Now what for the supermarkets?

With the federal election now out of the way, the Labor Government now has the time to fully focus on the most significant and far-reaching report released into supermarket behaviour in a generation.

The ACCC’s Supermarkets Inquiry Final Report was released in the middle of the federal election and confirmed what everybody has known for decades; supermarkets control growers through their monopoly (oligopsony powers). It also concluded they:

• are among the most profitable supermarkets in the world
• increased margins over the last five years
• have created such significant barriers to entry that it restricts any new entrants
• received significant funding from growers from promotions and rebates.

Worse still, the ACCC expects Coles and Woolworths to continue to grow and that, under those circumstances, their margins can be expected to continue to grow. And that this will have ‘significant long-term consequences’ on the sustainability of Australia’s fresh produce sector.

Quite sobering and disturbing insights but unfortunately all too familiar. The question now is, ‘So what?’.

Firstly, it is worth considering what has occurred already. Importantly, the treatment of growers by the supermarkets is now in the open, with both the public and politicians acutely aware of the issue. For decades this behaviour has been behind closed doors, as growers feared commercial retribution if they spoke out. The trust the supermarkets have tried to build has been shattered, with their reputation scores falling off a cliff as stories of continued exploitation come to light.

There is a clear willingness across all political parties to do something. The Greens, Liberals and National Party have supported powers to allow for the diversification of the supermarkets. During the election campaign Anthony Albanese stated: “Australian farmers deserve a fair price for their goods.”

The Food and Grocery Code of Conduct has now been made mandatory, with dramatically increased fines and penalties, new independent arbiters appointed, and even the ability for individuals to be held personally accountable for breaches.

Given the findings of the ACCC, we expect (and will be pushing for) the Labor Government to deliver on major reform to ensure growers get a fair deal.

Growers continue to take all the risk in the production of fresh fruit and vegetables, yet it is the supermarkets that enjoy the lion’s share of the profits. Greater transparency, scrutiny and prosecution for unethical behaviour will be the first starting point.

Key recommendations of the ACCC Supermarkets Inquiry Final Report:

1. Supermarkets should not be able to negotiate out of key minimum protections in the Food and Grocery Code.
2. Harmonisation of accreditation and auditing requirements.
3. ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with detailed information about their supply forecasts.
4. ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with greater transparency about the weekly tendering processes they use to negotiate price and volumes with suppliers.
5. Greater transparency about supermarkets’ wholesale fresh produce prices.
6. ALDI, Coles and Woolworths should not be able to unilaterally reduce wholesale fresh produce prices or volumes agreed with suppliers.
7. Greater transparency for growers who sell fresh produce through intermediaries.
8. Suppliers of supermarket-branded fresh produce to supermarkets should have earlier certainty about orders placed with them.
9. Suppliers should be allowed to apply their own branding to fresh produce.
10. There should be greater transparency about the rebates suppliers pay to supermarkets.
11. Coles and Woolworths should be more transparent about how supplier funding contributions to their in-house retail media services are used.

These tie in with recent changes to the Food and Grocery Code of Conduct:

• Mandatory Code: The code has been made mandatory for large grocery businesses, ensuring consistent application across the industry.
• Good faith obligations: Retailers and wholesalers must act lawfully and in good faith towards their suppliers, fostering trust and better standards of conduct.
• Written supply agreements: Businesses are required to have clear, written agreements with suppliers to avoid misunderstandings and disputes.
• Penalties for breaches: Significant penalties have been introduced for contraventions, including fines of up to $10 million or a percentage of the company’s turnover.
• Dispute resolution: A more independent dispute resolution process has been recommended to replace the previous Code Arbiter model.
• Supplier protections: Suppliers are automatically protected under the code, with provisions to prevent retribution for exercising their rights.