The Australian food and grocery industry is a complex and dynamic sector, shaped by the interplay between large retailers, small suppliers, and consumers. As the industry grapples with challenges such as supplier exploitation, price controls, and a lack of transparency, recent legislative developments aim to address these issues head-on.
The introduction of the Treasury Laws Amendment 2024 signals a pivotal moment for the sector, promising reforms designed to create a fairer, more competitive environment. This article explores the key challenges facing the industry, the role of the new mandatory code of conduct, and the potential impact on all stakeholders involved.
Challenges in Australia’s Food and Grocery Industry
The food and grocery industry, especially for a major production power like Australia, is complex, encompassing large retailers, small suppliers, distributors, and consumers.
While competition drives innovation and efficiency, it can also create power imbalances. Large retailers often dominate the market, leaving suppliers with little bargaining power. Similarly, price controls at the retail level can negatively affect smaller producers, squeezing their margins and threatening their viability. Key challenges include the following.
Supplier Exploitation
Suppliers often face unreasonable demands, such as unilateral contract changes, delayed payments, and excessive penalties.
Price Controls
Large retailers may artificially suppress supplier prices while maintaining high consumer prices, maximising their profit margins at both ends.
Lack of Transparency
Complex pricing structures and opaque contractual terms leave suppliers and consumers in the dark about how prices are set.
These practices not only harm smaller players in the industry but also undermine consumer trust in the system.
What is the Treasury Laws Amendment 2024?
The Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Bill 2024 introduces a mandatory food and grocery code of conduct, called the Competition and Consumer (Industry Codes—Food and Grocery) Regulations 2024. Based on the results of an independent review by Dr Craig Emerson, it provides a legal framework to regulate the relationships between suppliers, distributors, and retailers by officially making mandatory the Food and Grocery Code of Conduct the ACCC developed in 2015 as per the Competition and Consumer Act 2010. All supermarkets with over $5 billion annual turnovers are to be covered under the Code, first and foremost.
It passed first reading on 4 November 2024 and Parliament is slated to debate on it before adjourning for the summer recess on 5 December 2024. The plan is for the new code to be enacted into force on 1 April 2025 if the Bill passed the chambers.
The mandatory Food and Grocery Code of Conduct is being prepared with a raft of strong measures to combat unfair trading practices in the retail and grocery sector. The following are some notable points.
Huge Fines
The single most pronounced sanction is the spectre of massive fines with respect to the Competition and Consumer Act 2010. Under the new mandatory Code, the maximum penalty awaiting violators is up to $10m, three times the value of the benefit from the violation, or 10 per cent of turnovers in the past 12 months.
Increased ACCC Powers
The Australian Competition and Consumer Commission (ACCC) will have more enforcement powers under the mandatory Code. It can have the authority to issue a supermarket with infringement notices if there is evidence of a Code violation. The federal government will also allot the ACCC $30m in funding to investigate and prosecute deceptive pricing by supermarkets and wholesalers. Any M&As in the retail and supermarket sector must be reported to the ACCC.
One of the Emerson review’s main recommendations was about how to process anonymous complaints of suppliers and whistleblowers without threat of retribution. To address this, the ACCC itself is being directed to establish a special pathway to handle those complaints.
Price Controls
The code includes provisions to address unfair pricing mechanisms, ensuring that suppliers receive reasonable prices for their goods while protecting consumers from excessive markups. To this end, the Unit Pricing Code will be modified for easier understanding, allowing the general public to make simple and timely price comparisons between specific products.
Why Government Oversight is Essential
The introduction of the mandatory code of conduct is a response to years of lobbying by industry groups, consumer advocates, and policymakers who recognised the need for systemic reform. Below are why more government oversight is essential.
Protecting Vulnerable Stakeholders
Small and medium-sized suppliers are often at the mercy of large retailers. Government oversight ensures a level playing field, protecting these suppliers from exploitative practices that could threaten their survival.
Promoting Fair Competition
Unchecked market dominance by a few players stifles competition, innovation, and consumer choice. A mandatory code of conduct curtails anti-competitive behaviour, encouraging a more vibrant and equitable market.
Enhancing Consumer Trust
Consumers are more likely to support businesses that operate transparently and ethically. Oversight promotes accountability, helping to rebuild trust in the industry.
Ensuring Market Stability
Fair pricing mechanisms and transparent practices contribute to a more stable food and grocery market, benefiting producers, retailers, and consumers alike.
Challenges in Implementing the Code
While the Treasury Laws Amendment 2024 represents a significant step forward, implementing the mandatory code of conduct is not without challenges.
Resistance from Large Retailers
Major retailers may resist the additional regulatory burden, arguing that it could increase operational costs and disrupt established supply chains.
Monitoring and Enforcement
The ACCC will need adequate resources and expertise to effectively monitor compliance and enforce the code’s provisions.
Balancing Interests
Striking a balance between protecting suppliers and avoiding excessive regulation of retailers is critical to maintaining a competitive and efficient market.
Avoiding Unintended Consequences
Regulation must be carefully crafted to prevent unintended consequences, such as increased prices for consumers or reduced availability of goods.
Benefits of the Mandatory Code
Despite these challenges, the mandatory food and grocery code of conduct offers numerous benefits.
- Greater Transparency – Suppliers and consumers will have a clearer understanding of pricing and contractual terms.
- Reduced Exploitation – Suppliers will be protected from unfair practices, ensuring they receive fair compensation for their goods.
- Improved Industry Relationships – Clear rules and dispute resolution mechanisms will foster more harmonious relationships between stakeholders.
- Stronger Consumer Protections – Fair pricing mechanisms will help protect consumers from exploitative pricing practices.
What’s Next for the Food and Grocery Sector?
The tabling of the Treasury Laws Amendment 2024 is just the beginning. To ensure its success, the following steps are crucial.
Engaging Stakeholders
Ongoing consultation with suppliers, retailers, and consumer advocacy groups will help refine the code and address any concerns.
Public Awareness Campaigns
Educating industry participants and consumers about the new code of conduct will promote compliance and maximise its impact. Speaking at the tabling of the new bill, Assistant Competition, Charities and Treasury Minister Andrew Leigh said making the Food and Grocery Code of Conduct is a win for Australian families and the farming community by generating more competition and fair pricing.
Periodic Reviews
The code should be reviewed periodically to assess its effectiveness and make necessary adjustments in response to changing market conditions.
Conclusion
The introduction of a mandatory food and grocery code of conduct under the Treasury Laws Amendment 2024 is a significant milestone for Australia’s food and grocery sector. By addressing long-standing issues such as supplier exploitation and price controls, the code aims to create a fairer, more transparent marketplace that benefits all stakeholders.
While challenges remain such as the current Labor administration being able to remain together past the upcoming federal elections, the increased oversight provided by the ACCC and the government’s commitment to reform are steps in the right direction. For suppliers, retailers, and consumers, these changes promise a more equitable and sustainable future for Australia’s food and grocery industry.
DISCLAIMER: This article is for informational purposes only and is based on the latest information available at the time of writing. 2 Ezi is not affiliated with the ACCC or any legislative office and is not a party to the development of any industry codes of conduct.
