Final Code of Conduct report released

24 June 2024

Today Treasury has released its final report from the Food and Grocery Code of Conduct review led by The Hon Dr Craig Emerson. As anticipated, the report affirms many of the recommendations made in April’s interim report, including:

mandating the Code for supermarket retailers/wholesalers with revenue greater than $5 billion
introducing heavy penalties for breaches
introducing an anonymous complaints line to the ACCC, and
expanding options for resolving disputes, including independent mediation or arbitration.

Other options that were discussed during the consultation period have not been recommended, including:

expanding the scope of the Code to include non-supermarket businesses that sell FMCG, such as Bunnings or Chemist Warehouse
extending the good faith obligation on to suppliers, and
removing the Code’s various ‘opt out’ provisions.

Expanded protections against retribution

The report recommends that the good faith provision is further expanded to provide additional protections against retribution for suppliers exercising their rights under the Code. It further recommends that each retailer introduce mechanisms to provide senior managers with oversight of commercial decisions made regarding suppliers who have pursued complaints through mediation or arbitration, akin to Woolworths’ existing complaints integrity policy.

Retailers commit to compensating suppliers ‘in-principle’

With compulsory binding arbitration no longer available under a mandatory Code, the AFGC notes that all current signatories have provided an ‘in-principle’ commitment to be bound by decisions made by their Code Arbiter for compensation payments to suppliers of up to $5 million.

‘Opt out’ changes

Noting the benefits of retaining freedom in contracting, the final report has declined to recommend the removal of the Code’s existing ‘opt out’ provisions. However, various new obligations will apply in the form of a ‘reasonableness test’ for all uses of an ‘opt out’. The recommendation will oblige retailers/wholesalers to demonstrate that ‘opting out’ will be reasonable regarding the allocation of benefits, costs and risks between the retailer/wholesaler and supplier. The report has recommended that its approach to ‘opt outs’ be reviewed two years after the changes have been brought into effect.

Next steps

Treasurer Jim Chalmers has already announced that the government will adopt all 11 recommendations from the final report. Some of the recommendations, such as the introduction of penalties, will require new legislation. The Treasurer has indicated that this will be prioritised by the government.

The AFGC is currently evaluating all elements of the report, and will provide further detail in due course. We will also be hosting a webinar on 3 July to provide a more detailed rundown of the major themes and takeaways from the final report.

Full list of recommendations

Recommendation 1: The Food and Grocery Code of Conduct should be made mandatory.

Recommendation 2: All supermarkets, including online supermarkets, that meet an annual Australian revenue threshold of $5 billion should be subject to the mandatory Code. Revenue should be in respect of carrying on a supermarket business as a ‘retailer’ or ‘wholesaler’ (as defined in the existing Code). All suppliers should be protected by the Code.

Recommendation 3: The Code should place greater emphasis on addressing the fear of retribution by:

Including protection against retribution in the purpose of the Code;

Ensuring that retribution captured under the obligation to act in good faith includes action taken against suppliers for exercising their rights under the Code;
Requiring that any incentive schemes and payments that apply to a supermarket’s buying teams and category managers are consistent with the purpose of the Code; and
Requiring supermarkets to have systems in place for their 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 4: An anonymous complaints mechanism should be established to enable suppliers and any other market participants to raise issues directly with the ACCC.

Recommendation 5: The Code should provide parties with avenues for mediation and arbitration to resolve disputes.

Supermarkets must appoint a suitably qualified Code Mediator who is engaged by supermarkets (replacing their Code Arbiters), and who would be available to assist with resolving disputes, where requested by a supplier.
Avenues for independent mediation and arbitration should also be available.

Parties can agree on an independent mediator or arbitrator. A list of suitably qualified mediators and arbitrators should be compiled by the Treasury or the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
Supermarkets must attend independent mediation if requested by a supplier.
Where mediation has not settled a dispute, independent arbitration can be used to settle disputes as agreed between the supermarket and supplier.

In addition, Woolworths, Coles, ALDI and Metcash have agreed in principle to be bound by a decision of their Code Mediator to award compensation of up to $5 million, where agreed by a supplier. They have also agreed to be bound by a decision of an independent arbitrator for compensation of up to $5 million, where requested by a small supplier. Small suppliers would be those with annual revenue below $10 million or fewer than 100 staff.

Recommendation 6: A Code Supervisor (previously the Independent Reviewer) should produce annual reports on disputes and on the results of the confidential supplier surveys, be able to identify systemic issues with the Code and be available to suppliers to provide information on options to resolve disputes and review the processes of Code Mediators.

Recommendation 7: To ensure exceptions allowed for in grocery supply agreements are reasonable and transparent:

All exceptions should be subject to a reasonableness requirement that considers the benefits, costs and risks to the supplier and the supermarket, and protects against exceptions that are not in a supplier’s interest, with the supermarket bearing the onus of proof that any exception is reasonable; and
For all new grocery supply agreements, supermarkets should be required to provide suppliers a simple guide to any exceptions that are included in the agreement.

Recommendation 8: To address issues relating to fresh produce, the Code should require that:

Grocery supply agreements must include the basis for determining prices;
All forecasts of required volumes are conducted with due care; and
Fresh produce standards and specifications must be reasonable.

Recommendation 9: Maximum penalties for more harmful breaches of the Code should be the greatest of $10 million, 3 times the benefit gained from the contravening conduct or, where the benefit cannot be determined, 10 per cent of turnover in the preceding 12 months. Maximum penalties for other breaches should be 3,200 penalty units (currently $1,001,600).

Recommendation 10: The penalty amount for infringement notices for contraventions of the Code should be 600 penalty units (currently $187,800), an increase from 50 penalty units (currently $15,650) that otherwise applies for industry codes.

Recommendation 11: The ACCC, Code Mediators and the Code Supervisor should engage in education and outreach activities to ensure that suppliers are empowered to take advantage of their rights under the Code.

Contact

For more information contact
Samantha Blake, Deputy CEO, samantha.blake@afgc.org.au or Rick Umback, Manager, Industry Affairs, rick.umback@afgc.org.au

TANYA BARDEN
CHIEF EXECUTIVE OFFICER