NINE years after being first released, the Food and Grocery Code of Conduct for Australian retailers, wholesalers and suppliers (the Code) has received a significant update following a review, with the major change making the Code “mandatory for all supermarkets with an annual Australian revenue of greater than $5 billion”.

In a joint media release on Monday from Agriculture, Fisheries and Forestry minister, Murray Watt and Competition, Charities and Treasury assistant minister, Dr Andrew Leigh, the Federal Government said the changes would strengthen the code “accepting all recommendations of a recent independent review into the Code as part of a wide-ranging cost of living crackdown on anti-competitive behaviour in the food and grocery sector”.

“This is about getting a fair go for families and a fair go for farmers,” the statement said.

“Our efforts will help to ensure our supermarkets are as competitive as they can be so Australians get the best prices possible.”

Other recommendations highlighted by the report included:

Strengthening formal and informal dispute resolution arrangements

Introducing penalties for the more harmful breaches of the Code with the maximum penalty the greatest of $10 million, three times the benefit gained from the contravening conduct or 10 per cent of turnover in the preceding 12 months.

Creating an anonymous supplier and whistle‑blower complaints mechanism within the Australian Competition and Consumer Commission

Placing greater emphasis on addressing fear of retribution

Improving outcomes for suppliers of fresh produce

The report also noted implementing the recommendations would require changes to regulations and the Competition and Consumer Act 2010, which the Government will prioritise.

The statement said the review found that the current voluntary code was failing to address the imbalance of bargaining power between supermarkets and their suppliers, including farmers.

Dr Craig Emerson was appointed by the Federal Government in January to lead the review to ensure that the supermarket sector was working as it should; he opened the 97-page final report with a five-page foreword that summarised his concerns and goals.

Regarding the recommendation to make the code mandatory for the larger supermarkets, he said, “Making the Code mandatory is essential to ensuring it is effective in addressing the heavy imbalance in market power between supermarkets and their suppliers, especially their smaller suppliers.”

Dr Emerson said the preexisting code was a voluntary code of conduct and it had no penalties, and the recommendations were made not only for the smaller suppliers but were also in the interest of shoppers.

“One way of thinking about it is say there’s a speed limit of 80 kilometres per hour, but it’s alright if you do 100 because there’s no penalties,” he said.

“That came in in 2015, and the government initiated a review of it.

“My central recommendation was to make that voluntary code mandatory with very heavy penalties - in fact the heaviest penalties of any code of conduct in the nation.

“The penalties could run into billions of dollars.

“Whatever profits Coles and Woolworths make, losing billions of dollars is not a laughing matter and would probably be problematic for those companies.

“The heavy imbalance in market power between supermarkets and smaller suppliers in Australia’s highly concentrated supermarket industry demands a mandatory code of conduct.”

A key part of his foreword was identifying suppliers’ fear of retribution and how that has been “a major obstacle to the pursuit of their rights under the Code”.

“I am recommending that the Code be strengthened by amending how retribution is captured in the Code’s good-faith provision to ensure that suppliers are protected from action taken by a supermarket in retaliation for a supplier exercising its rights under the Code,” he said.

Noting that the incentive systems established by the supermarkets’ senior managements rewarded maximising margins, “the buyers and category managers will squeeze suppliers to achieve this”.

“As monopsonist buyers, they can squeeze supplier margins to the point where suppliers cannot earn sufficient returns to invest in quality improvements and efficiency-raising equipment,” he said.

“With strong market power, buyers and category managers can also engage in retribution against a supplier who complains about this behaviour.”

With a view to addressing this, Dr Emerson recommended “that an anonymous channel be established by the ACCC (Australian Competition and Consumer Commission) to receive complaints about retribution and other breaches of the Code.

“The ACCC could use this information to form views about systemic Code breaches by a supermarket or a particular buyer or category manager, which could trigger an investigation, including the use of the ACCC’s compulsory information-gathering powers,” he said.

Dr Emerson said in the past, small suppliers have feared retribution.

“Imagine you kick up a fuss and you’ve got a pretty good spot in the supermarket, nice shelf at eye level, suddenly you’re down the back of the aisle or delisted altogether.

“So, whether that fear is real or perceived - it matters because they wouldn’t raise a dispute.

“Now it will be much more straightforward to raise a dispute - it is about really egregious behaviour that under these arrangements they won’t be able to get away with.”

Dr Emerson said the changes would have ramifications for the big supermarkets and their relationship with their suppliers, most particularly with smaller suppliers.

“(I’m) less concerned about Coca Cola, Unilever and Kraft - they’re pretty big and multinational companies - the (code of conduct) is more for small suppliers and if they (supermarkets) said, we’ll pay you so much for your fruit and vegies and then they paid them only half and said, ‘we’re only paying you half because we don’t need to pay what we said we’d pay’ … that’s doing the wrong thing.

“That’s when the penalties would come into consideration.

“A competition watchdog would actually have to take the action in the courts and get the courts to agree they have behaved badly.

“It’s systemic behaviour - where they just say we’re big and therefore we can and therefore we are going to treat you badly.”

He said 65 stakeholder meetings and 88 formal submissions informed the recommendations, in addition to four roundtables with Mr Watt, members of the National Farmers’ Federation, various primary producer representative groups, meat and other agricultural processors and the trade union movement.

NFF Horticulture Council chair, Jolyon Burnett said at the time, “If we are going to allow duopolies to exist, we need to make them accountable for any anti-competitive behaviour.

“The next challenge will be to ensure that when the ACCC identifies an abuse of market power, there is a realistic chance of success in court within a commercial timeframe. Otherwise, the announced fines will be futile.”

“For decades, fruit, vegetable and plant nursery growers have been forced to bear the brunt of a tilted playing field but have been unable to speak out in fear of commercial retribution. To have a report identify these issues is an important milestone.”

Mr Burnett said the council welcomed both the final report and the Federal Government response.

“At face value, we can see benefit in requiring grocery agreements include the basis for determining prices, ensuring supermarket forecasts of required volumes are conducted with due care, and that produce standards and specifications must be reasonable,” he said.

“An updated code, based on the recommendations accepted by Government, would be a vast improvement on the one currently in effect,” he said.

“Expectations across the horticulture industry have been high since Dr Emerson in his interim report recognised the perishable nature of fresh produce leaves growers uniquely vulnerable, and called for further submissions on what additional protections, measures or obligations could be inserted into the Code to address this market power imbalance.”

However, The Nationals leader David Littleproud said the Federal Government was “playing catch up on supermarket price gouging”, claiming his party have been calling for a mandatory Code of Conduct since the start of 2023.

“It has taken Labor an extra 18 months to take action against supermarket price gouging and adopt all 11 recommendations of a review into the code, undertaken by Dr Craig Emerson,” he said.

“Despite Prime Minister Anthony Albanese declaring his government would do ‘whatever necessary’ to lower food prices this year, the Labor Government was offered support to bring forward its Grocery Code of Conduct Review 12 months earlier but rejected the idea, all because Labor could not see the urgency in taking action.

“I wrote to Assistant Minister for Competition Andrew Leigh in December 2022, encouraging and offering The Nationals’ support to bring forward the Grocery Code of Conduct Review by one year.

“The Assistant Minister instead opted for the scheduled review in October 2023, which was then further delayed 100 days by the Labor Government.”

“Labor simply missed the opportunity to make sure there was fair, transparent pricing from the farmgate to Australian plates when help was needed.

“If Labor had taken our advice back then, we could have already seen fairness for farmers and fairness for families. Instead, Australians continue to the feel the pain at the checkout.

“The unnecessary delays have been frustrating and have hurt Australian families and farmers. The review could have been done and dusted, with decisions already implemented, to help families and farmers and to try and stop them from being ripped off before Christmas last year.”

A copy of the final report and Government response is available on the Treasury website at treasury.gov.au