Interim report release: Independent Review of the Food and Grocery Code of Conduct

By Nicole Tumiati and Andrea Franco

On 8 April 2024, Dr Craig Emerson, the Independent Reviewer of the Food and Grocery Code of Conduct (the Code), unveiled a set of proposed changes to the Code to address market power imbalance between supermarket giants and their smaller suppliers.

The interim report includes 11 recommendations, including eight firm recommendations set for inclusion in the final report, and three draft recommendations open to stakeholder feedback. Read the full report and recommendations.

Summary of firm recommendations

• Currently the Code is voluntary, and there are no penalties for breaching it. The suggestion is to make the Code mandatory for large supermarkets that meet an annual revenue threshold of $5 billion (indexed for inflation).  The Code would automatically cover all suppliers (Recommendations 1 and 2).
• The Australian Competition and Consumer Commission (ACCC) would be empowered to enforce the Code. For harmful breaches, penalties could be as high as $10 million, 10% of the supermarket’s annual turnover, or three times the benefit gained from the breach, whichever is greatest. For minor breaches, the penalty would be 600 penalty units, currently equivalent to $187,800 (Recommendation 10).
• There’s a recommendation to strengthen supplier protections against possible retribution from major supermarkets (Recommendation 3). This includes requiring that supermarkets covered by the Code ensure any incentive schemes and payments that apply to their buying teams and category managers are in line with the Code’s goals (Recommendation 4). Also, such supermarkets would need to set up systems for senior managers to monitor commercial decisions made by their buying teams and category managers regarding suppliers who’ve pursued a complaint through mediation or arbitration (Recommendation 5).
• A confidential complaints system would be established for suppliers and other market participants to raise issues directly and confidentially with the ACCC (Recommendation 6).
• Additionally, it’s suggested the Code Supervisor (previously the Code Reviewer) should produce annual reports on disputes and the results of confidential supplier surveys (Recommendation 8).

Summary of draft recommendations

• The Code should include 'informal, confidential and low-cost' processes for resolving disputes, such as independent mediation and arbitration, similar to other industry codes (noting that Constitutional limits prevent legislation forcing the use of arbitration -  supermarkets will be asked to agree to the use of it). (Recommendation 7).
• Clear minimum standards and obligations that can’t be contracted out or avoided should be outlined in the Code for grocery supply agreements (Recommendation 9).
• Consideration should be given to increasing infringement notice amounts beyond the usual 50 penalty units for corporations, currently equivalent to $15,650 (Recommendation 11).

What this means for supermarkets and suppliers

These recommendations aim to resolve the imbalance between large supermarkets and smaller suppliers by (amongst other things) enforcing minimum standards in grocery supply agreements, protecting against retaliation and instituting accessible complaint and resolution mechanisms. Supermarkets failing to comply with the mandatory Code could face significant penalties.