What does the supermarket code of conduct actually do?

By Jeff Gibbs

Public scrutiny of supermarkets has a longstanding history. Nearly a decade preceding the current spotlight on inflated prices and allegations of price gouging, a code of conduct was instituted to address the market disparities between major retailers such as Woolworths and Coles and their suppliers. Fast forward to the present, and it’s evident that issues persist. A 2023 report revealed that over a third of Australian vegetable producers contemplated exiting the industry within a year, citing pressures from retailers on pricing and shrinking profit margins. Consequently, the federal government has commissioned a review of the code of conduct.

So, what precisely is this code, and does it effectively operate? Introduced in 2015, the Food and Grocery Code of Conduct serves as an agreement aimed at enhancing business practices within the supermarket sector, particularly concerning the dynamics among retailers, wholesalers, and suppliers. While suppliers are mandatorily covered by the code, participation by supermarkets remains entirely voluntary. Notably, major players like Woolworths, Coles, Aldi, and Metcalf (parent company of IGA) have all opted in.

Advertisements

Under the code, supermarkets bear several obligations, including the fundamental principle of conducting dealings with suppliers in good faith — be it during negotiations, contract establishment, or dispute resolution. However, the code refrains from explicitly defining the concept of “good faith.” Instead, it delineates various factors to assess good faith, such as acting honestly and without retaliatory or coercive measures. Additionally, supermarkets are required to appoint their own code arbiter to investigate disputes and propose resolutions, though a recent review highlighted supplier concerns regarding the arbiters’ lack of independence, resulting in scant formal complaints.

Should a breach of the code occur, suppliers possess the option to file formal complaints with the designated arbiter. Yet, a central critique of the code emerges here: due to its voluntary nature, supermarkets face no tangible repercussions for non-compliance. This deficiency was acknowledged by Dr. Craig Emerson, tasked with leading a review of the code, who emphasised that instituting penalties within a mandatory code could incentivise greater adherence from supermarkets. Nonetheless, supermarkets argue that the paucity of complaints indicates smooth relations between them and suppliers.

The Food and Grocery Code of Conduct serves as an agreement aimed at enhancing business practices within the supermarket sector.

Will the code undergo revision? It remains uncertain. Dr. Emerson is slated to deliver a report on the review by June’s end, which will furnish a recommendation to the federal government on potential amendments — either retaining it as a voluntary pact while modifying certain aspects or overhauling it into mandatory regulation. The government, led by Prime Minister Anthony Albanese, asserted a commitment to taking requisite action following the review’s outcome.

This was acknowledged by Dr Craig Emerson, who said proper penalties in a mandatory code would improve supermarket behaviour after he was appointed to lead a review of the code in January.

“Critics point to the weak enforcement powers in a voluntary code,” he said in early February.

“A mandatory code with penalty provisions would likely incentivise greater compliance by supermarkets.

“Enforcement options could include infringement notices and court proceedings to impose financial penalties for non-compliance.”

Supermarkets, however, say the paltry number of complaints shows the relationships between them and suppliers are running smoothly.

Is the code going to change?

It might, but we don’t know for sure yet.

Emerson is due to deliver a report on the review by the end of June.

That will include a recommendation to the federal government on whether to amend the code – that is, keep it as a voluntary agreement but change some other elements – or remake it entirely to turn it into mandatory regulation.

The government will then have to choose whether or not to accept Emerson’s recommendation.

Prime Minister Anthony Albanese said when the review was launched that he “will not hesitate to take action” if it’s required.

For more business news, click here.