Craig Emerson’s interim report on supermarket code of conduct calls for harsher penalties for breaches

A Federal inquiry will recommend mandating a food and grocery code of conduct for Australia’s biggest supermarket chains and imposing heavy fines of up to $10 million if they breach business behaviour standards.

As households struggle to pay for groceries during the cost of living crisis, Woolworths and Coles have been accused of price-gouging customers and undermining suppliers.

An interim report from a review headed by former Labor Minister Craig Emerson concluded the existing voluntary food and grocery code of conduct was “not effective” because the lack of penalties meant supermarkets could walk away from it at any time.

“A heavy imbalance in market power between suppliers and supermarkets in Australia’s heavily-concentrated supermarket industry necessitates an enforceable code of conduct,” Dr Emerson said in the report, released on Monday.

“An effective code of conduct would benefit smaller suppliers and consumers by enabling suppliers to innovate and invest in modern equipment to provide better products at lower cost.”

The report called for the mandatory code to be applied to grocery retailers and wholesalers with revenue of $5 billion or more a year, which would include Coles, Woolworths, Aldi and IGA supplier Metcash.

It also found the code should be strengthened to better protect smaller suppliers against retribution from supermarkets.

Mr Emerson noted “fear of retribution” was a “powerful deterrent” to suppliers making formal complaints under the voluntary code.

“Retribution could take many forms, including the unfavourable renegotiation of terms and conditions of supply, relocation of shelf space to less popular locations within stores, and total delisting of a supplier’s products,” the report said.

Protections could include new channels for making informal complaints and access to independent dispute resolution.

The National Farmers’ Federation was one of several stakeholders to argue in submissions to the review the code was failing to do its job properly.

“Bargaining power imbalance and a lack of market price transparency continue to be used against farmers in their negotiations with supermarkets,” it said.

“The impact is most significant in perishable goods supply chains where produce must be sold within a specific period before it spoils or degrades in value.”

The review is running alongside several other inquiries into the grocery industry, including an Australian Competition and Consumer Commission inquiry into supermarket prices and a Senate inquiry into price-setting practices. Senate hearings resume on Thursday and continue into the next week.

A recent report by former ACCC chair Professor Allan Fels into price gouging, commissioned by the Australian Council of Trade Unions, called for greater powers for the competition watchdog to force a company to divest their assets.

But Dr Emerson’s interim report did not support forced divestiture powers, arguing that effective enforcement of existing laws and heavier penalties would be a more credible deterrent to anti-competitive behaviour.

After further public consultation, Dr Emerson will deliver his final recommendations to the Government by the middle of this year.