Independent Review of the Food and Grocery Code – Interim Report released

Dr Craig Emerson released his interim report into the Food and Grocery Code of Conduct on Monday 8th April. 

The Review acknowledged there are market concentration issues in other retail industries in Australia, and that common issues can occur across industries, especially for perishable products.

The Review acknowledged there are questions about whether the wine industry should be subject to regulation beyond the voluntary industry-led code of practice that currently applies.

However, the Interim Report considered that the case for extending the Code to other retail markets, including wine, has not yet been made in full given that the Code has been designed to address issues specific to the supermarket industry.

The Review considered that wine does not readily fit into a Code that is designed to cover the supply of ‘groceries’, being products that are ordinarily found in supermarkets. Many suppliers of grocery products are particularly vulnerable to the supermarkets’ market power because these suppliers do not have other avenues to sell their products at scale. In contrast, wine is sold in liquor stores across Australia, and in some states, wine is not available in supermarkets. Furthermore, around 60 per cent of Australian wine is exported.

For all these reasons, the Review considered it is not clear that there is a compelling case for adding wine to the products protected under the Code.

The Review considered that the extension of the Code to wine and other alcoholic beverages would require closer analysis to understand the market dynamics in the industry, and to understand whether market power issues in these industries are of the type best addressed through a mandatory Food and Grocery Code of Conduct, or another policy instrument. An important issue associated with extending the Code to these products is that it would raise questions about which other retailers that sell wine and other alcoholic beverages should also be subject to the Code.

Firm recommendations

  • Recommendation 1: The Food and Grocery Code of Conduct should be made mandatory.
  • Recommendation 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.
  • Recommendation 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.
  • Recommendation 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.
  • Recommendation 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.
  • Recommendation 6: A complaints mechanism should be established to enable suppliers and any other market participants to raise issues directly and confidentially with the ACCC.
  • Recommendation 8: A Code Supervisor (previously the Code Reviewer) should produce annual reports on disputes and on the results of the confidential supplier surveys.
  • Recommendation 10: 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).

Draft recommendations

Draft recommendations are subject to feedback from stakeholders and to modification (but not removal) depending on the feedback received.

  • Recommendation 7: 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 grocery supply contracts; and
    • Allowing suppliers to go to the Code Supervisor (previously the Code Reviewer) to make a complaint; to seek a review of 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.

  • Recommendation 9: Specific obligations under the Code should set minimum standards that cannot be contracted out of in grocery supply agreements or otherwise avoided.
  • Recommendation 11: The Government should consider increasing infringement notice amounts for the Code.

Australian Grape & Wine is investigating next steps along with other industries that were also not recommended to be included in the Code.

The Australian Grape & Wine submission can be found here.

Final report to government is due on 30 June 2024.

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