Tougher laws and heavy fines could lower grocery costs. - PM

The Independent Reviewer, Dr. Craig Emerson, released the Interim Report of the Review of the voluntary Food and Grocery Code of Conduct (the Code) today. The report includes eight strong recommendations, one of which is to make the Code mandatory with fines of at least $10 million for serious infractions. Three more recommendations are made in the report, and stakeholder input is requested on them.The Australian Competition and Consumer Commission (ACCC), which is the watchdog on competition, would enforce the mandatory Code. Parliament would give the ACCC the authority to ask the courts to impose penalties for major violations of up to $10 million, 10% of a supermarket's yearly sales, or three times the benefit the ACCC reaped from the violation, whichever is higher. Less serious violations could result in fines of up to 600 penalty units, or $187,800, at the current rate.

Dr Emerson said making the code mandatory was essential to deal with the heavy imbalance in market power between the major players – Coles, Woolworths, ALDI, and Metcash – and their smaller suppliers.

'The voluntary Code of Conduct has no penalties, leaving the competition watchdog chained up on the back porch', Dr Emerson said.

The Interim Report also makes firm recommendations to strengthen protections for suppliers against possible retribution from supermarkets.

Dr Emerson said: 'A new mechanism for making confidential complaints to the ACCC would be of great value to suppliers fearful of retribution from supermarkets if they made a complaint to them.'

Dr Emerson’s support for making the Code mandatory was shared by the ACCC, former ACCC Chairs Rod Sims and Allan Fels, the National Farmers’ Federation, AUSVEG, Australian Dairy Farmers, the Australia Chicken Growers’ Council, Fresh Markets Australia, and 16 other stakeholders.

Dr Emerson pointed out that getting a better deal for smaller suppliers was also in the interests of supermarket customers.

'An effective Code of Conduct would benefit consumers through greater choice and better prices by enabling suppliers to innovate and invest in modern equipment to provide higher‑quality products at lower cost,' he said.

Critics of the Code being made mandatory argue that the only recourse for a small supplier adversely affected by a breach of the Code would be a lengthy ACCC court action, by which time the supplier would have gone broke.

But Dr Emerson concluded it was possible to obtain 'the best of both worlds' with a low‑cost alternative to court proceedings. This would involve replicating options for independent mediation and arbitration that are used in other industry codes.

The existing Code Arbiters employed by the supermarkets would be redesignated Code Mediators and would be able to hear confidential complaints and assist parties to reach a settlement, if requested by the supplier.

If, however, a supplier wanted an independent mediator, this would be available.

If mediation failed, an independent arbitrator could be appointed to resolve the dispute.

Owing to constitutional limitations, legislation cannot force the use of arbitration to resolve disputes. Dr Emerson’s review is therefore asking the supermarkets and Metcash to agree to independent arbitration by accredited, professional arbiters with compensation to a supplier capped at $5 million.

The existing Independent Reviewer would be renamed the Code Supervisor. Suppliers could raise issues confidentially with the Code Supervisor, who could be requested to review the processes of a Code Mediator.

The Code Supervisor would produce annual reports on disputes and on the results of a confidential supplier survey.

The Interim Report welcomes stakeholder feedback on the recommended dispute‑resolution processes.

Dr Emerson said he also wanted to hear from stakeholders about whether provisions of the existing Code that allow supermarkets to contract out of the Code’s obligations should be tightened.

For example, if provided for in a grocery supply agreement, the Code allows supermarkets to vary a contract unilaterally, require a supplier to fund promotions, and pay for wastage at the supermarket premises.

Dr Emerson said: 'If suppliers have no ability to influence the terms of a grocery supply agreement, the practice of supermarkets in contracting out of their obligations makes the Code farcical.'

Stakeholder views are also sought on whether additional protections are needed for suppliers of fresh produce.

If grocery stores like Coles and Woolworths act in an anti-competitive manner, the government intends to pursue a multi-million dollar penalty regime for the supermarket industry, according to Treasurer Jim Chalmers.

Subject to industry consultation, Mr. Chalmers stated that the government agreed with Dr. Emerson's recommendations.

"What we're talking about here is making the code compulsory, having big penalties for people who do the wrong thing, getting the dispute resolution right, so farmers and suppliers can't be dudded," Mr Chalmers said.

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In a statement, Woolworths said Healthy retailer and supplier relationships are vital to the success and prosperity of the Australian grocery industry - we collectively work to meet the needs of millions of customers every day. 

Woolworths is a foundation signatory to the Food and Grocery Code of Conduct, and we support it becoming mandatory for all large retailers and wholesalers of groceries to engender public trust and to level the playing field for retailers and wholesalers alike.

The Code should apply to all major retailers operating in Australia, including global retail giants such as Amazon and Costco, who have global revenues many times the size of Australian supermarkets, as well as to large Australian retailers such as Bunnings and Chemist Warehouse who also compete in grocery categories including everyday needs such as household products (eg cleaning), and personal care.

Customers have more choice than ever, instore and online, to fill their shopping basket.  They can and do cross-shop widely. Suppliers also have more channels to market.

Woolworths disclosed “We will consider the interim report in detail and we remain committed to continuing to engage constructively with Dr Emerson and the Review.”

The main suggestions outlined in the interim Independent Review of the Food and Grocery Code of Conduct report, which was made public today, have the full support of the NFF Horticulture Council. The recommendations regarding the enforcement of the mandatory code and the potential for fines to be increased to up to 10% of turnover, or billions of dollars, are especially encouraging to the Council. "If we are going to allow duopolies to exist, we need to hold them accountable for any anti-competitive behaviour," stated Jolyon Burnett, chair of the NFF Horticulture Council. Supermarkets, such as Bunnings, should be aware that significant fines will be imposed if they misuse their market dominance.

The National Farmers' Federation says the recommendations in the interim report on the Food and Grocery Code of Conduct's adequacy will help give the Code the necessary teeth. The Federation welcomes the report. According to NFF President David Jochinke, the report supported farmers' requests for the Code to become mandatory and to be strengthened with harsher penalties for violations.

Meanwhile, Opposition Leader Peter Dutton, Dutton doesn't think the government's recent announcements will result in lower checkout prices for goods.

“We support appropriate sanctions, we support appropriate outcomes where people aren’t getting the best deal at the moment, but I don’t think Australians are going to see any reduction in their prices at the checkout under what the Labor Party’s proposed, and the recommendations that Mr Emerson’s provided just aren’t going to be the solution that consumers are looking for.”, Dutton Said.

Anthony Albanese, the prime minister, declared earlier today that he was "absolutely" certain the changes would result in a decrease in prices.

The review has held more than 40 meetings with stakeholders this year, as well as conducting a producer roundtable with agriculture minister Senator the Hon Murray Watt, involving 17 producer groups, and a processor roundtable involving 15 processor groups.

The review has received 56 submissions in response to the Consultation Paper, which was released on 5 February 2024.

Stakeholders are invited to make submissions to the Interim Report by 30 April 2024.

The Final Report will be provided to the Government by 30 June 2024.

Dr Emerson thanked the Secretariat team led by Anna Barker for their hard work and diligence in arranging stakeholder meetings, reviewing submissions, and supporting the preparation of the Interim Report.

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