Chapter 2
Views on the Grocery Code
2.1
While submitters were generally supportive of the Grocery Code, at least
as a 'first step' to improving supplier relations with wholesalers and
retailers and otherwise protecting the interests of suppliers, a number of concerns
were raised regarding the scope and application of the Code. These included:
-
the voluntary, opt-in nature of the Code, with some witnesses
arguing it should be mandatory, particularly for large retailers;
-
the extent of exceptions allowed regarding conduct otherwise
prohibited under the Code and the risks this created for
suppliers—specifically, some witnesses argued that the Code included excessive
exceptions to the prohibitions on unilateral and retrospective variations to
grocery supply agreements;
-
the adequacy and equity of the Code's dispute resolution
processes, and whether there was a need to appoint an ombudsman to oversee the
Code;
-
the adequacy of penalties that can be applied in relation to
breaches of the Code; and
-
whether the Code should be extended to cover alcoholic beverages.
General support for the Grocery Code
2.2
Asked how the Grocery Code advanced the interests of suppliers, Treasury
responded:
The code provides buyers with a number of rights. It imposes
new regulations on standards of business conduct. It limits the actions of
retailers and wholesalers in their dealings with suppliers in a variety of
ways. It ensures transparency and certainty in terms of providing written
supply agreements. Also in terms of transparency it requires retailers and
wholesalers to keep certain documents that the ACCC can then audit. It provides
an equitable and fair dispute resolution mechanism, including the right for
suppliers to seek immediate elevation of their concerns within senior
management of retailers and wholesalers, or to immediately seek mediation or
binding arbitration. And it introduces a new global obligation for retailers
and wholesalers to act in good faith in their dealings with suppliers.[1]
2.3
The RSR wrote in support of the Code. It argued that the Grocery Code
'should not be subject to further amendments that would alter either its spirit
or practical outcomes'. It further suggested that amendments would:
...necessarily involve further delays and more consideration of
issues that have already been exhaustively considered, discussed and
negotiated. In any event, the RSR notes that a thoroughgoing review of the
Code’s operations and effectiveness has already been scheduled and that this
review would be the appropriate forum to canvass any further changes in the
light of industry’s practical experience of the Code in operation.[2]
2.4
The New Zealand Food & Grocery Council welcomed the Grocery Code as
a 'further and important step towards addressing certain aspects of supermarket
conduct and the supplier-wholesaler/retailer relationship'.[3]
2.5
The Office of the Australian Small Business Commissioner (OASBC)
indicated it was 'strongly supportive' of the Grocery Code, as a means of
helping retailers, wholesalers and suppliers improve contracting practices and
business relationships. At the same time, the OASBC suggested (as discussed
below) two areas that might be further clarified in relation in relation to the
Grocery Code: 'namely, ensuring ready access to low cost dispute resolution,
and the coverage of the Code'.[4]
Should the Grocery Code be mandatory?
2.6
The National Farmers Federation (NFF) supported the Grocery Code, which
it suggested was 'not perfect' but nonetheless addressed 'several key
imbalances with regard to major retailer power over suppliers'. However, the
NFF underlined its preference for 'a mandatory, binding code that encompasses
all retailers'. The NFF noted that the Code includes a requirement for a review
of its operation and effectiveness within three years. Should this review
reveal a lack of support from the retail sector, the NFF argued, it 'will be
demanding that a mandatory Code be put in place'.[5]
2.7
The Small and Medium Enterprise Business Law Committee of the Business
Law Section of the Law Council of Australia (the 'SME Committee') argued that
the Grocery Code should be mandatory for retailers with a turnover figure of
grocery sales above $500 million.[6]
The SME Committee argued that a voluntary code:
...would not achieve the objective of improving
retailer-supplier relationships given its discretionary application to large
retailers, as well as the exceptions which would undermine the protections a
Code is looking to otherwise afford to suppliers. Similarly the SME Committee
considers that a voluntary Code may fall short in achieving the objective of
improving standards of business in the food and grocery sector due to its
discretionary application to large retailers, and the exceptions it allows for.[7]
2.8
The SME Committee also highlighted the failure of the Produce and
Grocery Industry Code of Conduct (PGICC), which was 'also a non-prescribed
voluntary, industry run code' established in 2000 (originally as the Retail
Grocery Industry Code of Conduct). The PGICC is administered and monitored by
the Produce and Grocery Industry Code Administration Committee (PGICAC), whose
membership had at one point included the NFF, AFGC, Australian Chamber of Fruit
and Vegetable Industries Limited, National Association of Retail Grocers of
Australia, Australian Retailers Association, Australian Dairy Farmers (ADF),
Coles Group and Woolworths Limited. However, ADF, National Farmers Federation,
AFGC and Australian Dairy Farmers resigned from the PGICAC in 2009, and it is
unclear whether the remaining members support the PGICC or if the PGICC is in
fact still functioning.[8]
The SME Committee suggested that the Grocery Code:
...is likely to go the same way as the PGICC if it is
implemented as a voluntary opt in Code. A mandatory Code with legislative
backing is required for the grocery industry.[9]
2.9
The Mareeba District Fruit and Vegetable Growers Association Inc.
(MDFVGA) also referred to past experience in questioning the value of a
voluntary code. It argued:
...while this is an important first step, we maintain that a
mandatory code is the most efficient way to improve the balance of power that
occurs between supplier and purchaser. This is due to past experiences with and
longstanding failures of voluntary produce and grocery codes.[10]
2.10
ADF welcomed the Grocery Code, but noted that it 'long advocated for a
Mandatory Code of Conduct with an Ombudsman, to ensure compliance through
significant financial penalties if necessary'.[11]
In a submission to the government's Competition Policy Review, which ADF
attached to its submission, ADF further argued that gaps existed in the Code,
'including but not limited to the need for an Ombudsman, penalties and making
the Code mandatory'. It argued that the Code should 'apply to retailers and it
must be mandatory to ensure complete coverage across the industry and it must
remove the ability of retailers to opt out of the Code'.[12]
The case for an ombudsman to monitor the code is addressed further below.
2.11
Similarly, the Queensland Dairyfarmers' Organisation (QDFO) also told
the committee it was 'pleased' the government had pursued a grocery code of
conduct, while suggesting that 'being voluntary, it is not strong enough'.[13]
2.12
Similarly, NSW Farmers submitted that the Code was a start toward 'developing
the rules required to ensure that the market power exercised by the major
supermarket chains does not impede the ability of the market to return value to
the farm gate'. However, it also argued that a mandatory grocery code with a
broader scope 'would be better suited to manage the market power exercised by
supermarkets'.[14]
2.13
The NSW Small Business Commissioner (OSBC) wrote that the Code was a
'step in the right direction', but that its effectiveness would be limited by
its voluntary, opt-in nature, and (as discussed further below) the availability
of exceptions in the code to conduct that is otherwise prohibited. A mandatory
code, it argued, would 'provide greater certainty and consistency in the
relationships between suppliers and retailers or wholesalers in the industry'.[15]
2.14
Mr Robert Gaussen, who was the Produce and Grocery Industry Ombudsman
from 2001 to 2006, also submitted that the Code should be mandatory. He
suggested that the 'Minister administering section 51AE of the Competition
and Consumer Act 2010 should be empowered to proclaim a named retailer as
subject to the Code in which case the provisions of the Code shall bind the
retailer'.[16]
2.15
The Treasury told the committee that in some respects a voluntary code
provided greater flexibility than a mandatory code. It explained:
In particular, this code provides that retailers must offer
to vary agreements to suppliers to bring them into line with the code and allow
suppliers to seek binding arbitration for disputes by an independent third
party. Were the code to be mandatory rather than voluntary, such provisions may
be considered to be an acquisition of property, which the Constitution would
then require to be done on 'just terms'.[17]
2.16
The Treasury further noted that the Code provides for a review after
three years, 'to consider its effectiveness in practice, including whether the
code should be voluntary or mandatory'.[18]
Exceptions to prohibition on retrospective and unilateral variations
2.17
The SME Committee rejected the idea that exceptions in relation to the
prohibition on retrospective and unilateral variations to grocery supply
agreements were needed in order to preserve commercially flexibility. It argued
there should be no exceptions, and the retailer 'should be expected to rely on
the usual force majeure clauses in their contracts for circumstances outside of
their control'. The SME Committee continued that, as currently drafted, the
Code:
...creates a range of rights for suppliers which can be easily
modified, altered or removed by the retailer.
In the SME Committee’s view, the current range of
qualifications and exemptions included in the opt-in Code undermine the ability
of the Code to improve retailer-supplier relationships and provide the
protections the Code would otherwise afford suppliers. As a result, the Code
does not properly address the problematic issues that arise during the
relationship between retailers and suppliers.[19]
2.18
ADF suggested that one of the key failings of the Code was the many
exceptions, 'which imply a greater emphasis on commercial flexibility than
ensuring fair trading'.[20]
2.19
NSW Farmers noted that farmers make significant capital investments on
the basis of contractual arrangements with customers, and any form of
unilateral or retrospective variation 'is likely to have a direct and detrimental
impact on farm gate prices'. However, it also welcomed the inclusion in the
Code of provisions which:
...tighten the circumstances under which such variation can be
undertaken; specifically the new requirement that the variation is reasonable
in the circumstances and that detriment to the supplier is to be take into
account when considering the reasonableness of the variation.[21]
2.20
While welcoming the Code as a 'step in the right direction', the OSBC
suggested that the availability of exceptions in the code to otherwise
prohibited conduct:
...may undermine the ability of the Code to improve
retailer-supplier relations. The superior bargaining power of the large
retailers, which often leads to contracts being offered on a "take it or
leave it" basis, may mean that in practice there could be little room for
true negotiation about the exceptions to take place, and that the exceptions
become the norm.[22]
2.21
Similarly, the MDFVGA informed the committee that the:
...general consensus about this code among growers who supply
the major retailers is that, while the provisions may largely seem on the
surface to be sound, there are a number of cavities and opportunities to alter
the negotiations, returning the balance of power back to the supermarkets.[23]
Dispute resolution processes
2.22
Mr Gaussen argued that the Code failed to achieve its stated purpose of
providing 'an effective, fair and equitable dispute resolution process for
raising and investigating complaints and resolving disputes arising between
retailers or wholesalers and suppliers'.[24]
Specifically, he argued that the Code placed the onus for making and
establishing a complaint on suppliers. He notes:
Each retailer is required to nominate a code compliance
manager who has access to resources, documentation and relevant staff in
investigating a complaint. The supplier has no right to require resources and
documentation, applicable to the dispute, from the retailer.[25]
2.23
Mr Gaussen further argued that the Code is:
...unreasonably harsh on suppliers in that it compels a
supplier to provide sufficient particulars to enable the retailer to
investigate, consider and respond to a complaint. In other words the supplier
must make and establish a case. Often the supplier will not have the necessary
documents. In any case, there is no‐one
other than the retailer to decide whether sufficient information and documents
are available. This is a recipe for further disputation. The supplier should
have the capacity to compel the retailer to produce all relevant documents
relating to a transaction so as the preparation of the complaint is
facilitated. Additionally, the capacity of the dispute resolver to compel
production of documents should be clearly stated.[26]
2.24
Mr Gaussen highlighted the potential costs to suppliers of seeking
dispute resolution under the Code. Mr Gaussen notes that during his period as
ombudsman, dispute resolution services were fully funded by the Commonwealth:
Now it is to be funded by the parties at the discretion of
the dispute resolver. The risk of very high costs, particularly in relation to
arbitrations, being awarded against suppliers will be a major deterrent to
making an application. There is nothing about travel costs or venue.
Geographically the most common disputes I handled were between suppliers from
the Northern Territory or North Queensland and retailers located in Sydney or
Melbourne.[27]
2.25
With regard to ensuring access to low cost dispute resolution, the OASBC
noted concern that the Code requires that the IAMA appoint an arbitrator or
mediator in the instance disputing parties are unable to agree upon one. This
would carry a fee of $330, which is 'likely to be considered an unreasonable
impost on small business'. The OASBC suggests that to provide low cost
alternative dispute resolution services, the Australian Small Business and
Family Enterprise Ombudsman might assume responsibility for the resolution of
disputes under the Code.[28]
2.26
The MDFVGA suggested that while there was an option to go to mediation
under the Code, suppliers would in practice be reluctant to initiate such
proceedings given the potential costs involved and a lack of resources to make
and establish a complaint.[29]
2.27
The QDFO also argued that suppliers would be reluctant to initiate a
complaint under the code out of fear of retribution by powerful retailers:
[I]f you have a situation where your business has a majority
of its turnover going through a major corporate retailer, obviously you would
be pretty nervous about making a complaint. So what we wanted to make sure was
that there was provision within the code or the act that a party could go and
try to sort an issue out without fear of retribution.[30]
2.28
The fear of retribution, the QDFO argued, made the appointment of an
ombudsman (as discussed further below) preferable to mediation and arbitration
processes provided for under the Code.[31]
2.29
Mr Gaussen also explained to the committee that there was a 'great
reluctance and fear' on the part of suppliers to bring forward complaints
against retailers, given the 'unique nature of the commercial relationships
they have'.[32]
He further explained that in his time as ombudsman, he would often work with
major retailers and wholesalers to resolve a dispute without identifying the
complainant. Mr Gaussen noted that in a mediation or arbitration process it
would not be possible to maintain this confidentiality, with suppliers having
to identify themselves in order to pursue a complaint.[33]
2.30
The ACCC questioned the extent to which real anonymity could be
protected in an ombudsman process. It told the committee that it was 'rare that
you are able to get into the issues without understanding who the parties are'.[34]
Moreover, in response to concerns about possible retribution against a
supplier, the ACCC assured the committee that:
... if there is any suggestion that a party might be punished or
impacted for having approached or assisted the ACCC, that is a serious offence
under the Competition and Consumer Act, and we have instigated and pursued
investigations where that has been alleged.[35]
2.31
As noted in the previous chapter, the costs of mediators and arbitrators
appointed to resolve disputes under the Code are determined according to the
IAMA's rules. The Treasury confirmed that these rules basically state that the
costs should be borne by the unsuccessful party to the dispute, although the Arbitral
Tribunal may apportion costs between the parties if it determines it reasonable
and appropriate to do so. The Treasury further confirmed that this might mean a
supplier who had taken a complaint to mediation or arbitration and lost could
be liable for all the costs.[36]
Penalties and enforcement
2.32
NSW Farmers suggested the Code should include provision for regulatory
tools that enable 'an appropriately graduated approach to enforcement' to
encourage the 'desired behaviours from market participants'. In this regard, it
expressed concern regarding the absence of civil penalty provisions for
non-compliance with the Code. Such provisions, it noted, would enable the ACCC
to utilise infringement notices for minor contraventions that might not
otherwise be pursued through the courts, or to pursue pecuniary penalties
through the courts.[37]
2.33
The NFF also indicated that it would support a review that:
...looks at the need for additional measures such as including
civil penalties and other improvements to ensure that the Code is meeting its
objective of improving standards of business conduct in the food and grocery
sector.[38]
2.34
Mr Gaussen told the committee that:
...any code of conduct that has no adequate enforcement regime
will not be a successful code of conduct. The words that appear in this code
are good words. The content and intention of what is being described in this
code are great, and they are needed and are long overdue. But there is no
obligation on anyone to do anything, even if they sign up to it, because of the
system under which there is no enforcement.[39]
2.35
As noted in the previous chapter, since a breach of the Code constitutes
a breach of Competition and Consumer Act, the Code can be enforced by the ACCC.
However, according to Mr Gaussen (who, as noted below, argued for the
appointment of an ombudsman to help enforce the Code), whereas the ACCC might
pursue large and lengthy enforcement cases, it was not well resourced to
resolve smaller disputes between suppliers and their customers in a low-cost or
efficient way:
The average cost for the ACCC to investigate, inquire into
and manage disputes is massive, so there is no way in the world that they can
provide, through their systems and the laws under which they have to operate,
an effective enforcement regime. They are not resourced to do that. An
ombudsman service, with referral capacity to the ACCC, provides that filter and
at a much reduced price—and quickly. The key to disputes is speed.[40]
2.36
Mr Gaussen noted that he was a 'great supporter of the ACCC', but that
he viewed its role as 'the High Court of the resolution system'. Extending the
analogy, he argued that an ombudsman would provide the 'local courts and
district courts' of the system. He further suggested that an ombudsman should
have the ability to refer a matter to the ACCC, and vice versa, when it was
appropriate to do so.[41]
2.37
However, the ACCC told the committee that under the Code it would be
able to suggest to complainants that a matter might be better suited to dispute
resolution rather than litigation:
In the event that a party were to come to the ACCC, as with
other industry codes in place now typically we would consider the issue that
has been put by the individual raising their concerns and if we felt it was a
matter that was better suited to dispute resolution other than the Federal
Court, we would provide that view to the complainant. We have suggested some
times, depending on the nature of the issue on the table, that dispute
resolution is a better way than a court based outcome. There are times, of course,
when a court based outcome is well and truly warranted and we would distinguish
those.[42]
2.38
The ACCC also suggested that the audit power provided for under the Code
represented a significant addition to its power and ability to identify and
respond to breaches of the Code. It further noted that it would be able to use
these powers either in response to a complaint or proactively—that is, absent a
complaint:[43]
In a sector where there have been ongoing observations that
suppliers are reticent to bring problems to the ACCC's attention for fear of
retribution by stopping of a supply agreement or a holiday, however it is
characterised, the audit power enables the ACCC to reach in and check the books
of those who subject themselves to the discipline of the code. This allows the
ACCC to get the information we believe would identify problem behaviour without
individuals needing to identify themselves.[44]
2.39
Expanding on this point, the ACCC informed the committee:
Typically, to date, in a number of industry codes, the audit
code has had a reach that says the supplier has an obligation to provide
documentation or to issue something and the authority allows us to see whether
or not a disclosure document, for example, or an agreement has been provided
to, say, a franchisee by a franchisor. This code goes beyond the mere provision
of documents to reach documents that are maintained by retailers for a period
of six years, typically, which go into a whole range of details, such as the
operation of the retailer in their dealings with suppliers, that we can reach
and acquire through the audit process and to test. That information provided by
the documents and the records that are required to be kept by the retailers
will allow us, we believe, to identify problematic behaviour that otherwise
would not come to us through a complaint. That is a substantial enabler.[45]
2.40
More broadly, the ACCC suggested the Code would make enforcement more
straightforward and time-effective. Mr Scott Gregson, the ACCC's Executive
General Manager of Consumer Enforcement, told the committee:
I was involved in the investigations that we have undertaken
with respect to suppliers and retailers recently. They are long. They are
difficult because of the broad nature of the provisions. These will be much
sharper and give us real powers to deal with those issues.[46]
The appointment of an Ombudsman
2.41
As noted above, ADF argued for appointing an ombudsman to help ensure
compliance with the Code. It argued:
Considering the market power of the major retailers and the
reluctance of suppliers to take action or give evidence against them, an
important aspect of the Code will be the ability of industry organisations,
federations or associations to make complaints on behalf of their members.
Appointment of an Ombudsman will be instrumental in facilitating correct
compliance with the Code and improving the balance in the commercial
relationship between retailers and suppliers.[47]
2.42
ADF further submitted that the appointment of an ombudsman would help
ensure a strong focus on the Code, and encourage the speedy resolution of
disputes rather than escalation.[48]
2.43
ADF highlighted the United Kingdom's Groceries Supply Code of Practice
(GSCP) and the appointment of a GSCP Ombudsman as a possible model for
consideration in Australia. The GSCP came into force in February 2010, and
applies to all retailers with a turnover of more than £1 billion in groceries in the UK.[49]
2.44
Mr Gaussen, who as noted above was the Produce and Grocery Industry
Ombudsman from 2001 to 2006, also recommended the appointment of an ombudsman
service to redress the lack of supplier power relative to retailers. A
Commonwealth-funded ombudsman, he argued, would have the expertise, industry
knowledge, resources and independence necessary to be able to resolve disputes
in a way that is equitable, low-cost and time effective. An ombudsman could
also 'spend time promoting the Code, educating the parties and encouraging them
to improve their conduct and business practices'.[50]
2.45
Mr Gaussen explained how an ombudsman might assist in protecting
suppliers under the Code:
As a prerequisite to go forward under this code, you have to
be able to identify yourself and make a case. This makes it even more difficult
to advance. With an ombudsman, complaints can be raised with an ombudsman, there
can be discussions with the ombudsman and then the ombudsman can go to the senior
executive nominated by the retailer and/or wholesaler, raise those issues,
discuss those issues and find solutions to those issues on a wide-ranging,
generic-type basis. It is not hard. It is not rocket science. It can be done,
and it does not have to be done in a way that is aggressive or makes enemies.
It can be done in a collaborative manner. That is what an ombudsman service
offers.[51]
2.46
According to Mr Gaussen, an ombudsman could develop the industry
knowledge and trust and respect of industry participants to be able to resolve
disputes under the Code in a cost-effective and timely manner. This, he argued,
would not be possible in a system where dozens of mediators across Australia
might be called on to mediate different disputes:
You can have the same disputes repeating, coming before
different people who have no expertise, knowledge or background or anything to
draw on. The same wool can be pulled over different sets of eyes repeatedly. It
took me two years to get on top of what this was about. There is no way in
heavens that a system of dispute resolution which goes to the appointment of
one of their members anywhere in Australia without any training or
qualification or knowledge of this industry can be successful or effective. It
is a guaranteed recipe for failure.[52]
2.47
Mr Gaussen also noted that arbitration was now 'overwhelmingly more
expensive' than litigation. In part, he suggested, this reflected improved
efficiency on the part of courts. However, Mr Gaussen also told the committee
that arbitrators often lacked the knowledge and background to arbitrate
disputes in a cost-efficient manner, and some would even seek to unnecessarily
'spin out' the process to maximise their fees.[53]
2.48
Mr Gaussen emphasised that for the Code to be successful, it needed
proper enforcement mechanisms. This, in turn, not only required the appointment
of an ombudsman, but an ombudsman who was well-resourced to the do the
job:
You need an ombudsman. When you go back to the year 2000,
when the government was introducing this whole concept of a code, government
talked about and budgeted an amount of close to $30 million to provide for an
ombudsman service. In July 2001, when the initial project failed, my company
Mediate Today was appointed to provide the ombudsman services. We had a budget
of less than $300,000, including our travel. On the basis of that we were being
asked to service all of Australia and all of the disputes that arose out of the
hundreds of thousands of transactions that were occurring on a monthly basis.
It simply was not practical and it was not possible.[54]
2.49
Asked how much an ombudsman service would cost the government,
Mr Gaussen suggested a figure of $1 million per year to provide a
basic service. He noted, however, that if 'you were going to resource it
properly state offices, it would be a lot more'.[55]
2.50
The MDFVGA also highlighted the success of the UK model, and told the
committee it considered 'the appointment of an ombudsman with powers of
enforcement absolutely critical to the success of the code'.[56]
As noted earlier, the MDFVGA argued that small suppliers often lacked the
resources or capacity to make and establish a case to go to mediation. However,
the MDFVGA suggested that an ombudsman would have the ability to assist
suppliers in this respect, and in turn resolve disputes in a more effective and
efficient manner than would be possible through mediation:
I would hope the ombudsman would have powers to investigate
some of the allegations that are put forward. Those matters could be
investigated by the ombudsman and then their office could make a determination
on whether to proceed and take further action against either party, depending
on who was in breach of the code. Mediation is more a way of resolving issues
rather than trying to get a satisfactory outcome in the best interests on the
basis of some sort of legal outcome.[57]
Should the Grocery Code cover alcoholic beverages?
2.51
The OASBC expressed concern that the Grocery Code did not extend to
alcoholic beverages, despite evidence from the wine industry regarding the
adverse impact on small businesses of retrospective pricing. The OASBC
explained:
An example of retrospective pricing is the situation where
one retailer negotiates a better buying price from a supplier than a competitor
retailer negotiates. The competitor who has not been able to negotiate the
better price, then charges the difference back to the supplier. The supplier is
commonly forced to wear the loss in profits, without the ability to negotiate.[58]
2.52
The SME Committee also suggested that there was no reason the Grocery
Code should not extend to the supply of alcohol:
In 2005, the ACCC commenced legal proceedings against liquor
retailers for entering into anticompetitive agreements in the liquor industry.
This case resulted in the imposition of pecuniary penalties of more than $10 million.
In the view of the SME Committee there is a risk that unacceptable commercial
conduct could be engaged in by the major grocery retailers in the liquor
industry, which could not only affect price competition at the retail level but
also SMEs at the wholesale level.[59]
Pricing and other issues
2.53
The SME Committee also suggested there were certain additional issues
that the Code should cover, including pricing issues associated with home
brands. It expressed concern that retailers might sell home brand products at a
loss 'in order to either extract more favourable terms from the suppliers of
branded products or to drive branded suppliers out of the market'.[60]
2.54
The QDFO also expressed concern that the Code failed to address:
...the really big issues that we have been chasing about
outlawing predatory conduct or discriminatory pricing, which has really been at
the core of the $1 milk issue in the domestic market over the last four years.[61]
2.55
Expanding on this point, the QDFO explained that it was 'not against
discounting', but rather 'discriminatory pricing to a point where it becomes
predatory and affects competition with those brands'. It proposed a clause in
mandatory code of conduct that 'actually outlawed that predatory conduct'.[62]
The QDFO also argued that to prevent predatory pricing the Code needed to cover
the whole supply chain, which it did not do at present:
We have got a lot of issues between farmer and processor that
are forced into that second part of the supply chain due to what happens
between retailer and processor. Our first proposal was that the mandatory code
needed to cover the whole supply chain and go from there. So as it stands at
the moment it is not going to do the job that we need for our farmers, and that
is why we have been raising the issue with government; if they are not going to
amend and strengthen this code, then parts of the Competition and Consumer Act
need to be strengthened to outlaw predatory conduct and discriminatory pricing
and that is absolutely fundamental if we are to get a result for our farmers
and other small business operators.[63]
2.56
The Australian Chamber of Fruit & Vegetable Industries Ltd ('the
Australian Chamber') argued that the introduction of a voluntary code with
provision for exceptions to otherwise prohibited actions (that is, to
unilateral or retrospective variations to grocery supply agreements) was in
stark contrast to the imposition on wholesalers supplying Central Markets of
the mandatory Horticulture Code of Conduct:
Accordingly, what we could see therefore is one half of the
industry, being supermarkets buying directly off Growers, doing so under the
provisions of a voluntary Code with flexibility which is enshrined in the Code
and with exclusions from certain actions 'which would otherwise be prohibited'.
This will occur while the other half of the industry, and in particular Market
wholesalers and the independent retailers who rely on Central Markets,
labouring under a Mandatory Code, the threat of ACCC intervention, a total lack
of flexibility and an effective prohibition on operating in any manner which
introduces the required flexibilities to remain competitive.[64]
2.57
The Australian Chamber concluded that the benefits which growers have in
dealing with Central Markets (which it outlines in its submission) will be:
...eroded over time as the uneven playing field continues with
the supermarket (retailer) sector applying an opt-in voluntary code and the
fresh fruit and vegetable wholesaling sector being regulated by an unworkable,
mandatory code with unequitable compliance costs. The growers supplying the
Central Markets are disadvantaged and the consumers of those supplied through
the Central Markets are also disadvantaged. Ultimately all parts of this supply
chain are disadvantaged compared to the supermarket sector supply chain.[65]
Consultation process in the development of the Code
2.58
Mr Gaussen expressed concern that the Code was not based on a 'true
process of wide consultation', and told the committee that many industry
players and organisations were not consulted or withdrew during the negotiation
process. Ultimately, he suggested, the Code represented an agreement 'between
retailers, wholesalers and the grocery council'. To address this situation, he
argued for:
...a genuine consultative process between primary producers,
retailers, wholesalers, merchants and agents that engages the representative
groups and the individual interests and reports back to this Senate committee
on outcomes, within a period of 12 months.[66]
2.59
The consultation process on the Code was outlined in the previous
chapter. As the Treasury told the committee, that process saw
33 submissions from interested stakeholders, and involved a further
process of targeted consultation.[67]
Asked what changes had been made to the Code as a result of these
consultations, the Treasury advised:
Very briefly: the original code imposed obligations on
suppliers as well as retailers and wholesalers. The current code only imposes
obligations on retailers and wholesalers. There is the [reasonableness] test
[that applies when considering certain exemptions in the Code to otherwise
prohibited conduct]...which is an important strengthening of the code. The good
faith requirement in the code was broadened to bring it into line with the
common law concept of good faith. The dispute resolution mechanism was
strengthened by allowing suppliers to immediately elevate complaints within
senior management of retailers and wholesalers, and so forth. There were
improved record keeping requirements introduced into the code. The code now
provides that retailers and wholesalers cannot interfere with freedom of
association between suppliers. There was a tailored regime introduced into the
code to suit wholesalers, noting that some of the provisions—such as allocation
of shelf space, for example—are not relevant to wholesalers. There is a
statutory obligation within the code for it to be reviewed after three years of
operation, including a detailed statement of what must be considered as part of
that review.[68]
Committee view
2.60
The committee believes the Code represents significant progress in
improving the standards of business conduct in the food and grocery sector. The
committee is also satisfied that the Code will achieve its stated purposes, as
set out in clause 2 of the Code. The committee welcomes the fact that the Code
has emerged from an industry-led process, and recognises that industry
participants are often best placed to develop codes that properly reflect the
circumstances of their industry.
2.61
At the same time, the committee acknowledges that some witnesses believe
that while the Code is an important step forward, its scope and application is
not as great as they would prefer. In particular, the committee notes concerns
expressed by a number of witnesses regarding the voluntary nature of the Code,
the provisions for exceptions to conduct otherwise prohibited under the Code,
the potential costs and difficulties raised by the dispute resolution processes
provided for by the Code, and the extent of penalties that might be applied in
response to breaches of the Code. The committee further notes concerns
regarding the coverage of the Code, and in particular concerns that it does not
cover alcoholic beverages or issues relating to pricing.
2.62
The committee notes that the Regulation includes a requirement for a
review of the operation of the Code to be undertaken within three years of its
commencement. This review must consider certain matters, including whether the
purposes of the Code are being met, levels of compliance with the Code, whether
it should be mandatory or voluntary, and whether it should include civil
penalty provisions. The committee notes that the review will be able to draw on
assessments of the Code's operations and effectiveness. As such, the committee
believes that the concerns raised during this inquiry would be best considered
as part of the required review.
Recommendation
2.63
The committee recommends that the Regulation stand as promulgated.
Senator Sean Edwards
Chair
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