Government agrees to tougher rules for Woolworths, Coles, Aldi supplier dealings

supermarkets

The federal government has accepted grocery suppliers require stronger protections from big supermarkets such as Woolworths, Coles and Aldi.

It also wants to introduce a test to ensure new entrants such as Kaufland play by the rules if they become established.

Unveiling its response to Graeme Samuel’s September 2018 report into the Food and Grocery Code of Conduct yesterday, Assistant Treasurer Stuart Robert said the government will accept 13 of the 14 recommendations.

The review was first announced in March last year and examined whether the industry regulation covering supplier dealings with Woolworths, Coles and Aldi should be overhauled.

Samuels considered whether the code should be made mandatory, but instead advised the government to ensure retailers with “significant market power” sign up to the voluntary rules.

In response, the government said it will introduce a threshold to ensure any supermarket with at least $5 billion in revenue or 5% market share will sign up to the existing code.

Most of the major supermarkets are already signatories, with IGA supplier Metcash signalling it intends to sign up soon.

However, the measures would prevent new entrants such as Kaufland and possibly Lidl from establishing themselves in the local market without agreeing to participate in the code.

A Morgan Stanley report from last year estimated Kaufland could become a $3.3 billion business in Australia by 2026.

Additionally, the government said it will support a raft of new measures, including setting limits on acceptable conduct during price-rise negotiations.

Relations between grocery suppliers and the major supermarkets have been strained for years, following a series of scandals and ongoing price competitiveness in the market.

Back in 2014, Coles was fined $10 million after a court found it engaged in unconscionable conduct in supplier dealings.

The ACCC pursued Woolworths with a similar unconscionable conduct case, but it was dismissed by the Federal Court back in 2016.

Price negotiations a “source of tension”

In its response to the review, the government noted price negotiations “have become a key source of tension” leading to “growing mistrust and resentment” between suppliers and supermarkets.

“The current price-verification process being used by retailers is not leading to the best outcomes for suppliers or consumers,” it said.

There will be three major changes introduced to the way price negotiations take place:

  • Supermarkets will no longer be able to force suppliers to disclose commercially sensitive information during negotiations;
  • A 30-day limit on negotiations will be imposed once both parties agree all relevant information has been provided; and
  • Supermarkets will have to report on how many price-rise negotiations take longer than 30 days.

Assistant Treasurer Stuart Robert said yesterday the price-rise reform would help “restore trust” between parties.

“We are committed to ensuring the right regulatory settings are in place to improve certainty, transparency and fairness between food and grocery retailers/wholesalers and their suppliers,” Robert said in a statement.

New code cop

One of the bigger recommendations arising from the review is the appointment of a ‘code arbiter’ which will be able to make binding decisions and report annually on the grocery sector to government.

The government agreed, saying such an arbiter will be able to investigate complaints from suppliers and will be provided with information-gathering powers.

The proposed arbiter will have the following powers:

  • Recieving and investigating complaints;
  • Accessing relevant documents and records;
  • Making binding decisions on code signatories;
  • Offering compensation or ordering changes to supplier agreements; and
  • Monitoring disputes for supermarket retribution.

The government noted but did not accept subsequent advice the ACCC should adopt a “more collaborative approach” with code stakeholders, including the arbiter, to promote better compliance.

In a statement, Robert said the ACCC already engages with relevant parties in the course of its role enforcing the code.

“The ACCC is an independent body and must be independent from the signatories, code arbiters and the independent reviewer that are subject to the Food and Grocery Code of Conduct (Code),” he said.

“This is so suppliers have confidence to be able to come forward and report any alleged breaches of the Code.”

The ACCC opposed the creation of a Code Arbiter in its response to the review.

“During the consultation, the ACCC opposed Recommendation 7 from the Food and Grocery Code review final report, which suggests the ACCC have a more collaborative approach with signatories, and the proposed Code Arbiters and Independent Reviewer,” an ACCC spokesperson said in a statement.

“We considered that this recommendation would lessen the independence of the ACCC and further reduce suppliers’ willingness to report breaches.”

Dispute resolution, transparency to be improved

The government also wants to strengthen dispute resolution provisions in the code and enhance good-faith obligations so the rules are more accessible to small suppliers.

Wholesalers have also come under the microscope and will now be subject to the same restrictions as the supermarkets in their dealings with suppliers.

The government also said it “supports robust delisting procedures” to prevent supplier concern they’re being dumped by the supermarkets for non-genuine reasons.

“The delisting provisions will be amended to give suppliers the right to request additional information and details on the reasons for a delisting,” it said.

A spokesperson for Woolworths said the code has “worked well to date”.

“Woolworths has been a strong advocate for the Code and believes it has worked well to date. We’re carefully considering the Federal Government’s response to the review and plan to participate in the upcoming consultation process,” they said in a statement.

The code will be reviewed again in three years, pursuant to one of Samuels recommendations.

The government’s full response is accessible here.

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