Australia may impose fine on supermarkets under proposed mandatory code

Australia’s major supermarkets may incur significant fines under a new government proposal aiming to enforce a mandatory grocery code of conduct with more stringent measures.

A government-commissioned report, set to be published on Monday, indicates a pressing need for reforms to correct the substantial power disparity between suppliers and the dominant supermarkets in Australia’s concentrated grocery sector.

Although former Labor trade minister Craig Emerson does not advocate for breaking up the large supermarket chains, he believes that steep fines and strict enforcement would serve as a more effective deterrent against anti-competitive practices than laws mandating divestiture.

Currently, the Food and Grocery Code of Conduct is optional and deemed ineffective by Emerson’s preliminary report, highlighting its lack of penalties for violations and the ability of supermarkets to bypass key provisions through their supply contracts.

The report highlights the hesitancy among small suppliers to lodge formal complaints under the voluntary code due to fears of retaliation, which could manifest in various forms, including unfavorable renegotiation of supply terms, relocation of products to less visible store areas, or complete removal of a supplier’s products from shelves.

The report recommends making the code obligatory for all supermarkets with yearly revenues over $5 billion — specifically naming Coles, Woolworths, Aldi, and wholesaler Metcash — and enhancing it to offer better protection for suppliers, including safeguards against retaliation for filing complaints. Under the proposed changes, the Australian Competition and Consumer Commission (ACCC) could seek fines for major or systematic violations up to $10 million, 10% of a supermarket’s annual turnover, or triple the benefit derived from the breach, whichever is greater, with lesser penalties set at $187,800 for minor infractions.

To avoid prolonged legal battles, the report suggests incorporating additional methods for suppliers to anonymously and informally report issues, along with mediation and arbitration options and improved protections for suppliers.

While the Greens advocate for the ACCC to have the authority to dismantle the supermarket duopoly if necessary, and former ACCC chair Allan Fels has called for breakup powers in specific situations, Emerson’s report opposes forced divestiture as a solution to market power concerns within the supermarket sector. It argues that such measures could lead to greater market concentration or the closure of stores if no suitable buyers are found.

The government, aiming to address the cost of living concerns, initiated the Emerson review as part of its efforts to ensure competitive supermarket pricing for Australian consumers.

Treasurer Jim Chalmers is set to emphasize the government’s commitment to fair competition that benefits families and farmers, with further announcements expected on broader merger reform initiatives aimed at enhancing competition and economic dynamism. Emerson’s final report is due by June 30.

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