Australia’s big supermarkets could face hefty fines as part of a federal government plan to make the grocery code of conduct mandatory and give it teeth.
A report ordered by the government – to be released on Monday – warns changes are needed to redress “a heavy imbalance in market power between suppliers and supermarkets in Australia’s heavily concentrated supermarket industry”.
But the former Labor trade minister Craig Emerson has stopped short of calling for powers to break up the big supermarkets, saying heavy penalties and proper enforcement would be “a far more credible deterrent to anti-competitive behaviour than forced divesture laws”.
At present, the Food and Grocery Code of Conduct is voluntary and “not effective”, according to Emerson’s interim report to the government.
The report says the code “contains no penalties for breaches and supermarkets can opt out of important provisions by overriding them in their grocery supply agreements”.
Small suppliers are reluctant to make formal complaints under the voluntary code because of a fear of retribution.
“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 says.
The report – which is being released for feedback – recommends the code “be made mandatory and apply to all supermarkets with annual revenues exceeding $5bn, which at present are Coles, Woolworths and Aldi and [the] wholesaler Metcash”.
The report also calls for the code to be strengthened to better protect suppliers, including by outlining new protections against retribution for complaints.
Under the proposal, the Australian Competition and Consumer Commission “would be able to seek penalties for major or systemic breaches of up to $10m, 10% of a supermarket’s annual turnover, or 3 times the benefit it gained from the breach, whichever is the greatest”.
Penalties of $187,800 would apply to less serious breaches.
Because these steps would require lengthy court processes, Emerson’s report said the new system should also incorporate other avenues for suppliers to raise issues informally and confidentially, options for mediation and arbitration and stronger safeguards for suppliers.
The Greens have been pushing for the ACCC to gain powers to “smash the supermarket duopoly” and force the breakup of big supermarket chains, if a court agrees that their market power is unfairly inflating prices or blocking competition.
The former ACCC chair Allan Fels also called for powers to break up big businesses in certain circumstances in a report commissioned by the Australian Council of Trade Unions earlier this year.
But Emerson’s interim report to the government said the review “does not support a forced divestiture power to address market power issues in the supermarket industry”.
“If forced divestiture resulted in a supermarket selling some of its stores to another large incumbent supermarket chain, the result could easily be greater market concentration,” Emerson’s report said.
“If large incumbent supermarket chains were prohibited from buying the divested stores, that would leave only smaller supermarket chains and foreign supermarkets as potential buyers. Further, if these smaller chains were not interested, or were not in a position to buy, these stores would be forced to close.”
While advocates of forced divestiture laws for supermarkets argued the threat would be an effective deterrent, Emerson’s report said this threat “would need to be credible to have this effect”.
The government attempted to start the political year on the front foot by ordering the Emerson review in response to growing pressure over the rising cost of living. Soon after it delivered a substantial recasting of the stage-three tax cuts.
The treasurer, Jim Chalmers, will say on Monday that the government wants “a fair go for families and a fair go for farmers”.
“This work is all about making our supermarkets as competitive as they can be so Australians get the best prices possible,” Chalmers will say in a joint statement with the assistant minister for competition, Andrew Leigh.
Emerson is due to provide a final report by 30 June.
Chalmers will also deliver a lecture in Sydney on Wednesday to announce the government’s broader plans for merger reform, which government sources said would be “designed to boost competition and dynamism in our economy”.
