Release of the Interim Report of the Review of the Grocery Code of Conduct

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Date: 8 April 2024

Statement by Dr Craig Emerson, Independent Reviewer of the Food and Grocery Code of Conduct

Releasing the Interim Report of the Review of the voluntary Food and Grocery Code of Conduct (the Code) today, the Independent Reviewer, Dr Craig Emerson, announced it makes 8 firm recommendations, including that the Code be made mandatory, with penalties of $10 million or more for serious breaches.

The Report makes a further 3 recommendations on which stakeholder views are sought.

The mandatory Code would be enforced by the competition watchdog, the Australian Competition and Consumer Commission (ACCC).

For serious breaches, the ACCC would be empowered by Parliament to seek penalties from the courts of up to $10 million, 10 per cent of a supermarket’s annual turnover, or 3 times the benefit it gained from the breach, whichever is greatest.

Penalties for less serious breaches would be up to 600 penalty units, which at present is $187,800.

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.

All the Interim Report’s recommendations are at Attachment A to this statement.

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.

Attachment A: Recommendations of the Interim Report of the Review of the Grocery Code of Conduct

The recommendations summarised below are designated ‘firm’ or ‘draft’. Firm recommendations will not change in the Final Report. Draft recommendations are subject to feedback from stakeholders and to modification (but not removal) depending on the feedback received.

Firm recommendations Draft recommendations
  1. The Food and Grocery Code of Conduct should be mandatory.
  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.
  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.
  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.
  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.
  6. A complaints mechanism should be established to enable suppliers and any other market participants to raise issues directly and confidentially with the ACCC.
  1. A Code Supervisor (previously the Code Reviewer) should produce annual reports on disputes and on the results of confidential supplier surveys.
  1. 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).
  1. 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 grower supply contracts; and
    • Allowing suppliers to go to the Code Supervisor (previously the Code Reviewer) to make a complaint; to seek a review of a 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.

  1. Specific obligations under the Code should set minimum standards that cannot be contracted out of in grocery supply agreements or otherwise avoided.
  1. The Government should consider increasing infringement notice amounts for the Code.