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Briefs

Food and Grocery Code of Conduct: Final Code released

Food and Grocery Code of Conduct: Final Code released

17 December 2024

Background  

The Assistant Minister for Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP has released an explanatory note for the Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2024. The new mandatory Code gives effect to all the recommendations in Emerson’s Review and will come into effect on 1 April 2025. The regulations are subject to disallowance and the Secretariat will continue to maintain a watching brief through this period, though we don’t expect any issues.  

Members are reminded the legislation to introduce penalties passed Parliament earlier in December and was communicated to members here. The penalty regime also comes into effect from 1 April 2025 and sets out maximum fines for breaches of the Code. For ten core obligations in the Code, the maximum penalty is the greater of: $10 million, or three times the benefit gained from the breach, or 10 per cent of turnover in the preceding 12 months. These represent the greatest penalties available under any Australian industry code. 

Overall, the Review has been disappointing, very politically motivated, and some elements have been a backwards step. However, there are some positive changes that reflect our calls for a strengthening of the Code.  

Changes to the FGCC 

The Code retains the objective of improving standards of business conduct by retailers / wholesalers towards suppliers and sets out minimum obligations and standards of behaviour of supermarkets towards their suppliers. As flagged during the review and final report process there are some substantive changes to the Code, these include:  

  • Mandating the Code for supermarket retailers / wholesalers with a revenue greater than $5 billion, resulting in no changes to the current coverage of Aldi, Coles, Metcash and Woolworths.   
  • The good faith provision has been updated to include consideration of whether a large supplier ($1 billion) has acted in good faith in relation to ‘that matter of a matter of that kind’ in its dealings with retailer / wholesaler. This means the civil penalties will not apply to the retailer/ wholesaler for failing to deal in good faith with a large supplier, if that large supplier has not dealt with them in good faith. The Secretariat raised concerns in relation to this and will provide further guidance to members in due course.  
  • As a result of making the Code mandatory, the dispute resolution processes have been altered. These changes include: 
    • Replacing the current retail Code Arbiter with a retail Code Mediator, there is very little change to this role and its responsibilities.   
    • Replacing the current Independent Reviewer with a Code Supervisor. This newly formed role will work with Code Mediators, conduct an annual survey and report yearly. However, the Code Supervisor will no longer have the capacity to resolve systemic issues directly with retailers, nor will they publish non-binding guidance material.  
    • Introducing an independent mediation pathway via an Alternate Dispute Resolution (ADR) process, if initiated by the supplier, an ADR practitioner will be appointed, a retailer must attend, costs are to be split evenly between the retailer and supplier.  
    • Introducing independent arbitration process via an ADR process, if initiated, the other party must, within 10 days, agree to attend and accept the outcome. 
    • Note that all current signatories have provided an ‘in-principle’ commitment to be bound by decisions made by their Code Arbiter for compensation payments of up to $5 million. If independent mediation / arbitration via the ADR process has been undertaken compensation of $5 million has been agreed in-principle by the current signatories for small suppliers (with an annual revenue below $10 million or fewer than 100 staff).   
    • The confidentiality requirements for Code Arbiters and Code Supervisors have been strengthened.  
  • Retailers / wholesalers are prohibited from engaging in retribution. A non-exhaustive list of actions considered retribution is included along with what is not considered retribution. Retailers must have written policies and procedures to review commercial decisions.   
  • If a retailer has an incentive scheme for buying teams, it must be aligned to the purpose and obligations within the Code. This provision aims to change retailer culture and prevent retributory conduct towards a supplier.   
  • The introduction of civil penalties for breaches of the Code. The civil penalties are specified within the relevant provisions of the Code, reflecting the seriousness of a contravention. The highest penalties are applied to: good faith; grocery supply agreements must include good faith, be in writing, and cover specific matters; incentive schemes must be consistent with the Code; must not engage in retribution and have policies and procedures to protect against retribution; must not inhibit participation in industry associations; must train staff; and keep records. The penalty for such contraventions is the greater of $10 million, or three times the benefit gained from the breach, or 10 per cent of turnover in the preceding 12 months for a body corporate OR $500,000 for an individual.  
    The Code also provides penalty units for other Code provisions, 3200 units (approximately $1mn) for a body corporate or 640 units (approximately $200,000) for an individual. More detail will be provided in due course.  
  • The retailer / wholesaler is required to appoint senior management oversight of business interactions with suppliers, with a view to preventing or remedying any retributory actions or breaches of the Code. This person/s can perform a senior buyer role.  
  • Grocery supply agreements (GSA) transition period have been captured, meaning  
    • GSAs entered into on or after 1 April 2025 must comply with requirements within the new Code  
    • GSAs entered into before 1 April 2025 must comply with most requirements, but have 12 months in which to be remade or varied.  
  • Additional obligations on retailers / wholesalers when dealing with fresh produce, including:   
    • Grocery supply agreement must specify the price, method or formula used to determine price 
    • Need to exercise due care in forecasting volumes 
  • The ability for the supplier to opt out of certain protections in the Code remains, however this must be clearly stated in the grocery supply agreement.  

AFGC next steps  

The Secretariat will undertake a range of activities to ensure members are updated on the Code provisions and how best to use them in trading relationships. This will include further detailed assessment of the regulation, refreshing Code training, provision of guidance material, webinars and code events.  

Contact  

For more information, please contact samantha.blake@afgc.org.au or rick.umback@afgc.org.au.  

Tanya Barden 
Chief Executive Officer