The architect of Australia’s revamped grocery code of conduct, Craig Emerson, has defended his decision not to recommend powers that could force the breakup of big supermarket chains for bad behaviour, describing such a penalty as “too heavy handed” and not a credible threat.
While an interim report into the code, which governs how major chains deal with suppliers and customers, has left the door open for supermarkets to be hit with significant fines, it stops short of calling for the sorts of powers called for by some competition experts.
The government has also come under political pressure from the Nationals since mid 2023 and more recently the Greens to introduce divestiture powers, to allow the competition watchdog to break up big supermarket chains for significant code breaches or for engaging in anti-competitive conduct.
Emerson, a former Labor trade minister, said his views were in keeping with those of the prime minister, who recently likened forced sales to the old Soviet Union’s command and control economy.
“It’s too heavy handed,” Emerson told Guardian Australia. “The whole idea of government regulation in my view is to be efficient and effective, and not just try to regulate everything.”
Emerson and Anthony Albanese have argued that forcing major chains to sell a store to their competitor could lead to increased market concentration.
But the opposition leader, Peter Dutton, on Monday derided the Emerson report as “a Mickey Mouse review that has been conducted by Labor”, arguing that “Emerson’s views line up with the instructions he was given by Mr Chalmers”.
Public discontent with the supermarkets has been growing as the major chains continue to lift grocery prices while recording strong profits. The farming sector has also raised concerns over the prices they are forced to accept in a sector dominated by two large supermarket chains, Coles and Woolworths.
The interim recommendations, now open to consultation, would allow the competition regulator to seek penalties for major or systemic breaches of the code of up to 10% of a supermarket’s annual turnover, which runs into the billions of dollars for major chains.
Emerson said such a large fine could be “readily averted by better behaviour”. “This would only be pursued in relation to egregious systemic behaviour, not an isolated incident,” he said.
The groceries code, which is currently voluntary, is poised to become mandatory and apply to all supermarkets with annual revenues exceeding $5bn, which includes Coles, Woolworths, Aldi and IGA owner Metcash.
Coles and Woolworths respond
A Coles spokesperson said the supermarket was committed to the objectives of the code in delivering value to its customers, while maintaining strong relationships with its suppliers.
“We will continue to work constructively as part of this review process,” the spokesperson said.
A Woolworths spokesperson said the code should apply to all major retailers operating locally, including global retail giants Amazon and Costco, as well as Australian retailers Bunnings and Chemist Warehouse, who also compete in grocery categories.
“We support the recommendation to retain fast and cost effective avenues for dispute resolution, for the benefit of suppliers, especially smaller ones,” the spokesperson said.
In its submission to the Emerson-led review made public on Monday, Woolworths said small to medium suppliers should be the primary beneficiaries of a revamped code.
“Large suppliers are often robust cost price negotiators and may, in some cases, withhold the supply of products as part of the negotiation,” said the submission, which attributed the bulk of cost price increases last financial year to large suppliers.
The treasurer, Jim Chalmers, told reporters in Canberra on Monday that the government was “interested in progressing” Emerson’s recommendations “subject to a few weeks of genuine consultation”.
While Dutton has also warned of “market domination” by the grocery duopoly, the Liberals and the Coalition are yet to finalise their policy on forced divestiture.
Dutton told reporters that the government was at odds with the competition watchdog, which believes “the divestiture power will be a handy tool in the toolbox”.
Earlier, the shadow home affairs minister, James Paterson, said the Coalition had been very clear it wants to have a “targeted divestment power” with “strong safeguards, but will also deal with this issue of consumers being abused by the market power of the supermarkets”.
Chalmers contrasted the government’s “considered, methodical approach” to the Coalition’s uncertain position, citing comments from shadow finance minister Jane Hume earlier on Monday that there was “always concern with divestiture powers whether they will actually decrease prices”.
Chalmers said there are “much higher priorities” and forced divestiture is “not something that we have been exploring”. The treasurer also confirmed substantial changes to the mergers regime would be announced this week.
The assistant minister for competition, Andrew Leigh, said past reviews didn’t recommend divestiture powers, which are also opposed by the National Farmers’ Federation and the Australian Council of Trade Unions.
Leigh accused the Nationals of being “tigers in opposition, but kittens in the cabinet”, because they settled for a voluntary code of conduct in the Coalition’s decade in office.
