Albanese government will impose mandatory code and big penalties to stop supermarkets treating suppliers badly

Supermarkets guilty of anti-competitive behaviour towards suppliers will face large penalties under a mandatory Food and Grocery Code of Conduct the Albanese government will implement.

The government has accepted all the recommendations in the final report of an inquiry done by a former Labor minister Craig Emerson.

The investigation followed complaints of the big supermarkets squeezing small suppliers especially those producing fruit and vegetables.

Emerson’s central recommendation was to make mandatory the present voluntary code, with big penalties for serious breaches.

The planned maximum penalty will be the greatest of $10 million, three times the benefit gained from the contravening conduct, or 10% of turnover in the preceding 12 months.

Emerson says in his final report, released by the government: “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”.

He says the proposed penalties are the heaviest of any industry code.

There will also be better processes for resolving disputes.

Emerson says that although, constitutionally, a mandatory code can’t impose binding arbitration, Woolworths, Coles, ALDI and Metcash have agreed in principle to be bound by arbitration.

There will also be strengthened protections against the big supermarkets trying to extract retribution against small players that complain about them, as well as protections for suppliers of fresh produce.

The mandatory code would cover all grocery retailers and wholesalers with an annual turnover of more than $5 billion. This would at present be Woolworths, Coles, ALDI and Metcash. Emerson says Costco is in time likely to pass this threshold and so come under the code.

Amazon could also come under the code if it began offering a full range of groceries and fresh fruit and vegetables exceeding the $5 billion threshold.

Emerson says he considered the arguments to bring other businesses into the code, including Bunnings’ sale of nursery plants, alcohol sales by supermarket affiliates, and sales of non-prescription items by Chemist Warehouse.

But he decided the code should be limited to places for regular grocery shopping as well as Metcash as the largest grocery wholesaler. “This is the purpose for which the code was developed.”

Emerson says the biggest penalties “should apply to obligations on supermarkets to deal with suppliers lawfully and in good faith; have and retain written grocery supply agreements; train staff; and keep records.

"Supermarkets that do not comply with the new obligations to address retribution would also be liable for these highest penalties.”

Emerson recommends the Australian Competition and Consumer Commission establish an anonymous channel to receive complaints about retribution and other code breaches.

The government said in a statement that it was “cracking down on anti-competitive behaviour in the supermarkets sector so people get fairer prices at the checkout”.

The new measures will require changes to legislation and regulations.

The Australian Competition and Consumer Commission is conducting a separate enquiry into the pricing practices of the supermarkets and the relationship between wholesale, including farmgate, and retail prices.

It will report to the government in February 2025 and deliver an interim report in August this year.

When Emerson’s interim report was released earlier this year, the National Farmers’ Federation’s Horticulture Council strongly supported the key recommendations for a mandatory code and hefty penalties.

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,” Burnett said.

The NFF Horticultural Council argued for the inclusion of Bunnings under the code, which hasn’t happened.