Date: 24 June 2024
Statement by Dr Craig Emerson, Independent Reviewer of the Food and Grocery Code of Conduct
In releasing my Final Report on the Review of the Food and Grocery Code of Conduct (the Code), I confirm my recommendation from the Interim Report that the Code be made mandatory.
Today I announce that I am recommending further heavy penalties for breaches of the mandatory Code.
In my Interim Report, I announced maximum penalties for the most serious breaches, such as systemic breaches and a supermarket failing to act in good faith, of the highest of $10 million, three times the benefit gained from the breach, or where the benefit cannot be determined, 10 per cent of turnover in the 12 months preceding the breach.
In the Final Report I am also recommending maximum penalties of more than $1 million for all other breaches.
The penalties I am recommending for breaches of the Food and Grocery Code are the heaviest of any industry code of conduct.
Further, I am recommending that the ACCC be able to issue infringement notices with penalty amounts of $187,800. These provide a timely enforcement tool for the ACCC where it has reasonable grounds to believe a contravention of a clause of the Code that attracts a penalty has occurred.
These new penalties will require an Act of Parliament.
As explained by the ACCC in its submission to the Review:
“When commercial self-interest moves into harmful practices, over time, this erodes consumer choice and value, as suppliers innovate less, reduce investment, shrink or exit the market. The market does not work effectively and efficiently, and the overall welfare of Australians diminishes.”
Making the Code mandatory is essential to deal with the heavy imbalance in market power between the major supermarkets and their smaller suppliers.
I am recommending that the mandatory Code apply to grocery retailers and wholesalers with annual revenue of more than $5 billion. At this stage, that will bring Woolworths, Coles, ALDI and Metcash into the Code. It is likely that Costco will exceed the $5 billion threshold in the foreseeable future.
The mandatory Code will continue to place an obligation on supermarkets to act in good faith, requiring them to act honestly and fairly in all their dealings with suppliers. In view of the importance of this protection, I recommend breaches of the good-faith obligation be subject to the highest penalties.
The Review received strong evidence from smaller suppliers that they feared retribution from supermarkets if they made a complaint under the voluntary Code.
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.
I am also recommending a new mechanism to enable suppliers fearful of retribution to make confidential complaints to the ACCC.
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.
I am also recommending tightening provisions in the Code that allow supermarkets to avoid their obligations under the Code by making exceptions to them in their grocery supply agreements.
My recommendation is that for an exception to a Code provision to be allowed, a supermarket must demonstrate that it is reasonable and that it benefits both parties. An example of a reasonable, mutually beneficial exception might be a supplier willingly agreeing to co-fund an instore promotion of its product.
Supermarkets will be required to clearly identify any exceptions to suppliers when negotiating grocery supply agreements.
I also recommend new arrangements for resolving disputes. Constitutional limitations prevent a mandatory Code imposing the use of binding arbitration on businesses to resolve disputes.
I am pleased to announce that 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 – which for those suppliers is a large sum.
The existing Code Arbiters employed by the supermarkets would be redesignated Code Mediators and would be able to hear complaints and assist parties to reach a settlement, if requested by a supplier. If, however, a supplier wanted an independent mediator or arbitrator, that service would be made available.
The existing Independent Reviewer would be renamed the Code Supervisor, who would provide advice on options for dispute resolution, review processes of a Code Mediator where requested, and produce annual reports on disputes and the results of confidential supplier surveys.
In the Final Report I make 11 recommendations. They are at Attachment A to this statement.
The Review held 65 meetings with stakeholders, as well as conducting two producer roundtables and two processor roundtables with agriculture minister Senator the Hon Murray Watt.
The Review received 88 formal submissions in response to the Consultation Paper and Interim Report.
I wish to express my thanks and gratitude to 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 Final Report.
Attachment A: Recommendations of the Final Report of the Review of the Grocery Code of Conduct
Recommendation 1
The Food and Grocery Code of Conduct should be made mandatory.
Recommendation 2
All supermarkets, including online supermarkets, that meet an annual Australian revenue threshold of $5 billion should be subject to the mandatory Code. Revenue should be in respect of carrying on a supermarket business as a ‘retailer’ or ‘wholesaler’ (as defined in the existing Code). All suppliers should be protected by the Code.
Recommendation 3
The Code should place greater emphasis on addressing the fear of retribution by:
- Including protection against retribution in the purpose of the Code;
- Ensuring that retribution captured under the obligation to act in good faith includes action taken against suppliers for exercising their rights under the Code;
- Requiring that any incentive schemes and payments that apply to a supermarket’s buying teams and category managers are consistent with the purpose of the Code; and
- Requiring supermarkets to have systems in place for their 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 4
An anonymous complaints mechanism should be established to enable suppliers and any other market participants to raise issues directly with the ACCC.
Recommendation 5
The Code should provide parties with avenues for mediation and arbitration to resolve disputes.
- Supermarkets must appoint a suitably qualified Code Mediator who is engaged by supermarkets (replacing their Code Arbiters), and who would be available to assist with resolving disputes, where requested by a supplier.
- Avenues for independent mediation and arbitration should also be available.
- Parties can agree on an independent mediator or arbitrator. A list of suitably qualified mediators and arbitrators should be compiled by the Treasury or the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
- Supermarkets must attend independent mediation if requested by a supplier.
- Where mediation has not settled a dispute, independent arbitration can be used to settle disputes as agreed between the supermarket and supplier.
In addition, Woolworths, Coles, ALDI and Metcash have agreed in principle to be bound by a decision of their Code Mediator to award compensation of up to $5 million, where agreed by a supplier. They have also agreed to be bound by a decision of an independent arbitrator for compensation of up to $5 million, where requested by a small supplier. Small suppliers would be those with annual revenue below $10 million or fewer than 100 staff.
Recommendation 6
A Code Supervisor (previously the Independent Reviewer) should produce annual reports on disputes and on the results of the confidential supplier surveys, be able to identify systemic issues with the Code and be available to suppliers to provide information on options to resolve disputes and review the processes of Code Mediators.
Recommendation 7
To ensure exceptions allowed for in grocery supply agreements are reasonable and transparent:
- All exceptions should be subject to a reasonableness requirement that considers the benefits, costs and risks to the supplier and the supermarket, and protects against exceptions that are not in a supplier’s interest, with the supermarket bearing the onus of proof that any exception is reasonable; and
- For all new grocery supply agreements, supermarkets should be required to provide suppliers a simple guide to any exceptions that are included in the agreement.
Recommendation 8
To address issues relating to fresh produce, the Code should require that:
- Grocery supply agreements must include the basis for determining prices
- All forecasts of required volumes are conducted with due care, and
- Fresh produce standards and specifications must be reasonable.
Recommendation 9
Maximum penalties for more harmful breaches of the Code should be the greatest of $10 million, 3 times the benefit gained from the contravening conduct or, where the benefit cannot be determined, 10 per cent of turnover in the preceding 12 months. Maximum penalties for other breaches should be 3,200 penalty units (currently $1,001,600).
Recommendation 10
The penalty amount for infringement notices for contraventions of the Code should be 600 penalty units (currently $187,800), an increase from 50 penalty units (currently $15,650) that otherwise applies for industry codes.
Recommendation 11
The ACCC, Code Mediators and the Code Supervisor should engage in education and outreach activities to ensure that suppliers are empowered to take advantage of their rights under the Code.