Last week, the federal government announced it will make the Food and Grocery Code of Conduct mandatory, to ensure protection for suppliers and a competitive grocery sector for consumers.
An independent review of the voluntary Food and Grocery Code of Conduct, conducted by former Labor minister Dr Craig Emerson, found that it was failing to address the imbalance of bargaining power between supermarkets and their suppliers.
The federal government said it will accept and prioritise all of Dr Emerson’s recommendations and crack down on anti-competitive behaviour in the supermarket sector.
The soon-to-be mandatory code will affect all supermarkets with an annual revenue greater than $5 billion, which includes Coles, Woolworths and ALDI, plus Metcash which owns IGA. It is likely that Costco will exceed the revenue threshold in the foreseeable future.
The most serious breaches, such as systemic breaches and a supermarket failing to act in good faith, will lead to a maximum penalty of $10 million, three times the financial benefit gained from the breach or 10 percent of turnover in the preceding 12 months.
A maximum penalty of slightly over $1 million will be put in place for all other breaches.
In addition, the Australian Competition and Consumer Commission (ACCC) will be able to issue infringement notices if it has reasonable grounds to believe a contravention has occurred, with penalties of more than $187,000.
Woolworths, Coles, ALDI and Metcash have voluntarily given their in‑principle agreement to pay small suppliers up to $5 million in compensation as an outcome of arbitration.
Additionally, the code will bring in an anonymous supplier and whistle-blower complaints mechanism and strengthen formal and informal dispute-resolution arrangements, while placing greater emphasis on addressing fear of retribution and improving outcomes for suppliers of fresh produce.
Dr Emerson said the review received strong evidence from smaller suppliers that they feared retribution from supermarkets if they made a complaint under the voluntary code, while suppliers of fresh produce were particularly vulnerable.
“I recommend strengthening the code to ensure that supermarkets and their buying teams do not engage in retribution against suppliers, including where suppliers seek to make complaints against them under the mandatory code,” he said.
“The review heard evidence that suppliers of fresh produce are especially vulnerable owing to the perishability of their products. To protect these suppliers, I am recommending new measures to improve suppliers’ understanding of how prices are determined and to require supermarkets to take due care in their forecasting practices.”
In a media release following the federal government’s response to the final report, Woolworths Group said it is considering all recommendations “in detail”.
“We welcome the decision to retain fast and cost effective avenues for dispute resolution, for the benefit of suppliers, especially smaller ones. A key topic of this review is the supply of fresh fruit and vegetables and we note the specific recommendations for this sector in the final report,” it said.
“While there is broad support for greater price transparency in the sector, there isn’t yet consensus on how to deliver it. As a further step, we are willing to support an industry and government led price transparency initiative to assist on-farm decisions.”
The review forms part of the federal government’s competition reform agenda, which also includes an ACCC inquiry into supermarket prices, funding for CHOICE to conduct quarterly price monitoring reports and progressing legislation to implement the biggest change to the merger reform system in almost 50 years.
The 11 recommendations from the review can be viewed here.
