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When it rains, it pours…

Agriculture and rural business / 11 December 2019

Last month we saw the devastating impact on many of the widespread flooding and wet weather in the UK. This includes many farmers who have been left unable to sow or harvest some of their produce. In this article, we discuss the impact of flooding for the agricultural and rural sector, how to deal with suppliers or customers where you are unable to perform the contract and claims under the Groceries Supply Code of Practice.

Many farmers and food producers have been negatively affected by excessive downpours. Harvesting root vegetables and crops, including cabbage, broccoli and Brussels sprouts have been particularly difficult. Potato and vegetable growers who have their crops in the ground are inundated by floodwater, sugar beet farmers are unable to get machinery onto the wet ground to lift it, while livestock farmers have been forced to bring in livestock earlier than normal, meaning higher costs on-farm for feed and bedding.

Farming is a time-sensitive industry, and this is already causing a huge financial impact on the sector. Some farmers will be left with significant delays in their crop production, or no crop at all for the year leaving them thousands, if not tens of thousands of pounds out of pocket. Whilst some may benefit from agricultural and crop insurance, many will not. The Department for Business, Energy and Industrial Strategy has announced funding for a Business Recovery Grant which will provide up to £2,500 each to eligible small and medium-sized businesses which have suffered severe impacts from the floods that cannot be recovered from insurance. This will be a drop in the ocean for many.

How do affected farmers deal with their customers and supply chain?
Market pressures and margins are already very tight for food producers, who are often trapped into one-sided contracts in favour of large supermarkets. Supermarkets often have the right to choose to purchase as much or as little produce as they like, making forecasting difficult. Producers however remain legally obligated to fulfil their production requirements and the wet weather will mean they have no option but to breach the contract. This could have serious financial and reputation implications for producers if supermarkets choose to sue for direct or indirect losses caused as a result of the breach or delist the farmer from their supply chains.
The Groceries Code Adjudicator
The Groceries Code Adjudicator (the “Adjudicator”) is an independent statutory office responsible for enforcing the Groceries Supply Code of Practice (the “GSCOP”) and for regulating the relationship between supermarkets and their direct suppliers within the UK. GSCOP regulates the behaviour of the top 13 grocery retailers, Aldi, Lidl, Morrisons, Tesco, Sainsbury’s, Asda, Marks & Spencer, Ocado, Home Bargains, B&M, the Co-Op, Waitrose, Iceland, their subsidiaries (a collective known as the ‘Designated Retailers’).

Earlier this year, we brought one of the first claims against a supermarket for breach of the GSCOP, which was successfully settled before a final determination.

Separately, the Adjudicator conducted an enquiry and found that the supermarket in question had breached two counts of the GSCOP:

(i)                 for failure to provide reasonable notice to suppliers on decisions to delist products; and
(ii)               for varying supply agreements unilaterally and without reasonable notice in the way it applied two specific charges.

The supermarket was ordered to cover the £1.3m costs of the inquiry and to refund suppliers £650,000 where they had been wrongly charged for benchmarking and quality control.
Opening a Dialogue
Any farmer or producer who finds themselves in a situation where they are unable to comply with their orders, to large supermarkets or smaller customers, should open a dialogue with them and try to resolve the issue in the first instance. If a large supermarket delists you, as a result of your inability to perform the contract because of the flooding or otherwise and you suffer financial loss, you may have a claim against them.

Our Agricultural and Rural Business and Disputes team have considerable industry-specific experience in advising you on any issues arising from this article. Our Head of Agriculture and Rural Business, Emily Pumfrey, has a farming background which enables her to deal with issues in the sector in a practical and informative manner. Clients describe our agriculture team as “friendly and dynamic…striking the perfect balance between being approachable and giving first-class advice.”

Our Disputes team, headed by Huw Wallis, leads the way in bringing claims under the GSCOP and resolving other contractual disputes. Please do get in touch.

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