In its final report, the Competition Commission has concluded that, whilst UK grocery retailers are, in many respects, delivering a good deal for consumers, action is needed to improve competition in local markets and to address relationships between retailers and their suppliers. The measures including in the report are:

• a recommendation for the inclusion of a 'competition test' in planning decisions on larger grocery stores;
• action to prevent land agreements which can restrict entry by competitors;
• the creation of a new strengthened and extended Groceries Supply Code of Practice; and
• a recommendation to establish an independent Ombudsman to oversee and enforce the Code.

Commenting on the Commission's findings, National Farmers Union President, Peter Kendall said: "We're pleased that, after such an exhaustive investigation, the Commission has supported our long held view that the food retail chain is not functioning as it should and, if left unchecked, could have an adverse effect on consumers.

"A strengthened mandatory code of practice backed by a proactive ombudsman, which the NFU recommended, is exactly what is required to help develop a framework of improved transparency and fairness in the food supply chain.

"It is in everyone's interests that the food supply chain is transparent and profitable, so that farmers and growers are able to supply the quality and choice that consumers expect and deserve."

Mr Kendall said the NFU also welcomed the Commission's suggestion that Defra and the Department of Business, Enterprise and Regulatory Reform should consider the introduction of appropriate measures, including the extension of the GSCOP and the role of the ombudsman or the introduction of similar measures, to cover farmers supplying processors and other intermediaries.

Peter Freeman, Chairman of the Competition Commission and Inquiry Group Chairman, said: "The size of the market, the number of parties involved and the range of issues examined all mean that this has been a major inquiry. We have looked extensively and listened very carefully when looking at all the matters raised with us but our overriding concern throughout has been whether the market is working well in the interests of consumers.

"In many important respects, consumers are receiving the benefits of competition, such as value, choice, innovation and convenience, but we need to take appropriate action to address those areas where they could be served better and where their interests could be damaged in future. We have been very careful to ensure that our actions match the scale of the problems we have identified.

"Some aspects of the way retailers deal with their suppliers could, if left unchecked, also harm consumers. The changes to the existing Code of Practice, along with the recommendation of an independent Ombudsman to police the code, aim to improve the existing system by making it more robust and proactive in tackling those practices which can damage investment by suppliers. We think that it would be in everyone's interest that a code governing retailers and suppliers enjoys the confidence of all those involved. Retailers with good practices and relationships should have nothing to fear.

"In other cases, whilst we have been sympathetic to those finding themselves under pressure in this market, particularly independent retailers, this does not mean that competition is not working well. It is often the effects of rivalry between retailers, which benefit the consumer.

"Competing with large retailers is difficult but our evidence does not show that independent retailers or the wholesalers that supply them are in terminal decline. It is not impossible for them to compete and in the current economic climate the benefits of vigorous competition are as relevant as ever.

"Although, in many areas, there is a good choice and strong competition between retailers, there are also a significant number of local areas where larger grocery stores face limited competition and local shoppers lose out. That is why we want to see the introduction of a competition test as part of the planning regime to prevent local areas developing like this in the future. We are also taking action to prevent retailers using restrictive covenants and other agreements to frustrate entry by competitors in such areas.

"We have obviously noted the Office of Fair Trading's reported recent actions in relation to possible price fixing in this market and will continue to assist its continuing investigation. It would be quite wrong to jump to any conclusions on this at this stage. The focus of our investigation has been different although we have looked critically at the conditions for coordination. Our conclusion that this is a generally competitive market is not inconsistent with the possibility of some occurrences of anti-competitive behaviour, either now or in the future, and it is quite right that such allegations are thoroughly investigated."