Coles, Woolies face multibillion-dollar fines under new mandatory code Ronald MizenSenior reporter
Jun 23, 2024 – 10.30pm
Treasurer Jim Chalmers has agreed to a mandatory Food and Grocery Code of Conduct, paving the way for multibillion-dollar fines for the supermarket giants in a move that could cause apprehension in the business community.
Dr Chalmers said the government would also adopt all 11 recommendations of a review into the code undertaken by former Labor cabinet minister and columnist for The Australian Financial Review Craig Emerson.
In addition to making the code mandatory, Dr Emerson recommended stiff penalties of up to $5.2 billion for the largest chains, stronger protections for supermarket retribution, an anonymous complaints process managed by the competition watchdog, and new avenues for mediation and arbitration.
“This is about getting a fair go for families and a fair go for farmers,” Dr Chalmers said on Sunday. “We’re cracking down on anticompetitive behaviour in supermarkets, so people get fairer prices at the checkout.”
Dr Emerson’s interim report in April was welcomed by groups including the National Farmers’ Federation, while the Australian Chamber of Commerce and Industry gave cautious support, arguing it was important the new code did not create an expectation of equivalent regulatory moves in other areas of the economy where there was a similar concentration of market power.
Labor will move swiftly to introduce legislation implementing the changes in a bid to dull public anger over rising food and grocery prices and supplier anger over alleged abuses of market power. Forced breakups ‘lack credibility’
While supportive of stronger penalties, the Greens labelled Dr Emerson’s interim recommendations a “Band-Aid to a gaping wound” and could seek to add supermarket break-up powers to the legislation in the Senate, a move Dr Emerson’s report said “lacked credibility”.
“Heavy penalties for major breaches, alongside effective enforcement of the existing competition laws, will constitute a far more credible deterrent to anticompetitive behaviour than forced divestiture laws,” he said.
Prime Minister Anthony Albanese has previously dismissed calls to break up the supermarket saying in February, “we’re not the old Soviet Union”.
The supermarket duopoly Coles and Woolworths control about 65 per cent of the supermarket sector, and have garnered the lion’s share of complaints about market abuse, price gouging and misleading conduct.
Mr Emerson said making the current voluntary code compulsory was “essential to ensuring it is effective in addressing the heavy imbalance in market power between supermarkets and their suppliers”.
With a $5 billion turnover threshold for complying with the code, Costco will not be covered immediately. But with forecast revenue of $4 billion in 2024, Dr Emerson said he expected that would change soon.
He also said if behemoth Amazon began offering a full range of grocery products including fresh fruit and vegetables, it, too, would be covered by the code’s strict rules and penalties.
Fresh food producers will get extra protections, while nursery plants sold by Bunnings; wine, beer or spirits sold by supermarket affiliate stores; or non-prescription items for sale at Chemist Warehouse will be excluded. Big stick for supermarkets
For major or systemic breaches, the Australian Competition and Consumer Commission will be able to seek penalties of up to $10 million, three times the benefit gained from the breach, or 10 per cent of turnover in the 12 months preceding the breach where benefit cannot be determined.
“The penalties for breaches of the mandatory code that I am recommending are the heaviest of any industry code of conduct,” Dr Emerson said.
The most serious penalties will apply to obligations on supermarkets to deal with suppliers lawfully and in good faith, to have written grocery supply agreements, adequately trained staff and proper records.
There will also be a second level of penalties of just over $1 million and infringement notices worth just under $200,000 for less serious breaches – designed to ensure supermarkets take their obligations seriously.
To avoid protracted and expensive litigation in the courts, a key element of the code will be the introduction of a dispute-resolution process, which Dr Emerson said Woolworths, Coles, ALDI and Metcash had given in-principle agreement to be bound by for compensation claims of up to $5 million.
Under the system, small suppliers (with fewer than 100 staff or turnover below $10 million) and larger suppliers with the system included in their supplier agreement would be able to make complaints to code arbiters who would then dispense judgments.
Before a matter goes to arbitration, mediation will be obligatory. A supplier could agree to mediation by a code mediator, but if a supplier wants an independent mediator, that would also be available.
Supermarket buying teams will be forced to rein in their behaviour, which has been a key point of tension with suppliers.
Under the new rules, any incentive schemes buyers receive must supply with the intent of the code, including acting in good faith and ongoing monitoring by management.
