Fast Lane: Food and Grocery Code of Conduct falls short

The government is trumpeting the release of its new Food and Grocery Code of Conduct, which was prescribed as a code last week.

Small Business Minister Bruce Billson says the code “will improve commercial relationships throughout the entire supply chain of Australia’s grocery sector.”

The new measures include an obligation to enter into grocery supply agreements in writing, minimum standards of behaviour in dealings with suppliers and dispute resolution mechanisms to assist suppliers in resolving disputes.

But unfortunately the code does not go far enough.

The Food and Grocery Code of Conduct automatically cover suppliers but it only binds those retailers and wholesalers that agree to sign on to the code.

Experience shows that when any code of conduct is voluntary and industry regulated its reach is limited.

Coles and Woolies say they will sign the code but retail giant Metcash is at this stage refusing to sign up. 

As Jos de Bruin of the Master Grocers Association told SmartCompany last week, enforcement is critical. 

“My belief is that if the code is not enforced, then it’s not worth the paper it’s written on. And likewise, if the big supermarkets can just opt in and opt out when they like, it’s not going to make much of a difference,” he says.

A further problem is that the code allows enforcement by the Australian Competition and Consumer Commission against those retailers and wholesalers who have signed it.

Billson says this will help prevent instances of unconscionable conduct and “enhance the ACCC’s capacity to take action against misleading or deceptive conduct and misuse of market power”.

But the ACCC is hamstrung by an outdated penalty system which means the penalties it can impose are mere chicken feed for big players like the supermarkets. 

The ACCC chairman Rod Sims himself complained last month, saying the penalties on offer needed to be of more deterrent value.

Maximum penalties of $1.1 million imposed against Coles last year for unconscionable conduct were “arguably inadequate” given its turnover of $22 billion.

Supermarkets already have internal grievance processes in place, but suppliers have long argued that an independent and enforceable code of conduct is needed to combat the dominance of the big two supermarkets.

The new Food and Grocery Code of Conduct is a step in the right direction, but until there is an independent and enforceable system small business will still be at the mercy of the big players.