Reforms to the Food & Grocery Code may aim to reduce cost of living: call for submissions

With approximately three weeks until submissions close, the Federal Government is encouraging views on whether the Food and Grocery Code is effective and how it could be potentially improved.

The Code was introduced to address issues that may arise between supermarkets and their suppliers stemming from an imbalance of bargaining power between those parties. The Code is a voluntary code of conduct and has as its signatories the four major supermarket chains. Suppliers to these four signatories are automatically covered by the Code.

The Code regulates the relationship between suppliers and supermarkets and is intended to ensure that there is transparency in commercial dealings between those parties, where there is an imbalance of power. The Code also provides a dispute resolution mechanism between the parties.

In early February 2024, the Treasury released a consultation paper which seeks information and views on whether and how the Code could be more effective.

Beyond the issues of scope of the Code, two key issues arise for review:

• whether the Code should remain voluntary or should be mandatory; and
• whether the Code should introduce civil penalty provisions for non-compliance.

Voluntary vs. mandatory Code

The Code is a voluntary code which means that while being a signatory to the Code is voluntary for supermarkets, once a supermarket opts in it is legally bound by the requirements of the Code. However, being a voluntary code, a signatory can withdraw from being bound by the requirements in the Code at any time.

While the ACCC can take enforcement action for breaches of the Code, to date, no enforcement action has been taken by the ACCC against a signatory for a breach of the Code.

Supporters of the voluntary nature of the Code point to it allowing for a binding arbitrated outcome during the dispute resolution process that may not be possible under a mandatory code (which would require recourse to the Courts). Further, a voluntary code may empower signatories and market participants to have greater input into the development and implementation of the Code's provisions.

In contrast, previous Chairs of the ACCC have described the Code as deficient and "tokenistic" and the ACCC has previously recommended repealing the Code and replacing it with a mandatory code. It has also expressed reluctance enforcing the Code because of an inability to achieve and leverage outcomes.

Supporters of a mandatory code suggest that the current arbiter process does not provide a benefit to suppliers and point to the very few complaints (five since 2020) raised under the Code and that no compensation orders have been made since the introduction of that process.

It is suggested that suppliers are too frightened to raise complaints against the signatory supermarkets, which may result in the removal of their products. However, those figures have also been used to suggest that the Code has been successful in regulating the relationship between suppliers and supermarkets.

Penalties for non-compliance

While the ACCC can currently issue warning notices, seek an injunction or commence court proceedings to compel a signatory to redress any loss or damage, the ACCC does not have the power to impose financial penalties for non-compliance. The absence of an ability for the regulator to impose such a penalty is seen by some market participants as a significant weakness in the Code.

Broader context: cost of living and other inquiries

The review of the Code comes at a time where the cost of living has become an evident political issue and occurs in the context of:

• the Treasury's inquiry into supermarket prices announced on 25 January 2024;
• the Senate Select Committee inquiry into supermarket prices announced on 6 December 2023; and
• the Queensland Government's own inquiry into grocery price gouging announced in early January 2024.

It is against this context that there may be a greater impetus for making the Code mandatory and including provisions that equip the ACCC to impose pecuniary penalties where it is considered that those measures will prevent harms being passed on through the supply chain to Australian consumers.

In the current economic and political climate there is a strong incentive to deliver clear and measurable savings to the cost of living and, if reducing the cost of groceries can be achieved through such reforms, it is anticipated that such steps will be implemented.

Submissions to the Treasury close on 29 February 2024 with the final report due by the end of June 2024.