the existing regulations, given the aim and scope of the proposed directive we believe that a dedicated and focused sectoral regulator should be established to carry out this work. The reasons for this are primarily concerned with our dual mandate to promote competition and to protect the interests and welfare of consumers. In addition, our existing and future operational commitments in enforcing competition and consumer protection measures at a national and international level are significant challenges in themselves. The CCPC would have grave concerns that our ability to fulfil our current mandate would be irrevocably diminished if we were given this task. The proposal is extensive and will require considerable resource investment. To give full effect to what is proposed would, in our opinion, be better secured by the creation of a sectoral regulator.

We welcome the committee's scrutiny of the proposed directive and we wish to highlight some concerns from the perspective of our statutory mandate. The aim of the proposed directive is "to address unfair trading practices in the food supply chain". We are concerned about the impact of the current proposals on consumers and also what might be added at an EU or Irish level. The proposed directive is a minimum harmonisation instrument, meaning that member states can go further if they believe it is necessary. In this regard, we are aware that further additions to the proposed directive are being advocated. These include further broadening of the scope to include more traders as well as a ban on below-cost selling. Competition law works in the interest of consumers by requiring that businesses act independently and compete with each other when setting prices. That is why we, and our previous organisations, have spoken strongly against the introduction of bans on below cost selling. Any legislative requirements relating to pricing or pricing models may provide an incentive for businesses to co-ordinate prices. Overall, we believe that consumers could end up paying more for food for two reasons, first, because some grocery markets could become less competitive and, second, that the not insignificant cost of this proposed directive will inevitably be passed onto consumers. Effective enforcement is essential in ensuring that any regulations have the intended outcomes and that the costs incurred deliver benefits for those who are paying.

I will use the remainder of my time to discuss some of our enforcement experience, which I hope will benefit the committee. An ongoing matter of debate and commentary in this sector is the lack of actionable complaints.

Complaints are an essential source of information and intelligence for any organisation involved in enforcement. We know that understandably complainants live with a real fear of repercussions if they make a complaint and allowing anonymous complaints can help with this, but the ability to actually determine that the law has been broken or to take enforcement action based on an anonymous complaint is very challenging in terms of implementation, in particular when it comes to penalties or levying fines. This is an issue that would have to be overcome for the proposals to have a real impact.
Another area of note of the proposed directive is the issue of fines. Ireland is an outlier with the rest of Europe's regulatory bodies in that our Constitution raises issues around the administration of fines by bodies other than the courts. In our current work we have found this to be a particular difficulty. We share the view that financial sanctions are essential as a deterrent but the issue of administrative fines is one that needs to be considered and overcome.
I have come this far without mentioning Brexit, but I must do so before I conclude. It is clear that uncertainty is the main issue at present for Irish food producers selling into the UK or UK retailers who operate here. We do not know what will happen in the weeks and months ahead, but we urge the committee to ensure that the Irish food industry is not put at a disadvantage compared to their UK counterparts which most likely will not be the subject of the proposed directive. Competitive balance could be a significant issue in the future, another area we will be happy to discuss further.
To sum up, what has become apparent from our work to date in the sector is that the relationships, contracts and issues experienced by those involved in the food chain are complex and are also evolving. I hope I have usefully highlighted to the committee that the proposals presents some significant practical challenges in terms of oversight and enforceability. We recognise the importance of a sustainable agrifood industry but it is our considered view, given the complexity, the scope and the goals of the proposals that the role of the competent authority for the proposed directive should be given to a sector specific regulator whose sole remit and focus would be overseeing this market and working with farmers, producer groups, wholesalers, retailers and other players to ensure their competing interests can be fairly balanced. We would be very happy to take any questions and to explain our views.

I thank Ms Goggin for her opening comments. I found her comments about the sector-specific regulator interesting. A couple of years ago, a previous committee of the House made that recommendation and we were disappointed at the time that the recommendation was not carried forward. I invite Deputy Cahill to comment as he was the first to indicate.

I thank Ms Goggin for her presentation. I am sure the primary producer will survive and the focus is that consumers will not be hurt by this legislation.

In the past 15 years to 20 years, I understand the percentage of the disposable income of consumers spent on food has dropped very significantly. Has Ms Goggin the figures to support that? We all want to protect consumers but how long can the primary producer take a smaller and smaller percentage of the sale price and continue to survive, whether in the liquid milk, beef, vegetables, pigs or whatever farm enterprise? The percentage take the primary producer gets from the sale price has reduced very significantly. It is said that hard negotiations will determine the price in the future. Again that is grand but the person who is getting squeezed the whole time is the primary producer. If there is an argument on liquid milk, the margin is squeezed and the dairy cuts the price to the milk producer. We have seen the factories dropping the price in the past couple of weeks. Has that resulted in lower prices for the consumer at the point of sale? We have seen in the run up to Christmas for a number of years that very low price vegetables were used to attract the consumers into the shops, and there was significant cost cutting. Who carried the can for that? It was the primary producer.

In her statement Ms Goggins said the aim of the directive is to "ensure a fair standard of living". However, the reality is that primary producers are getting squeezed more and more. The major retailers are exerting a huge influence on the trade. The members of the committee went to a presentation in one of the hotels out near the airport a couple of months ago, where many good things were proposed.

We are not seeing the benefit of that as regards a fairer balance in the distribution of what is being paid for food. While I welcome the CCPC's opening statement, which is very thought-provoking, at the end of the day the primary producer is not getting protected at the moment; he is getting squeezed more and more. That situation is not tenable into the future.

I thank Ms Goggin for her submission. I have a couple of questions. She mentioned that the contracting models the CCPC sees used by traders are very different. They are all over the place and there is no consistency. Do I take it from that comment that she feels work should be done to try to get some consistency in the area and that a standard should be set up which people should try to reach? With regard to the directive, Ms Goggin also mentioned, as did Deputy Cahill, that one of the things stated in the directive is that efforts should be made to find a fair standard of living. That almost conflicts with the CCPC's position up to now, which has been to make sure that the consumer gets the best possible value.

From where I sit, one of the issues in this relates to organisations such as Bord Bia, which we have had in here on numerous occasions, that markets and promotes our food all over the world and spends vast amounts of taxpayers' money on trade missions in order to do so. The benefit of that work, from the point of view of the taxpayers' money which goes into it, should be reflected in the primary producers getting a decent income for the work they put in. I have had this out with the Minister on different occasions and he says that it is not his place to set prices yet it is the State's place to promote the product and the State uses taxpayers' money to do that. It would be a difficult situation in which to find ourselves if taxpayers' money was being used to promote and market the product all over the world and, indeed, in Ireland, to get a good price for it, just for the benefit of one sector within the industry. One of the difficulties that we have is the sector we see making most of the profit is the supermarkets and the processors - what we would traditionally call the middle men. The person at the bottom is being squeezed and, in many cases, the consumer on the other end is not getting the value he or she deserves. I would be interested in Ms Goggin's comments in that regard.

Ms Goggin also spoke about the implications of the proposed directive broadening the scope to include more traders. There is talk of a ban on below-cost selling, which again would conflict with the work the CCPC has traditionally done. In the interests of the consumer, this needs to be looked at on a more long-term basis. The consumer needs a consistency of quality as well as price. Sometimes the short-term quick turnaround, which can be seen in low prices, is not in the consumer's long-term interests because it ends up in monopolisation. I would be interested in Ms Goggin's views in that regard. Can we look to a more long-term means of dealing with this?

Finally, the issues around all this are basically about having a sense of fair play. I opened the cupboard this morning to make a cup of coffee and I saw fair trade coffee in front of me. That would traditionally have been coming from Third World countries yet we do not seem to have the same sense of ensuring that we have fair trade in respect of products coming from what we would consider to be the developed world. We need to consider that and re-establish some sense of fair play in that regard.

I thank Ms Goggin for the presentation and for coming in today to discuss this issue. I am interested in hearing her perspective on international comparisons with other European countries. How are they set up and how do their structures in terms of groceries regulations compare with our own? How strong are their enforcement agencies? I am also interested in Ms Goggin's view on the so-called supermarket ombudsman in the UK, on how it operates and how it compares to our own set-up. Fianna Fáil proposed an amendment to the current legislation in order to provide more clarity within the CCPC by allocating responsibility to a dedicated person within it who would be set up to act as a food ombudsman and to oversee the groceries regulations.

On how things currently stand, I am interested in Ms Goggin's perspective on the priority in terms of engaging with the 22 traders for whom the CCPC has responsibility and the identities of those traders. Is that of benefit in light of the current proposals from the Commission, the Council of Ministers and the Parliament which would require a separate body to take over that role from the CCPC? In that regard, I would be interested in hearing further detail on what Ms Goggin believes would be required in any such sector-specific regulator, how it could best operate and what competencies, capacity and resources it would require to implement the directive.

I am also interested in her perspective, given the role of the CCPC, on the objective of the directive, which is to deliver a fair income and standard of living to those two primary producers. How can that be achieved? Is it a realistic objective in terms of drilling down and ensuring it could happen? Undoubtedly, as Deputies Cahill and Martin Kenny outlined, the big issue with which we must grapple and with which the current directive and proposals seek to deal is that of trying to ensure that the primary producer does not always bear the brunt of competition and hits to the market. While others at higher levels of the food chain continue to take their margins, the primary producers always end up being squeezed, which is a real difficulty. In terms of having a sustainable food chain, it is essential that we look at following through on the directive and trying to put systems in place to ensure that the primary producer gets a fairer deal in regard to supplying quality food to the consumer.

I thank Ms Goggin and her colleagues for their attendance. This is an important matter that has been addressed by this committee and the former Joint Committee on Enterprise, Trade and Innovation over many years. I am very heartened to hear Ms Goggin say that there should be a sectoral regulator because that was recommended in 2010 by the enterprise committee of which I was Chairman but that recommendation was not implemented. The difficulties in regard to the harmonious application of regulations across the EU may have stalled such implementation.

The situation regarding primary producers has been outlined by my colleagues. That is where we must start with this because the primary objective is to reduce the power imbalance which is so obvious in the food supply chain. The definition of "buyer" in the new directive will clearly be significantly wider than that stipulated in the grocery regulations such that anyone who buys agricultural products by way of trade will be classified as a buyer. That is why the CCPC may choose to hand this task over to another body.

There are significant issues of concern. The CCPC has not been very effective - or has it - in ensuring transparency on issues such as hello money, the treatment of perishable products or wastage charges. What has it done within the limited confines of the grocery regulations? Its predecessor, the Competition Authority, was paralysed when it came to such matters, as was discovered by the committee on investigation of the matter. Nothing could be done in regard to several issues, such as anonymous complaints or a person in the limited position of being a supplier or producer of these type of products who came forward with tangible evidence, unless the complainant brought the issue forward themselves. Of course, the fear of victimisation meant that such people did not put their heads above the parapet.

We have spoken a lot about this. It worries me that various committees have addressed the issue but nothing much seems to be done. As Deputy Cahill has said, there is only one loser in this; the primary producer. The retailers and the big wholesalers are almost beyond the pale in terms of trying to bring them to heel. If this is implemented, and if a sectoral regulator is put in place, have the witnesses communicated their comments on this directive? Have they addressed this to the relevant Minister, which is generally in the area of business or enterprise, in order to take steps? I am glad the representatives have it here but have they conveyed it to the other authorities? I am sure this committee will convey it, with the backing of the Competition and Consumer Protection Commission, now that we have it here in black and white. It is something the committee had previously recommended but it was always shot down because of various issues, and perhaps one could understand that if it was just a one country situation. England has its own groceries regulator. Have the witnesses examined how that works in the UK and how it might be applied in this country?

Before I go back to the witnesses I have a couple of brief questions. Deputies Cahill and Penrose referred to the primary producers and the difficulties they have experienced over the last couple of years. What kind of engagement has the Competition and Consumer Protection Commission had with the primary producers? I believe they have been the victims in this regard for many years. They have been very slow about putting their hands or their heads up for the obvious reason. Have the witnesses seen any improvement in that since the Competition and Consumer Protection Commission came into existence? What engagement has the commission had with the large multiples, which would be seen on the other side of the fence as the "aggressor"? Perhaps the witnesses could tease that out for us as they go on.

Ms Isolde Goggin

I thank the Chairman. I will divide the responses up because the Deputies and Chairman have covered a lot of ground. I will start by referring to a couple of overarching things. Obviously, ensuring a fair standard of living for primary producers is absolutely a valid objective, and it should be looked after. Equally, from our point of view, ensuring that consumers are fairly treated, do not bear the brunt of regulation and do not have all the costs passed on to them is also valid and that is our objective. We do not see ourselves, as one organisation, possibly resolving all of those tensions. If there are tensions there it is natural in a democratic society but we do not see that one could encompass the two without one's head exploding. There would not be a degree of consistency in decision making or in the allocation of resources, which is a big issue in this regard. We feel that they are both valid but they come from different articles of the EU treaty and they have different objectives. We see them as being quite apart.

I will not get into the nitty gritty of the enforcement issues but I will ask Mr. Murphy to speak about that shortly. In response to the comments by Deputy Penrose and others, our point about the effectiveness of the regulation is that currently if one wants to impose fines one has to go to court. If a case goes to court then one needs evidence. One cannot go to court with anecdotal evidence. A witness is required to stand up, and this is the difficulty. As people have pointed out they do not want to be the subject of potential retaliation and they do not even want to be identified. With regard to enforcement, we have to square that circle somehow. We have been told that there are difficulties in giving administrative bodies the power to impose fines themselves, which means one is then into a court scenario and the standard of evidence where the criminal burden of proof is beyond reasonable doubt. That is also the reason given in a whole lot of areas we go across and this is why I mention it.

Deputy Cahill asked about expenditure on food. We did a lot of work on this issue last year in relation to Brexit. I will ask my colleague Mr. O'Leary to address this and some of the other issues.

Mr. Fergal O’Leary

We can provide detailed figures to the committee afterwards on the amount that consumers spend on food. From the study we conducted with regard to Brexit, we found that if there is a hard Brexit or a no-deal Brexit where products could pass across relatively seamlessly, up to €1,000 would be added to a family's food bill over the course of a year.

One of the things we saw there was that the addition of non-tariff barriers would be very significant. That alone shows the scale of the increase and what we also found that was particularly striking was that the greatest proportional increase will be for lower-income groups. That means that consumers who have lower incomes and who obviously have less to spend and have less disposable income are putting more of their income towards food and that generally goes to the point about how much all consumers pay for food.

On the comments around the proposed directive, which is the nub of the issue from our point of view, it is one of the measures which is aimed at contributing to a fair standard of living for agricultural producers. The current grocery regulations that we are responsible for enforcing are concerned with transparency and certainty. On the Chair's question, we believe that since their introduction, there has been an improvement over the last number of years but we must acknowledge that within the existing grocery regulations, it is about writing down what is agreed and is not about banning particular practices, which is a significant difference to what is being proposed by the EU. That needs to be teased out in terms of the overall aim versus what we are doing at the moment.

I will also address the question of what a sectoral regulator could need. We have spent the last 11 months working on a study of household waste domestic markets. We have looked at this from the point of view of sectoral regulation in general and one of the first things any regulator would need would be the wherewithal to analyse all of the particular parts of the market and that would be a significant undertaking in this case when the sheer number of contracts that would be brought into effect by the proposed regulator are considered. Another thing we suggest is there must be a reasonable deterrent. That is where Ms Goggin's point on the fines comes in. We need to make sure that whatever is proposed will have the impact it should and on that basis, it needs to have teeth. A difficulty that many regulators currently have in Ireland is that they do not have the ability to impose fines and so there are question marks over whether that is a suitable deterrent.

Ms Isolde Goggin

As Mr. Murphy has been leading the inspections we have done with the grocery goods undertakings, as well as the discussions with the producers and so on, I ask him to respond to some of those points.

Mr. Seán Murphy

I thank the Chair and members. As for how we are monitoring compliance with the regulations, as our opening statement has pointed out, it was initially a case of introducing the regulations and allowing businesses to get used to them and come into compliance because the requirements within the regulations themselves require businesses to take some proactive measures in terms of identifying compliance officers, engaging with us and ensuring the contracts they have are in compliance with what is required within the ranks themselves.

I then moved, on a second phase, to our division, namely, the consumer protection division of which I am the director. Over the past couple of months we have had director-led inspection teams, that is, I have led those teams and we have engaged with the regulated grocery goods undertakings, RGGUs. What I can say now is their business models are different. This might go back to the point that was asked about. Different business models reflect the different structures they have within the country itself. There are different distribution models, delivery and even invoice processing. They have different ways of doing it. They have different sized buying teams and different purchasers. It is quite variable. It is not a case that there is one particular model that probably would be very easy to oversee. One must get out there and engage with each one of them, which is why we are there with the RGGUs. I return to a point we made earlier, which is that were this to expand as envisaged, it could only be imagined what that would bring in, even in terms of an oversight, to get an understanding of the model. Therefore, a single regulator specifically focused on that is probably the way to go.

In respect of the international models - I think Deputy McConalogue spoke about the relationships with others - we would be aware of what is happening in the UK. I have a document which I can pass on to the Deputy later, if he likes, which outlines the difference between the UK grocery adjudicator and us. The scope is significantly narrower in the UK because the thresholds are much higher, for example, there are ten large retailers there with a turnover in excess of £1 billion subject to the code. Here it applies to retailers and wholesalers with a €50 million turnover. At present 22 of these entities have identified themselves as being subject to the regulation.

I could list all the enforcement powers but will focus on one. In the UK there is the power to impose a fine and penalties equivalent to 1% of the turnover. Comparing and contrasting that with what is available to us under the regulations and the Consumer Protection Act 2007, it covers contravention notices and breaches of those notices leading possibly to a prosecution, either summary with a €3,000 fine and-or six months' imprisonment on a first conviction or leading to €5,000 on a second or subsequent conviction. Depending on the scale of that, it may proceed to a prosecution on indictment. The quantum difference between us and the UK is obvious, and that fine can be imposed by the adjudicator.

Could Mr. Murphy provide us with a list of the 22 organisations he deals with? It sounds like quite a long list.

Mr. Seán Murphy

Yes, indeed.

One would have thought it was a small number compared with the number Mr. Murphy suggests. Can he provide the detail of the 22 to us?

Mr. Seán Murphy

Yes. In response to the question about drilling down, by our engagement with them, face to face with the compliance officers and head purchasers, we go through the regulations to see what was required, such as, whether there were promotional costs, wastage, shrinkage, written contracts. We would expect that written contracts would exist but, as is emerging now, some large suppliers do not give a written contract because they are happy with their own terms and conditions. Some small suppliers do not provide a written contract, either because they have not got around to it or because they are uncertain as to what it actually means. We have put the regulated grocery goods undertakings, RGGUs, under pressure because they are required to have those written contracts. They will ask us and we have made every effort to do so but we cannot get them. We have to be sure they have made reasonable efforts. The compliance inspections are not just an annual event. They are rolling. That is part of our strategic framework.

This is not the first time that we engage with traders at this level. For years we have been engaged in retail price inspections. We have been coming in the front door for many years, now we are coming in the back. It is in all the markets in that sense too.

The witnesses have spoken very strongly against a ban on below-cost selling, citing value for the consumer and we understand the importance of this. I contend, however, that is a false economy because none of us thinks if we managed to buy something below cost in a multiple retailer that the price is not loaded on to some other product in the store. That is a reality in the multiple retailers. I suggest that the consumer is ultimately paying for it on a different product. Our concern is the main agricultural sector, beef, because prices are constantly flatlining. That means farmers are just breaking even or the prices are below the cost of production. Selling below cost depresses prices. If farmers are out of pocket, which they often are and people have set out their situation and their weak position in the food supply chain here, they invariably go to Government for subsidies. That is taxpayers' money. It is a false economy to be allowing big multiple retailers with the power they have to sell below cost. That is just for dairy, horticultural and other produce.

That is only on dairy, horticulture and other produce. We have the same problem with alcohol in this country. Much legislation, in particular the Public Health (Alcohol) Bill, was going to target the small retailer and treat them differently from multiple retailers. They are treated similarly for so many things yet it is a whole other animal in how it operates and the power it wields. I cannot accept that we cannot do something. Our problem will be that we no longer have farmers because they will be fed up with depressed prices or no income. We had this debate in the run up to the budget. Young people have many more options now. We are talking about a whole system that could collapse if the primary producer in beef or dairy or whatever decides to call it a day because of all these other pressures and the lack of recognition of what they are putting into it. Naturally we want to protect the consumer and we are looking at the farmer but it seems that we are not really taking on the multiple retailers and below-cost selling is a case in point.

Another issue I wished to raise, and one which the commission would deal with, is that of cartels and concerted practices, specifically in meat factories. Farmers regularly complain about the prices they are getting in factories, that if they present on a Monday morning at factories throughout this country, they are all getting pretty much the same price. It is an issue I have raised before, including with the Minister for Agriculture, Food and the Marine. What sort of evidence does the commission need or what investigation has it done into concerted practice or cartels in operation between meat factories throughout this country that is resulting in practically every factory, although not all - I am not saying that every one is in the same system - offering farmers the same price for their beef? Invariably this goes against the farmer. These corporate entities are so big they seem comfortable behind a corporate veil that we provide. We provide them with the structures to trade with limited risks and so on and ultimately, when things go belly up they can go back to Government, whether it is to help a consumer or to enforce rights. These are the people who will march if something is not right. I am not only talking about dairy. It is not just about helping the primary producer. Some of this may be philosophically somewhat outside the commission's sphere but, specifically, what investigation has it done on meat factories? Earlier the commission cited the lack of actionable complaints, and stated that it needs evidence. What sort of evidence does it want people to come forward with? What investigations has it done in its own right? It is a big thing to ask of farmers but if it has webbed feet, waddles and quacks, it is a duck and that is what one must call it. One must find a way of showing this up because it is another problem for farmers which I understand falls within the commission's remit.

On fines, I understand what the commission is saying and the constitutional position. However, what about the concept of penalties and the operation of a groceries regulator that would inflict penalties? The Revenue Commissioners impose penalties and the local authorities impose penalties on people for not having paid household charges. Is that only because it crystalises at a certain point and then one adds on the penalties and it is easier to calculate? Is there not some way that we can try to rein in a total imbalance and an abuse of the corporate veil which goes on in so many realms? We are only discussing multiple retailers here, and I mentioned factories, but it is always the small person who is squeezed. Serious action must be taken or this will continue to land on our doorstep. It is we that look at the people marching on the streets when they feel that big corporations get more consideration. I say that acknowledging that the commission has to deal with the legal system that is there and whatever laws we pass but they are also the experts who can guide us from their practical experience. I would like to see more accountability in this area and I look to the commission. Does it think its powers need to be strengthened or does it need more investigative powers or more forensic expertise or whatever else to get to the bottom of this?

Other than that, it is like an old chestnut that keeps cropping up again and again. We have farmers complaining all over the place. The same story about these problems is being replicated everywhere yet we are still here discussing them and nothing has been done.

I thank the witnesses for appearing before the committee this afternoon. I will ask a number of questions about the presentation and the aim of the directive to ensure a fair standard of living. What are the witnesses' views on how that will be achieved in terms of the current practices we have?

My other question is on the administrative fines. Ms Goggin stated that the issues are with fines being administered other than by the courts. I was racking my brains as to when I last paid a library fine. There is some method. Local authorities can levy a fine on me if I do not bring my library book back. Is there something we are missing? Who would fine the offenders rather than having to go through the courts?

I want to inquire about below-cost selling, which we have all seen in the grocery sector. It was referred to by some people earlier. My concerns around the big multiples heavily discounting fruit and vegetables, which are the essentials for most households, is that having food so cheap devalues the production of food. It also leads me to be concerned about food waste. It is slightly off track perhaps but it creates the impression that food is disposable and is so cheap that it can be thrown out if it is not all used. It does not give the producers any great comfort to see this happening. The text of the directive was referred to where it states that buyers should not sell products below purchase price and then request the supplier to cover the difference. Do we know that is happening already? If it is, it is outrageous. The primary producer is carrying the cost when the loss-leading method is used to get consumers in and then it is piled on elsewhere in terms of pricing.

I had one other point but I cannot find it. Perhaps the witnesses could answer those questions and it will come back to me.

I welcome the witnesses. Some of the points I was going to raise have just been covered. I would like some elaboration on the proposal in the presentation on a sectoral regulator. What is being proposed? How does Ms Goggin see it working? If there was a sectoral regulator, what would its relationship be with the Competition and Consumer Protection Commission? Would it be under its umbrella? Would it be totally independent or is the commission looking for a referee to come between it and the primary producers' organisations? How would the commission see its position and role if there was such a sectoral regulator?

Ms Isolde Goggin

I have a number of points to make. Quite an amount of ground has been covered. On the point about below-cost selling, the current regulations, because they require the retailer to have a contract with the producer and the terms and conditions are written down, it will be illegal for them to subsequently go back and say they are selling something below cost and want the producer to take the hit on it. Once the thing is in the contract and it has been agreed it would not be allowed. As to whether retailers should not be allowed to do it at all, this is where we are coming at it from different angles. We are coming at it from the point of view of consumers. Of course cheap fruit and vegetables are good for consumers. How could we say otherwise? With regard to the notion that they pay on other products, we must compare how people do their grocery shopping now compared with how they used to do it ten years ago before the crash. There used to be a situation in which people did one big shop in one place. They did one big weekly shop and bought a few bits like bread and milk in between. What we see now is people spreading it around three or four different shops for the one weekly or fortnightly shop. People go to the German discounters for certain things but they do not have all the brands so people go to another place. People are very well able to pick up on good bargains in one shop and not buy everything there so they do not get penalised on other goods in the same shop.

The CCPC's big concern about a ban on below-cost selling is it means that, if the wholesaler or distributor raises the price, every retailer across the board raises the price. Competition in the retail sector is lost and that is detrimental to consumers.

Mr. Murphy will speak about the preferred enforcement model, but the CCPC has not seen evidence of retailers pushing back on suppliers where they are offering cheap products themselves.

Mr. Seán Murphy

I will add one point to what Ms Goggin has said. The consumer experience is also changing. Ten years ago, the click wrap, e-commerce transaction where groceries are purchased online and arrive at the door was not an option. People have different experiences now. People who are time poor are willing to pay a premium for convenience. That is changing and evolving, particularly in terms of how that product is delivered and the accessibility of getting it from store to house. As it evolves, regulation has to catch up.

Some committee members have mentioned penalties, and Deputy Corcoran Kennedy mentioned library fines, and there is a facility to levy those. The CCPC has a fining power through fixed payment notices but they are for petty or regulatory breaches, so are on the lower end where something can be disposed of easily. The sort of breaches we are looking at here require something more because of their impact. The equivalent of a library fine, or a €300 fine, will not have any effect. It must be substantial, effective, proportionate and dissuasive. That is the premise of larger fine regimes. That might answer it.

There is a facility for local authorities to levy smaller fines. The CCPC has that facility for particular breaches but, for larger breaches, another model is needed.

Mr. Fergal O'Leary

I might add one comment about below-cost selling. We are all professional regulators but, at the same time, the shorter and longer term issues are important and relevant. The CCPC does not believe a producer should be put out of business by a loss leader. We do not think that is the right thing to do because the committee members are right - and Deputy Corcoran Kennedy addressed this that what is good for today needs to be good in the medium to long term. We believe that loss leaders and below-cost selling can be good as long as it does not devalue opportunities in the future. It can be a way to provide good value on certain products to some consumers on the basis that it has been paid for appropriately. That is an important issue.

I will make a couple of points about the sectoral regulator. The CCPC has a good relationship with all of the sectoral regulators. The commission has co-operation agreements with Central Bank, the Commission for Regulation of Utilities, ComReg, and recently signed a new one with the Central Bank. Our job is horizontal, across the economy. In any one year, the commission looks at about 100 different markets within its mergers regime, as part of its enforcement work and studies. The commission's remit allows it to go to the places where there is the most consumer detriment. That focus works particularly well where there are problems in particular sectors and that is why sectoral regulators exist.

Given the range of issues that have been highlighted in this sector over the years, if there is a desire to tackle those problems, ultimately that needs to be resourced. It needs to be resourced efficiently and given all appropriate powers. I mentioned earlier the CCPC's recent proposal to set up a dedicated waste regulator whereby the commission can do certain things, but ultimately more would be achieved by that sector-specific focus. We believe that here as well.

I am sorry to cut across Mr. O'Leary. In the event that a regulator comes in, who would resource that?

Mr. Fergal O'Leary

The Department of Agriculture, Food and the Marine is responsible for the implementation of the proposed directive and it has been before the committee previously. The resourcing of regulators is a matter for the Government and the Oireachtas. The CCPC would be open to having a close relationship with all the regulators in order that they can benefit from what the commission is seeing across the economy and applying that to what regulators are asked to do by the Oireachtas.

In the UK, is it true to say the industry resources that arrangement?

Mr. Seán Murphy

It is industry-funded in the UK by means of a levy. It is currently funded by the Exchequer here.

I am sorry for interrupting.

Mr. Fergal O'Leary

That is an important point.

A standard of evidence is required when considering complaints and investigations. During a criminal prosecution, a witness is required to sit in the witness box and display to the courts that a crime has happened. The commission can then bring the evidence to bear along with that. This applies in the context of cartel work and criminal prosecutions.

Separate to that, the CCPC is open to talking to anybody at any time under any circumstances. It can carry out investigations on its own initiative and it gathers evidence. As Mr. Murphy stated, we have met retailers, suppliers and representative groups. If we are given evidence, then, within our statutory remit, we will look into it. That is not just in this sector but in every sector. That is the job of the commission. We can engage informally which will then allow us to do further work but, when it comes to courts and criminal enforcement, we are looking for a witness with whom we can work to ensure that a case can be brought forward. Those are the thresholds and things that have been given to the CCPC by the Oireachtas in terms of due process and ensuring that all sides to an investigation have the right to fair play.

What complaints has the CCPC received about meat factories? What investigations has it conducted and which of those were on its own initiative?

Mr. Fergal O'Leary

The CCPC has looked at the number of mergers in that area in recent years. The European Commission has examined some of them. I do not believe the CCPC has received any specific complaints about meat factories, though I will check.

I am talking about pricing as opposed to mergers, concerted practices of the meat factories operating like a cartel.

Mr. Fergal O'Leary

I do not have that detail to hand but it can be checked and provided to the committee.

I apologise for my late arrival. Our guests mentioned that they have no issue with the concept of low-cost selling. Could I broaden that debate to include alcohol? Is the CCPC comfortable with the low-cost selling of alcohol? It would be worrying if the CCPC is stating that.

I understand that an independent retailer is one that deals directly with a wholesaler and does its own negotiating. Where do independent retailers sit in the hierarchy of business models in the grocery sector? Are they all linked to franchises or collective buying groups whereby they all have the power to offer below-cost alcohol, or whatever they are selling? Are there any independent retailers left?

Ms Isolde Goggin

The CCPC would see the price of alcohol as a health issue. The CCPC will not object to whatever measures are taken to protect people's health.

One of our predecessor organisations made an intervention on this some years ago. What was said was that while it is obvious that a higher price of alcohol reduces alcohol consumption, there is absolutely no doubt about it, if one is going to charge a higher price, then one is better off having that based on a high tax rate because the money then goes to the Exchequer to deal with the health problems that are created by alcohol abuse rather than necessarily having it just as a high price for alcohol. We say that because one can inadvertently make it very profitable to sell alcohol. We know that some of the major retailers get huge bulk discounts on alcohol purchased but are getting it in at a very high price. They are required to sell it at a low price but sell it at a high price and that difference is going to pure profit rather than going to the Exchequer, where it could contribute towards mitigating the health problems.

Mr. Fergal O'Leary

In terms of the retail landscape, the committee will have representatives from Retail Ireland before it after the break so we could defer to them on specific details. If I had been asked the question a couple of years ago, I would have said there were very few. We have seen a lot of entrepreneurship in the past couple of years, however. Something that is a feature of every town, village and city in the country is an increasing amount of direct selling through farmers' markets and artisan markets. There is definitely a place for those and their promotion in terms of consumers. To go back to consumer expectations, there is a legitimate point to the effect that consumers want everything and sometimes, we do not always think that far ahead about it. We are seeing more choice being given to consumers and consumers getting more segmented in terms of what they respond to. Some consumers solely purchase Fairtrade and organic produce but other people do not have the luxury to afford those types of products. At the moment there is more choice available, which we support but we hope that choice is maintained in the future. Obviously there are important questions around how the agrifood market can feed into and support that in the long term, which is the ultimate aim of the proposed directive.

I thank the witnesses for their replies. Do members have any more questions? No.

Following our discussion here, would it be true to say the CCPC would like further assistance? Has it found it difficult to score, as it has been obliged to play against the wind on a continuous basis? As for the extra regulator the CCPC has suggested, would that be a big help or an over-reaction?

Ms Isolde Goggin

We see the functions of this proposed regulator as something quite different from ours and operating in a different part. Sometimes co-operating but with a degree of tension that has to be there in terms of the remit of looking after the interests of farmers versus the interests of consumers. Sometimes they are the same thing but sometimes they are not. We would see ourselves as continuing with our roles in competition and consumer protection. If a sectoral regulator were to be introduced, that would override the current regulations that we enforce and, in fact, they would probably not be continued.

Has the CCPC had much connection or communication with its counterpart in the UK?

Ms Isolde Goggin

Yes. Our counterparts have been very helpful. Before we got the grocery regulation function we made several visits to see them and we have attended their conference.

Mr. Seán Murphy

We attended a conference. We have some lines of communication in that sense.

Will the CCPC base its proposal on what its UK counterpart is doing at the moment?

Mr. Fergal O'Leary

The situation in the UK is very different and not least because of Brexit. Last year, they made a call for evidence on a review of the grocery adjudicator generally. Similar issues are discussed and commented on here. The UK, at the moment, is of the view that it should be for national governments to find out explicitly what the national problems are and then legislate at a national level. That is their view. Obviously that is informed by Brexit.

In terms of the game we are playing at the moment with the grocery goods regulations, we think we are holding our own and are doing okay. To use the Chairman's anecdote, there is time left in the match. In terms of what is being proposed by the EU with this directive, that is a different game. It is something very specific and extensive.

From our point of view we believe there would be a fundamental clash with what we have already been asked to do right across the economy in those 100 or so markets that we look at every year. Questions such as those are obviously for this committee and for these Houses. It is our view that we are doing okay with what we have at the moment and, in fact, we are on an upward trajectory. In terms of what is proposed, that is fundamentally different.

I thank Ms Goggin, Mr. O'Leary and Mr. Murphy for coming before the committee today.

I propose that we suspend briefly to allow the witnesses to take their seats.

Sitting suspended at 5 p.m. and resumed at 5.03 p.m.

We will resume in public session. I remind members and witnesses in the Public Gallery to ensure that their mobile phones are completely turned off please.

We are resuming our examination of the proposed directive on unfair trading practices in business to business relationships in the food supply chain. I welcome Mr. Joe Healy, president, Mr. Damian McDonald, director general, and Ms Elaine Farrell, retail executive, Irish Farmers Association. I welcome Mr. Pat McCormack, president, and Mr. John Enright, general secretary, Irish Creamery Milk Suppliers Association. I welcome Ms Alison Graham, European affairs executive, Irish Co-Operative Organisation Society. Finally, I welcome Mr. Thomas Burke, director, Retail Ireland. I thank all of the witnesses for coming before the meeting today to discuss this matter.

Before I begin I have to bring to the attention of witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him or her identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges either against a person outside the Houses, or an official either by name, or entity by name or in such a way as to make him, her or it identifiable.

I invite the delegations to make their opening statements and afterwards we will take questions from the members. I invite Mr. Healy to make his opening statement, please.

Mr. Joe Healy

I thank the committee for inviting the IFA to discuss unfair trading practices, UTPs, in the food supply chain and the draft EU directive on this area. I acknowledge the initiative by Commissioner Phil Hogan in prioritising the imbalance in the food supply chain and recognising the vulnerability of producers in it.

Some members may be asking what a UTP is. Everyday examples of UTPs are late payment for goods, cancellation at short notice of perishable food product orders, changing the terms of a contract without any notice, or a retailer charging the supplier for wastage of food products incurred on the shop floor. The IFA has campaigned for many years, both at home with Governments and throughout Europe, for a rebalancing of power in the food supply chain to deliver a viable price for farmers and a return on their work and investment.

In November 2016, the Agricultural Markets Task Force, AMTF, made recommendations on how to improve the position of farmers in the agrifood supply chain. It was recommended, among other things, that the European Commission would take steps to introduce a harmonised baseline of prohibited UTPs in member states and further increase market transparency of processors and retailers' prices, especially in the meat, dairy, fruit and vegetable sectors, by collecting and reporting such data in the chain. It was also recommended that the Commission foresee effective enforcements of UTPs by an independent public body to be set up by the member states.

In Brussels, I, as chairman of the COPA 1 and COGECA 2 group on the food supply chain, have been leading the campaign on retail dominance and UTPs on behalf of European farmers. The 2017 CAP consultation showed that 97% of EU consumers are in favour of the farmer getting a better share of the retail price. COPA stands for Committee of Professional Agricultural Organisations and COGECA stands for the General Committee for Agricultural Cooperation in the European Union.

To quantify the economic impact of UTPs in the agrifood sector, COPA and COGECA commissioned an independent study that showed that 94% of farmers and 95% of agrico-operatives had been exposed at least once to UTPs. The most striking finding of this study, however, is that UTPs have cost farmers and agrico-operatives €10.9 billion annually in the European Union. In recent years, we have had an intensive lobby campaign to curb this activity, targeting members of the European Parliament, the College of Commissioners and a number of directorates general in Brussels, primarily those concerned with agriculture and competition.

Across member states, there is recurring evidence of large retailers dominating the market with excessive buying power and dictating price levels to farmers, often driving prices to uneconomic levels and even below the cost of production. In Ireland, for example, the biggest three retailers – Tesco, SuperValu/Centra, and Dunnes Stores – have almost 70% of the market share. When Aldi and Lidl are included, this brings the figure up to 94%. In Finland, two retailers have an 85% market share, and, in France, the top three have a 56% market share. The message is clear: we need unequivocal and immediate action to curb UTPs at EU level.

The directive we are discussing provides for the introduction of a minimum common standard of protection across member states, which is welcome. This is but a first step in reining in retailers and rebalancing power in the food chain. It should form part of a wider effort in recognising powerful actors in the supply chain, which contribute to the imbalance between downstream and upstream players in the chain. The European Parliament, under the stewardship of rapporteur, Mr. Paolo De Castro, an Italian MEP, has approved the draft legislation. I recently chaired the COPA-COGECA food chain meeting in Brussels, where Mr. De Castro took our members through the European Parliament amendments and positions. There has been a call for the scope to be broadened to include all actors in the food supply chain. The EU Council has also supported the Commission's proposal, with a view to adoption in December.

Members will be aware that, in 2016, the Government introduced the grocery goods regulations, which provide for the control of certain UTPs between large supermarkets and wholesalers and their direct suppliers of food and drink products in the grocery goods sector in Ireland. It is the remit of the CCPC to enforce these regulations. Specifically, the Irish regulations relate to the direct business relationship between suppliers and wholesalers and retailers of food and drink operating in the country that have a worldwide turnover in excess of €50 million.

The scope of the draft EU directive will apply to certain UTPs that occur in regard to the sales of food products by a supplier that is a small or medium-sized enterprise to a buyer that is not such an enterprise. It will, therefore, apply to the sales of food products only by a supplier that has a turnover of less than €50 million to a buyer that has a turnover of more than €50 million. This means it will apply to a farmer supplying a co-operative or meat factory, but not to the co-operative or meat factory supplying a retailer. The IFA's position is that the EU directive should apply to the entire food supply chain. This is also the position of COPA and COGECA.

The proposed directive aims to reduce the occurrence of UTPs in the chain by introducing a minimum common standard of protection across the EU that consists of a shortlist of specific prohibited UTPs and leaves member states room to keep or provide for farther-reaching measures. It sets down provisions targeting minimum enforcement requirements applying to national competent authorities. It sets down a co-ordination mechanism between enforcement authorities facilitated by the Commission to enable the exchange of data concerning the number and types of infringement investigations carried out and of best practices with a view to improving the effectiveness of enforcement. It references the UK Groceries Code Adjudicator as a role model. It is going down the subsidiarity route, to complement existing arrangements in member states, which will have to transpose the UTP rules into national law. Twenty member states, including Ireland, have legislation in this area.

As the IFA understands it, the draft EU directive is not compatible with the grocery goods regulations 2016, primarily because of the scope of the proposed EU legislation. This was acknowledged by the CCPC earlier.

The proposed directive sets out to prohibit the following UTPs but makes no mention of a contract; payment later than 30 days; cancelling orders of perishable food products at short notice; the buyer changing unilaterally and retroactively the terms of the supply agreement on frequency, timing, or volume; and the supplier paying for the wastage of food products incurred on the buyer's premises. The IFA queries how, in the absence of a written supply contract, these four UTPs can be proven and outlawed.

The directive requires member states to ensure the following specified UTPs are prohibited, unless they are agreed in a supply contract: the buyer returning unsold food products; the buyer charging a supplier payment to secure or maintain a supply agreement; the supplier paying for the promotion of food products sold by the buyer; and the supplier paying for the marketing of food products by the buyer.

The grocery goods regulations provide for a greater list of UTPs. The IFA has called on the European Parliament to strengthen the legislation by adding other UTPs in order that producers have clear written contracts and to tackle abuses by retailers, including unsustainable discounting or below-cost selling, annual tendering by retailers, and payment for retention or better positioning of shelf space.

The draft directive provides for the designation of "a public authority" for the purpose of enforcement. The IFA's experience is that an independent retail regulator with a specific remit is required. It would be similar to the UK Groceries Code Adjudicator, which has proved to be a game-changer. In Ireland's case, this function is being subsumed in the CCPC, where its effectiveness is lost. The proposed directive holds up the UK model as best practice, and this is the model that the IFA wants the Government to follow. I imagine the meeting at the airport to which Deputy Cahill was referring was the one we organised and to which we invited the UK groceries regulator, Ms Christine Tacon.

The biggest issue for farmers is that they have no confidence in the CCPC to enforce the regulations. The IFA notes that, in September, the commission announced it is about to start inspections in the grocery sector to ensure traders are complying with their obligations. This is welcome but it should have happened much sooner.

The regulations were introduced in April 2016 and most farmers supplying the retailers, either directly or indirectly through a wholesaler, have no contracts. This is a blatant breach of the regulations and the commission has been invisible in the policing and enforcing of them. The establishment by the Government of a visible and active independent retail regulator would give confidence to suppliers that their complaints would be taken seriously and pursued.

Following this directive to address unfair trading practices, Commissioner Hogan is working towards bringing in an implementing Act that will address market transparency with the aim of having mandatory price reporting by member states. The IFA has called for this at all levels in the food chain so that margins and the profitability of processors and retailers are clearly visible. The figures do not lie. If we look at the euro the consumer spends on the various commodities across the European Union, the retailer gets 51 cent, the processor gets 28 cent, and the farmer is left with 21 cent.

In conclusion, it is clear that farmers are not getting a fair share of the retail price, retailers are the modern day dictators, abusing their power to accumulate vast profits and the current situation, whereby processors and retailers always make a margin while farmers are sometimes forced to produce at or below the cost of production, is totally unacceptable. We need the Government to transpose, without delay, the EU directive when it has been adopted in Brussels. To be effective this will require the appointment of an independent retail regulator with a specific remit - and I note the comments made by Ms Goggin in her presentation earlier - and that the regulator’s remit now be expanded to provide the European Commission with the mandatory price reporting required to comply with the transparency legislation that is to follow in the coming months. I ask the committee to support our request and to ensure a rebalancing in the food supply chain so that the farmer can get a fairer share.

Mr. Pat McCormack

I thank the Chairman and his fellow members of the committee for the invitation to contribute on the unfair trading practices. I will briefly outline the issues as the Irish Creamery Milk Supplier Association, ICMSA, sees them. In April, the European Commission and the Commissioner unveiled a draft directive which seeks to ban the most damaging unfair trading practices, namely, late payments for perishable food products, last minute order cancellations, unilateral or retroactive changes to contracts, and methods which force the supplier to pay for the wasted products or waste food.

The ICMSA has always believed that a properly functioning food supply chain in the EU is central to ensuring that EU farmers and EU farm families receive a fair share of the final consumer price and an income comparable with that of other sectors. Farmers have consistently lost out. The figures stack up. In 1983 there were 66,000 dairy farmers; today there are less than 18,000. This is due to the concentration of market power and an unequal bargaining position among the various parties along the food supply chain. With the continuing growth and concentration of firms at the farm input stage, in food processing and in food retailing, it has swung even more to the detriment of the family farm in recent times.

The relatively vulnerable position of farmers in the food chain invariably means that we bear a disproportionate share of the risks within the food chain. The key to improving margins for farmers is to bring about a properly functioning EU food supply chain at processor and at retail level. This would mean that farmers would receive a return that covers their cost of production and leaves a reasonable income for the farm family.

There is considerable agreement, across the political spectrum and in virtually every member state, that the EU food market is not operating efficiently or fairly and that farmers and consumers are both losing out. The proper functioning of the food chain in the EU is central to the favourable development of the market income of EU farmers. Addressing unfair trading practices in the food sector is not an easy task and is likely to be an ongoing concern particularly due to the likelihood of increased volatility in world agricultural markets - Brexit is coming around the corner, for example - and increased emphasis on food security. The ICMSA particularly welcomes the acknowledgement in the draft directive that "When occurring, UTPs can put operators' profits and margins under pressure, which can result in a misallocation of resources and even drive otherwise viable and competitive players out of business."

The ICMSA supports this logical conclusion, that EU level measures are required. Certainly from an Irish perspective, given that 85% of our dairy produce is exported, it is very necessary that measures be enacted at the EU level. Clearly, Ireland has a major interest in the proper and transparent functioning of EU agricultural markets as a result and the ICMSA believes this is a step forward. Indeed, we recently submitted a submission focusing on market transparency which is a key ingredient to go with unfair trading practices.

The Commission’s proposals to tackle unfair trading practices are a step in the right direction to ensure fair market prices for farmers and to address the current power imbalances. Regulatory issues can only be effectively addressed at EU level given that many, if not most, of the major food retailing and processing companies operate in more than one member state. No individual member state can effectively address this problem by national legislation or regulations, therefore EU regulation and enforcement is required.

Specifically on the directive objective for unfair trading practices, the EU Commission has stated in previous communications on tackling unfair trading practices in the business-to-business food supply chain that increased concentration and vertical integration of market participants across the EU have led to structural changes in the food supply chain. That is very evident. The EU Commission rightly concludes that, while differences in bargaining power are common and legitimate commercial relationships, it is the abuse of such differences that lead to unfair trading practices. The four practices as outlined should lead to more equality in the supply chain if implemented correctly.

An unfair trading practice that has gained much notoriety within agricultural sectors is the use of products such as milk or vegetables as loss leaders in order for retailers to gain market share. This practice must be outlawed and legislated for as it strikes at the core of agricultural products and undermines the viability of family farms. We believe that omitting below-cost-selling would be an error of such magnitude that it would effectively undermine the whole drive to reform and make more fair the supply chain from farmer to producer to retailer. Unfair trading practices are a win-win for retailers. They do not carry the loss for the below-cost food because they just drop the price back to the food producers or suppliers and, ultimately, back to the primary producer. They win as a result of increased sales of other items arising from increased footfall. Below-cost selling is not just an unfair trading practice, it is a sheer abuse of dominant corporate retailer power.

Additionally, new laws relating to unfair trading practices in the food supply chain should not add an additional bureaucratic layer upon farmers. That is absolutely critical. The EU and Ireland should note and consider the French legislation called the field-to-fork review which is a response to the fact that farmers bear the brunt of price wars between retailers. Under the legislation, the French Government will be allowed to raise the threshold below which retailers cannot sell food products. The increase in the resale below-cost threshold caters for the inclusion of additional costs such as retailer logistics and staff. The Bill also empowers the Government to curb promotional offers. Retailers will not be allowed to discount products by more than 34% of their value or sell more than 25% of a product’s volume in a promotional offer.

The ICMSA feels that the proposals outlined in the draft document must be implemented with a view to improving overall market information in food production. The draft directive must broaden its remit to include more market transparency and monitoring and must ensure that these objectives are being measured and implemented. Effective monitoring of the food sector to ensure proper functioning and competition requires detailed data and information including the direct monitoring and publication of margins of large food companies and particular production lines.

We also have some concerns about some specific parts of the draft directive and, in this context, we feel it is right to outline these for the committee. The ICMSA has concerns for farmers and their product purchasers as contract law may supersede this directive and make some of the proposals null and void.

For example, the ICMSA has concerns regarding Article 3 and the payment within 30 days or one month. Our members feel that they are disadvantaged under this proposal and believe that the timescale should be shortened to 20 days at a maximum, or that the product purchasers should not be allowed to increase their payment intervals to 30 days.

In the context of a quality pricing system in the beef industry, we believe these articles can be used to contest the use of such a scheme when there is no difference in quality. The draft certainly needs to be scrutinised more closely in the context of returns. The return to the producer is widespread and obvious. There is a need to consider the position regarding processors, marketers and retailers.

I will leave it at that. We have also submitted a broader statement, which has been read before now.

Ms Alison Graham

I thank the committee for the invitation to appear. I will try to be brief and not repeat, to any great extent, the good points already made by Mr. McCormack and Mr. Healy.

The Irish Co-operative Organisation Society, ICOS, very much welcomes the EU initiative to tackle UTPs in the food supply chain. Farmer-owned co-operatives play an important role in that chain. They integrate the roles of the producer, processor, and marketer in order to add value and increase the economic weight of farmers. ICOS supports action which will further protect farmers and their co-operatives and create a fairer and more equitable food supply chain. We wholly support the aims of the proposed directive, which seeks to prohibit certain UTPs across the EU. Many of these are practices to which Irish co-operatives are still continuously subject in Ireland and in EU export markets.

ICOS equally supports the proposal to establish an independent regulator in each EU member state to act upon anonymous complaints and address abuses through the use of sanctions, which is greatly necessary in our own approach. With many Irish co-operatives exporting to other EU countries and beyond, the current landscape of varied national legislation and mechanisms to address UTPs is a cause for concern. We have found that the status quo provides inadequate enforcement and is contributing to a fragmented Internal Market. These features of the proposal are vital in order to ensure that the directive addresses the pitfalls of the varied and voluntary EU approach.

I wish to highlight three aspects of the draft directive about which we are particularly concerned and which we feel need to be addressed in the final agreed text of the directive in order to protect the functioning of farmer-owned co-operatives and enhance the effectiveness of the directive overall. First, the directive must protect co-operatives and respect their functioning. Farmer-owned co-operatives are the most effective way of increasing the bargaining power of farmers, which is the ultimate goal of this initiative. The directive must take account of the unique relationship between a co-operative and its members, which is not simply one of buyer and supplier but, rather, one of member, owner and decision maker. This is why we are very supportive of the proposed wording in the Council's draft directive regarding payment terms, which will protect the current structures within the dairy co-operative sector in Ireland. It introduces wording relating to instances where a producer does not provide an invoice to his buyer, rather - as in our dairy sector - the co-operative provides an invoice to the supplier with an analysis of the delivered milk’s contents. The new wording would allow for the continuation of the market-oriented and democratic price-setting structures in our dairy co-operatives. This is vital and greatly welcomed.

Second, we wish to emphasise that UTPs are unfair and damaging to all businesses, regardless of size. If a practice is recognised within the directive as being unfair and contrary to good commercial conduct, it should be prohibited in all cases. A total of 90% of Irish co-operatives are small to medium enterprises, SMEs. The remaining 10%, however, represent the vast majority of the Irish dairy production pool. In order to ensure protection for the vast majority of Irish dairy farmers, it is necessary to include non-SME suppliers within the scope of the directive. In addition, approximately 90% of retailers in the EU are SMEs and are excluded from the current scope of the directive. The size of businesses should not entitle buyers to use UTPs.

ICOS is also concerned about the impact of this scope on the competitiveness of SME co-ops. There is little incentive for a buyer to choose an SME supplier over its non-SME neighbour if that buyer knows that the latter has more flexibility regarding payment terms and that it will be possible to impose additional fees in contracts with such a supplier. In order to create a truly level playing field for farmers, co-operatives and their downstream buyers and prevent competition distortions, ICOS feels strongly that the legislation must be applicable to all businesses.

Lastly, but by no means least, the Irish Co-operative Organisation Society, ICOS has long highlighted the unfair trading practices Irish farmers are subject to by meat processors in Ireland, and in particular the penalties imposed by the quality payment system on more than four movements between farms prior to slaughter or movement within the last 70 days before slaughter, as Mr. McCormack has already mentioned. These issues are not addressed in the list of unfair trading practices, UTPs, proposed by the Commission's draft directive. We call for the list of prohibited UTPs to be extended to cover these practices that are subverting the free trade of factory-fed cattle in Ireland, stifling competition and hugely damaging the impact on prices of the entire livestock industry. ICOS would like to see a provision that is already included in the European Parliament report within the list of prohibited UTPs that relate to the unilateral imposition of quality standards that are not based on current legislation, quality schemes, science or current practices, and which have a distorting effect on free trade.

I welcome any questions that committee members might have.

Mr. Thomas Burke

Retail Ireland is the representative body for the entire retail sector in Ireland and its membership includes major supermarket groups, symbol groups and independent retailers. Retail is Ireland's largest industry and largest employer, with a presence in every city, town and village, right across the country. The sector employs more than 285,000 people and contributes more than €7 billion, which is 23% of total tax take, each year.

Retail Ireland and its members have some concerns regarding the effect certain aspects of the current draft EU directive on UTPs may have on the grocery trade and on consumers in Ireland in the longer term. We believe that certain aspects within the directive may have the potential for market distortion should some or all of them be introduced. Retailers in Ireland have been working closely and effectively with the Competition and Consumer Protection Commission and their suppliers, to embed the grocery goods regulations introduced in 2016. This has been a complex, administratively burdensome and costly process. It is widely accepted, however, that this process is thus far functioning well and the commitment from all parties has been fulsome.

Given how recently this process was completed, a further layer of legislation in the form of an EU directive governing this area, at this time, is unhelpful and potentially confusing for all parties to the regulations. We must also consider the potential for the scope of this directive to grow over time and supersede domestic regulations, which now exist in over 20 member states as Mr. McCormack has already said. National legislation is the most appropriate place to deal with the sensitivities and intricacies of the Irish retail grocery market and it should remain the primary route for addressing any concerns around how it functions.

Retailers consider farmers as key partners in the food supply chain and support measures that can directly address the problems farmers face. At an EU level, a critical mass of retailers are already applying principles of good practice in business to business relationships under the supply chain initiative.

On behalf of Retail Ireland I shall now turn to specific observations on the draft directive. Prohibited practices should be clearly defined to provide legal certainty: The directive provides for strict enforcement and sanctions, and it is key that it provides legal certainty to operators so as to avoid the risk of unjustified interpretation by member states, making reputable operators potentially vulnerable to disproportionate sanctions.

The scope of the directive should not be extended beyond small farmers and processors. The directive is based on the agricultural treaty provisions and should focus on the benefits accruing to farmers. By extending the scope to all food products and SME processors, the Commission is already stretching its powers under Article 43 of the Treaty on the Functioning of the European Union. Any attempt to extend the scope of the directive would run against the Commission's impact assessment. Regulating trading practices between large processors, including global brands, and retailers would affect parts of the supply chain fundamentally outside the scope of Article 43. More important, it will skew the relationship towards these large processors, with no guarantee that the benefits will accrue to farmers.

Flexibility and subsidiarity must be preserved while not undermining the Single Market. All EU countries, including Ireland, have legislative frameworks in place and most have specific enforcement provisions. The overwhelming majority of supply contracts are national and subject to national law. We ask that provisions within the directive are kept to a strict minimum common denominator and allow for a degree of flexibility so as to allow schemes that have proven to work well to continue. These have arisen out of a national context and relate to national structures. Member states should be allowed to extend the powers of an existing authority and not have to set up a dedicated one for the purposes of the directive.

The list of prohibited and restricted practices must be kept to a minimum and focus on contractual relationships between farmers and their first buyers. Freedom of contract and of negotiation is important in ensuring that retailers are able to deliver the best products to consumers at a reasonable price. This freedom must be preserved, and legislation must allow trading partners to engage in agreements that deliver a benefit to both parties. The list of prohibited practices must therefore be strictly limited to clearly defined practices, such as unilateral ex-post modifications of contracts, where the conditions were not previously agreed upon by the parties.

As per the remit of the directive, the focus should be on contractual relationships between small farmers and their first buyer. Lawmakers should resist adding a series of unnecessary and intrusive provisions which will undermine usual and perfectly legitimate commercial dealings and will simply create additional costs and benefit neither farmers nor consumers. In this regard, we are concerned at the proposed amendments emanating from the European Parliament, which include limitations on environmental or animal welfare standards and prohibitions on retail and wholesale buying groups that would have a significant impact upon thousands of independent retailers throughout the country that provide significant employment.

On complaint mechanisms, the directive establishes a right to complain for small suppliers in respect of large buyers. Article 48 of the EU Charter of Fundamental Rights requires that enforcement powers include a right of defence, including access to facts relating to a complaint, and appeal. These need to be fully reflected in the directive; currently, they are not.

Mediation and other alternative dispute resolution mechanisms should be promoted as an efficient means of solving disputes. Public enforcement can be costly and adversarial, with a risk of termination of any business relationship between the parties. Dialogue and mediation have proven to offer quick and efficient means of solving disputes in ways that allow business to continue. Public enforcement should only be sought as a last resort in the context of limited Government resources. Provisions on the role of mediation should be introduced.

As most contracts are negotiated annually, we ask that the directive foresees a reasonable transposition period of two years and continues to allow for its provisions to apply to new contracts negotiated after transposition. Retailers manage contracts with thousands of suppliers to provide consumers with a wide choice of products that meet their expectations and serve their needs. Renegotiating contracts halfway through their execution can simply not be put in practice.

On behalf of all Retail Ireland member companies, I thank the committee for affording us this opportunity to submit our views.

I thank Mr. Burke. The committee members are conscious of the fact that a vote may be called in the Dáil Chamber at approximately 6 o'clock. We will try and get through questions as quickly as possible. Deputy Kenny is first, followed by Deputies Penrose and McConalogue in that order.

I thank all the witnesses for their presentations.

The CCPC informed the committee earlier that this directive is not its business. That was the message. It is outside the commission's remit. It has been working on behalf of the consumer and wants to continue doing that and it sees this directive almost in conflict with that.

I was looking at the back of Adam Smith's "The Wealth of Nations" in a bookshop in Sligo the other day. It was written in 1776 and he is the hero of capitalism. Throughout that, he talks about how the free market rules but he also, in every chapter, talks about how the firm hand of government must control it. There was one section of it that said that never did two or more merchants come together for the simplest of conversations but the conversation turned to fixing the market. The government has to have a hand in there to ensure fair play. That is what this is about. The Government has to play its role and the EU is saying that through this directive. The Government has to come in and ensure fair play and a decent price is given to the primary producer. That is what we need to do in all of this.

Contracts are vital, and they were mentioned from a retail perspective. I understand retailers must have contracts, but very often the problem is there is no contract, or the contract is a very loose one that they can get out of. That needs to be tidied up. Standards need to be put in place so contracts cannot be wriggled out of as easily as they have been in the past and cannot be as loose as they have been.

The primary producer must get a fair price. If that is to happen, it is about the market, but it is also about ensuring the common good of society is served. If the common good is going to be served, the thousands of farmers in this country who produce excellent food need to be able to make a living. That is the common good. That is what this needs to be about.

My questions have been answered, by and large, in the witnesses' submissions. We need to support the concept of the establishment of a directorate to pursue this solely on the basis of looking after the interests of the common good.

If it is going to look after the interests of the common good, the retail sector would also be well served. There should not be resistance between the two. There must be a sense of ensuring that we do this in a balanced way. Balance has been mentioned several times but there is no balance at the moment. That is why we are here. If we are going to move forward, we must recognise that. There must be recognition from the retail sector, particularly the large retailers, and the big processors.

The meat industry was mentioned. There are rules and regulations in the beef sector in the context of U-grade meat, O-grade meat and so on. I never know the grade of a piece of meat I buy from a shop. People who work in the facilities state that if there is an order to be filled, it is filled regardless of what grade a farmer has received. That is the reality. Many of the regulations that have been put in place, particularly by the processors, are a mechanism to push down the price paid to the farmer. That needs to be recognised. That is one of the things that needs to come into play here. Whoever takes on the role or whatever structure is set up must have sharp teeth in order to take charge of this.

I thank the delegations for their informative presentations. I am grateful for the work they have put into them.

I was not shocked by what the CCPC said earlier. It is something that I knew was happening because its role is primarily to protect consumers. It was just an add-on to the legislation to subsume the function of a sectoral regulator in a half-hearted way. The CCPC was not given much power by the Government in its remit. It has a different role. I agree with Mr. Healy's presentation that the CCPC was not effective because it was never meant to be effective. It was a cosmetic exercise. The witnesses from the CCPC mentioned the issue of trying to secure evidence. I understand the need for the primary evidence rule to the effect that the people, company or stakeholder affected must bring forward the case. However, nobody scratched themselves too hard to try to assist people.

We are all aware of the power of market concentration invested in a small number of powerful wholesalers and retailers and the way they can do business and how that creates an unequal playing field and unequal bargaining power. The current food supply chain is haphazard and not functioning; it is potluck. It is an age-old problem which must be tackled at transnational or EU level. It cannot be tackled independently. In fairness to Commissioner Hogan, he was a Deputy when this all started so at least he learned in the Oireachtas that this was not going to happen on its own. For once, he did something right.

There were problems in the vegetable market whereby consumers were getting vegetables for a couple of cents. The industry could not survive. That then extended to the market for milk. I do not need to go through the detail in that regard.

I am fascinated that the French have never been subservient to EU law. I have always admired them for that. Our big problem has been that we have accepted everything hook, line and sinker. We were terrified of being caught offside and brought before the European Court of Justice. The French have never given a damn. Mr. McCormack outlined that they took steps and grabbed the ball in order to protect their farmers. The position is that farmers here are getting less than a third of the overall price and, if something does not happen soon, they are not going to survive in any event.

This is the last chance saloon. I look forward to the implementation of the directive. It should have direct effect. There should be no pussyfooting around. It should penetrate down to the legislative chambers here and there should be no diversion. The only thing we should be doing is strengthen it as it comes along.

I understand where IBEC is coming from. Perhaps the witnesses are coming at it from a different perspective. We are coming at it very strongly from an agricultural perspective. I understand the witnesses do not want another layer of bureaucracy. The various points the witnesses set out have merit. Is there a difference of opinion between ICOS and the two farming organisations on how far this should extend? Do I detect that? I noticed both the farming organisations were wondering if they should extend right through the co-operative movement and the full supply chain. Does that include going into the co-operative movement even though the farmers are members of the co-operative movement and making a decision at that level? Does that create a difficulty or am I misreading the situation? Will the witnesses reply to that? Both farming organisations made references in their presentations, some direct and others oblique. I would like clarification on that because it might create a little difficulty in terms of the ICOS model. It might be difficult to implement.

I thank the representatives of all the organisations for coming in and making very coherent presentations. Members of the farming community who are engaging in this process and asking what it will ultimately mean for them will welcome that the overall objective is to ensure a fair standard of living for agricultural producers but how that impacts in practice will be the key litmus test. As a primarily export producing agricultural nation, it is key that the measures are being done at European level because the domestic level represents only a small part of the sector. The key recurring issue domestically is price. Our biggest issues are in our beef sector where farmers sell to the factories; the price farmers are getting for milk; and sheep farming in terms of the engagement between farmers and producer groups and factories. The key question they will be asking with regard to the impact of this directive and its market transparency aspects is how will it impact on the very imbalanced relationship they have with those they sell their produce to, notably the meat factories. In terms of how this will feed down and ensure a fair price and a fair slice of the overall cake for the primary producers domestically, do the witnesses see this making a real impact and changing that dynamic? If not, are there additional steps that could be taken to strengthen the directive to try to ensure it resets the dynamic between farmers and the factories in particular?

Ms Graham mentioned the 70-day rule and the penalties if there are more than four movements. I am interested in the input of other contributors on that. My understanding is it was introduced initially to deal with BSE. Is there a particular need for it now? Do the witnesses perceive it as something that should be addressed?

I thank the representatives of all the groups for their presentations. The vast majority of us in the room are agreed that something has to be done and done quickly. Do the witnesses feel the directive will go far enough in solving the problems of the primary producer?

I will address a question to Ms Alison Graham, the ICOS representative. On the dairy side, farmers control the co-operatives.

There is civil war when the battle starts for market share in the liquid milk trade. The person who supplies the milk is the only one who pays for that. We can blame the retailer and say he or she is the big bad man or woman in the room but co-operatives, which farmers own, cut each other's throats to get market share. I cannot see this directive solving that problem.

Meat factories are not farmer controlled anymore. Farmers had a bad experience in the meat business. The same thing happens in that industry at home or in markets in other countries. Irish factories are competing against each other and it is all about market share.

Mr. McCormack made a point about promotional gimmicks and they are a way in which retailers have, in the past, managed to get serious concessions from processors. That needs to be controlled and outlawed, whether it is 25% free, or buy two packs and get another free. The cost of carrying that cannot be continued.

I asked the first group of witnesses today about the percentage the consumer is spending on food today, compared with ten, 15 or 20 years ago. Mr. Burke made a strong point from the retailers' side of the equation. The reality is the primary producer is getting squeezed again and again. It is not tenable. There are things on the producer's side that have to be got right as well and this unending competition for market share looks grand when one wins a contract, but it comes at a serious cost. The primary producer is the one who is paying for it.

Are Mr. McCormack and Mr. Healy confident this directive will do what we, at this side of the table, want it to do, namely, ensure a fair price for the primary producer? Is it strong enough? What else would they like to see to further strengthen it?

There are about ten minutes left to deal with the questions. I ask Ms Graham to clarify is there a difference between ICOS and the farming organisations.

Ms Alison Graham

The relationship between a co-op and its members is not one simply of a buyer and supplier because the farmer is, in part, an owner of the co-operative business so, legally speaking, it is questionable whether there is a transfer of ownership. This is a special and unique relationship that has been recognised in the legislation of many nations relating to unfair trading practices in the various EU member states. It is included in national legislation in Italy and France. We would like to see similar recognition included within the EU directive.

I mentioned one area where the ICOS recognised a potential problem in the current draft proposed directive about the payment terms within dairy co-operatives. This relates to the specific nature of the dairy co-operatives sector. To put it simply and quickly, a dairy farmer receives a monthly milk cheque. The price for that milk is decided by the elected co-operative board in the middle of the month for the preceding month's supply. This week, for example, the dairy boards are meeting and setting the price for September's milk. This means milk that was supplied in the first two weeks of September, under the draft EU directive the Commission is proposing, would be outside the 30-day deadline. However, the wording that has been introduced by the Council directive makes allowance for the particular nature of the dairy sector because normally, in the course of a supply agreement in many other sectors, an invoice would be provided by the supplier at the end of a month for the produce which has been supplied.

This does not take place in the dairy sector because the processor must do an analysis of the milk's content. The processor provides a receipt recording the volume, the percentage of fats and the percentage of protein, which is the basis of the milk price, as well as an overall analysis of the milk's quality. Where no invoice is provided by the supplier to the co-operative, the co-operative provides the invoice. In these cases the 30 day countdown begins on the date of delivery of the milk, which would put milk delivered in the first two weeks of the month outside the 30 day deadline. We favour the wording Ireland is introducing at the Council because it makes an allowance for cases where an invoice is not provided by the supplier but by the buyer. This allows for the 30 day timeline to begin at the end of the month long delivery period during the course of the supply agreement.

The 70-day rule and the four-move penalty were mentioned. There is no good reason a restriction is placed on the number of movements, or on movement within 70 days before cattle are sent to a slaughter house. This rule is in the scheme purely to distort trade and to stifle competition. Meat factories do not want to be bidding against each other at a mart but would prefer cattle to be sent directly to the processors so that they can set the price rather than increasing the prices they would have to pay for cattle, which would happen if they bid against each other.

There was a question on the liquid milk market. This is a highly competitive sector in Ireland and retailers can take advantage of that. If we saw higher standards applied to all suppliers with regard to what is acceptable within contracts, and the prohibition of certain unfair trading practices for all suppliers, it would have advantages for co-operatives in terms of what they get for their contracts in the liquid milk market.

Mr. Burke might give the perspective of retailers.

Mr. Thomas Burke

Deputy Penrose commented on the effectiveness or otherwise of the CCPC regulations but I would caution against an early judgment on them as the regulations have only been in place for less than two years. They have been reported on once.

A dead duck does not fly.

Mr. Thomas Burke

That is the Deputy's perception but, at the end of the day, the law is the law.

It is not a perception but a reality.

Mr. Thomas Burke

The reality is that the provisions are in place.

They are in place but the world is in place. One might still be doing nothing with it.

Mr. Thomas Burke

We suggest that time and space be given to the regulations so that we can see what comes of them. Retailers have worked hard to comply and it has not been without significant cost to the industry, at €100 million. A risk officer has been appointed in each of our member companies to oversee compliance and retailers have been working with the CCPC to make sure they are in compliance with the rules as they are laid out.

There are misconceptions of the margins and other things in the retail sector. The traditional retail model operates on a margin of between 1% and 3%, which is vastly different from that of some of the very large multinationals and branded goods companies, which potentially stand to benefit from the directive as it is currently structured. The proposal to extend the remit to all actors in the supply chain would significantly benefit those multinational companies, which operate at margins of between 30% and 40%. The relationship is inverse in the case of those particular companies so we would caution against an extension to include them.

Some points were made about the relationship between farmers and retailers.

In the vast majority of instances there is an individual who is an intermediate between the two. It is rare for there to be a relationship directly between the farmer and the retailer, with only 5% of European contracts agreed directly between retailers and farmers. The person in the middle is usually a processor or some such person.

It is not in the interest of retailers that the farming sector is in any way disadvantaged or left in an unsustainable position. We have a very good relationship with farmers and each of our individual companies has spent a lot of time, money and effort to ensure Irish produce is profiled, not only in the local market but on international stages in the UK and beyond. As an industry we are extremely committed to this. We want a good deal for farmers but this cannot be at the expense of retailers or consumers, who ultimately pick up the tab. In a sector with a margin of between 1% and 3%, we are very concerned at some of the amendments which have arisen out of the parliamentary process, particularly those which seek to impose only legally binding standards. We do not believe it is in farmers' interests to drive standards down. This is particularly the case with respect to Irish farmers, who have among the highest standards in the world, something we should use as a marketing tool. Anything that dumbs down standards is not in the interests of retailers or the farming community.

We are also very concerned about the suggestion that retail buying groups should be outlawed. The Irish retail model is a unique one and we have been very successful in building a raft of Irish retail entrepreneurs who have operated stores all around the country, in every single town and village in the members' constituencies. They have worked hard and the suggestion that it be unlawful for them to join symbol groups, or align with brands to form a retail buying group, is of great concern and one of the most worrying aspects to have arisen from the process thus far.

Mr. Pat McCormack

I will make a few specific comments first and follow them with responses to the questions that were posed. Deputy Penrose asked about the co-operatives. If they are in the co-operative ethos and act for the benefit of their members, they should have no fear of this regulation, which will scrutinise board members and the work they do for their electorate. We could have a debate about whether much of the milk in this country is processed by a co-operative, a plc or a plc that is trying to be a co-operative.

Deputy McConalogue asked about the 70-day rule. The ICMSA believes that if an animal is on a quality assured farm and moves to another quality assured farm it should still be entitled to all the quality assurance bonuses that are available, irrespective of whether the movement was in the final 70 days or not. The four-move rule can be restrictive because people sell for various reasons. We saw in 2018 that people had to sell and they still have to sell for financial reasons.

Deputy Martin Kenny spoke of the quality payment system, QPS, and its standards, and Deputy Cahill asked if it was doing enough. It will probably not do enough for the economic sustainability of family farms but it is certainly a step in the right direction. We can take it as the first step in providing transparency and fair play in terms of the price returned to the primary producer.

I do not altogether agree with Mr. Burke about consumers picking up the tab. The expectation of consumers is beyond belief, with the primary producer being asked to do more and more, for less and less, and at a higher standard. That is unsustainable. The Department of Agriculture, Food and the Marine, the Minister and all bodies involved in the promotion of our produce, 85% or 90% of which is exported, promote the family farm structure to the exclusion of all others. This is because it is the most sustainable from a political point of view.

It is the most sustainable from an environmental point of view but that family farm structure needs to be made economically sustainable. The consumers of Europe and the rest of the world need to realise that. The standards they wish for do not come cheap.

Could Mr. Healy sum up?

Mr. Joe Healy

The questions have all been answered. Deputy Martin Kenny must have bought that book because he read a good bit of it. He would never have been left standing in the shop that long. There are good lines in it. A line in my presentation stated that we believe the directive should apply to the full food supply chain. This position has also been accepted by COPA-COGECA. Ms Graham covered that earlier.

Deputy Cahill asked about percentages. If we go back to the 1960s, we can see that 30% of average household income was being spent on food. Depending on where someone is in Europe, somewhere between 10% and 15% of the average household income is spent on food. Apart from three tiny increases in 2011, 2012 and 2013, consumer spending on food has dropped. We saw it in 2008, 2009 and 2010 and in the past three years. The consumer is getting very good value.

We need to avoid unsustainable discounting. There is no need for it - be it with regard to milk or vegetables. We have seen that at various times during the year, particularly at Christmas. I do not think it happened last Christmas with vegetables but it happened the previous year. It was said earlier that this unsustainable discounting is an insult to the producer and the food. It adds to food waste. While someone said earlier that cheap food was good for the consumer, it is not really good for them. It will put farmers, businesses and retailers out of business because it is a race to the bottom. We have spoken to retailers who have told us that there is no need for them to lower prices and that they do not wish to lower them but that they have to follow the pack. If one or two have gone before them, they feel they must go there as well in order to maintain market share. This race to the bottom is not good for anyone. We talk about many strands of sustainability such as social or environmental sustainability but the sustainability of the farmer and producer of the raw material must be paramount.

To borrow Mr. McCormack's words, we hope this is a step in the right direction. It is a bit like the fodder crisis. Any one solution is not going to be the answer to all ills but it is a good step in the right direction and we need to ensure we support it at all levels, be it at our level or that of the committee. The important part is that there is a review of the directive after three years so we should watch out for what we might not have got right at the start and make sure we get it right in three years time when the review takes place.

I thank the witnesses for their presentations. I apologise for rushing them but we have a vote in the next few minutes. It has been a very interesting conversation. It is the beginning of a conversation. A previous committee dealt with this issue four or five years ago and a committee of which Deputy Penrose was a member did so before that. It is an ongoing discussion. It is a bit like "Coronation Street"; it is to be continued. Today's conversation has been very good. I thank the witnesses for their presentations and attendance.

The joint committee adjourned at 6.10 p.m. until 3.30 p.m. on Tuesday, 23 October 2018.
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