Major supermarkets face multi-million-dollar fines under recommendations in the Food and Grocery Code of Conduct Review interim report.
The inquiry, led by former Federal Small Business Minister Craig Emerson, made 11 recommendations in the interim report.
Mr Emerson said the existing Food and Grocery Code of Conduct (the Code) was not effective as it contained no penalties for breaches and supermarkets could opt out of important provisions by overriding them in their grocery supply agreements.
He said there was a heavy imbalance in market power between suppliers and supermarkets in Australia’s heavily concentrated supermarket industry, which meant an enforceable code of conduct was needed.
“An effective code of conduct would benefit smaller suppliers and consumers by enabling suppliers to innovate and invest in modern equipment to provide better products at lower cost,” he said.
He recommended the Code be made mandatory and apply to all supermarkets with annual revenues exceeding $5 billion, adding it should be strengthened to better protect suppliers, with new protections against retribution, since suppliers’ fear of retribution compromised the Code’s effectiveness.
The interim report suggested penalties for major or systemic breaches of the Code of up to $10 million, 10 percent of a supermarket’s annual turnover, or 3 times the benefit it gained from the breach, whichever is the greatest.
Mr Emerson said of the 11 recommendations made, seven were “firm” and will not change in the final report, with three to be the subject of further consultation.
Further consultation is open until April 30, with the final report due to be handed to Government by June 30.
Firm recommendations
Firm recommendations of the Interim Report that will not change.
- Recommendation 1: The Food and Grocery Code of Conduct should be made mandatory.
- Recommendation 2: All supermarkets that meet an annual revenue threshold of $5 billion (indexed for inflation) should be subject to the mandatory Code. Revenue should be in respect of carrying on business as a ‘retailer’ or ‘wholesaler’ (as defined in the voluntary Code). All suppliers should be automatically covered.
- Recommendation 3: The Code should place greater emphasis on addressing the fear of retribution. This can be achieved by including protection against retribution in the purpose of the Code and by prohibiting any conduct that constitutes retribution against a supplier.
- Recommendation 4: As part of their obligation to act in good faith, supermarkets covered by the mandatory Code should ensure that any incentive schemes and payments that apply to their buying teams and category managers are consistent with the purpose of the Code.
- Recommendation 5: To guard against any possible retribution, supermarkets covered by the mandatory Code should have systems in place for senior managers to monitor the commercial decisions made by their buying teams and category managers in respect of a supplier who has pursued a complaint through mediation or arbitration.
- Recommendation 6: A complaints mechanism should be established to enable suppliers and any other market participants to raise issues directly and confidentially with the ACCC.
- Recommendation 8: A Code Supervisor (previously the Code Reviewer) should produce annual reports on disputes and on the results of the confidential supplier surveys.
- Recommendation 10: Penalties for non-compliance should apply, with penalties for more harmful breaches of the Code being the greatest of $10 million, 10 per cent of turnover, or 3 times the benefit gained from the contravening conduct. Penalties for more minor breaches would be 600 penalty units ($187,800 at present).
Draft recommendations
Draft recommendations are subject to feedback from stakeholders and to modification (but not removal).
- Recommendation 7: The mandatory Code should include informal, confidential and low cost processes for resolving disputes, and provide parties with options for independent mediation and arbitration. This could be achieved by: Adopting the dispute-resolution provisions of other industry codes, which provide for independent mediation and arbitration; Allowing for supermarket-appointed Code Mediators to mediate disputes, where agreed by the supplier, and recommend remedies that include compensation for breaches and changes to grocery supply contracts; and Allowing suppliers to go to the Code Supervisor (previously the Code Reviewer) to make a complaint; to seek a review of Code Mediator’s processes; or to arrange independent, professional mediation or arbitration. Supermarkets are encouraged to commit to pay compensation of up to $5 million to resolve disputes, as recommended by the Code Mediator and agreed by the supplier, or as an outcome of independent arbitration.
- Recommendation 9: Specific obligations under the Code should set minimum standards that cannot be contracted out of in grocery supply agreements or otherwise avoided.
- Recommendation 11: The Government should consider increasing infringement notice amounts for the Code.
