Australia: New Food and Grocery Code of Conduct introduced

Following an extensive consultation process, the Federal Government has formally introduced into Parliament its Food and Grocery Code of Conduct (the Code). The Code is a prescribed voluntary industry code under the Competition and Consumer Act 2010 (the Act) ¹. It establishes a clear set of principles to govern the trading relationships between grocery retailers or wholesalers and their suppliers in an attempt to curtail market power abuse in the grocery supply chain.

The Code came into effect on 3 March 2015, more than two years after talks commenced between the Federal Government, Coles, Woolworths and the Australian Food & Grocery Council (AFGC).

What is the purpose of the Code?

The purpose of the Code is to:

• help regulate standards of business conduct in the grocery supply chain and to build and sustain trust and cooperation throughout that chain
• ensure transparency and certainty in commercial transactions in the grocery supply chain and to minimise disputes arising from a lack of certainty in respect of the commercial terms agreed between parties
• provide an effective, fair and equitable dispute resolution process for raising and investigating complaints and resolving disputes arising between retailers or wholesalers and their suppliers
• promote and support good faith commercial dealings between retailers, wholesalers and their suppliers.

How is the Code intended to protect suppliers?

The Code imposes a number of key restrictions on grocery supply terms and practices to protect businesses that supply groceries to retailers and wholesalers. For example, the Code:

• requires that retailers and wholesalers act lawfully and in good faith
• sets out minimum obligations for retailers and wholesalers entering into grocery supply agreements, including that they be in writing
• prohibits retailers and wholesalers from threatening suppliers with business disruption or termination without reasonable grounds
• limits when retailers and wholesalers can unilaterally or retrospectively vary an agreement with a supplier, and requires any variation and the reason for it to be in writing
• establishes minimum standards of conduct for retailers and wholesalers when dealing with suppliers, covering issues such as payment, de-listing, labelling, fresh produce standards, shelf space allocation, supplier funded promotions and intellectual property
• sets out a dispute resolution process.

Whilst the Code is comprehensive, it does not seek to impose overly restrictive rules on commercial negotiations, but rather provides commercial flexibility within a set framework of requirements and controls on behaviour.

Who will the Code apply to?

The Code applies to grocery retailers and wholesalers in their dealings with suppliers.

Under the Code:

• a "retailer" is a corporation that carries on a supermarket business
• a "wholesaler" is a corporation that purchases groceries from suppliers to resupply to a supermarket
• a "supplier" is someone who is carrying on (or seeking to carry on) a business of supplying groceries for retail sale by another person (including another business).

However, the Code is voluntary, which means that it only applies to retailers or wholesalers that have elected to be bound by the Code by giving written notice to the ACCC. Suppliers are automatically covered by the Code.

What are the transition arrangements?

Any new grocery supply agreements entered into after a retailer or wholesaler agrees to be bound by the Code must comply with the requirements of the Code.

However, the Code allows existing agreements to be transitioned to comply with the Code. After agreeing to be bound by the Code, retailers have 6 months, and wholesalers have 18 months, to offer to vary existing agreements to comply with the Code. The agreement must then be varied within 6 months of the supplier accepting the variation. If an agreement is not varied, the entire Code applies to a retailer 12 months, and to a wholesaler 24 months, after they agree to be bound. However, the good faith obligations apply immediately upon the retailer or wholesaler agreeing to be bound by the Code.

Who will enforce the Code?

As a prescribed code under the Act, the Australian Competition and Consumer Commission (ACCC) is responsible for regulating compliance with the Code and can take enforcement action for breaches of the Code by those retailers and wholesalers that have elected to be bound by it. The ACCC will also have extra audit powers and will require documentation of supply agreements to be kept so that the ACCC can access those as needed.

For those retailers and wholesalers that subscribe to the Code, a breach of the Code will amount to a breach of the Act, which may result in substantial penalties.

How does the Code operate in the context of existing laws?

The Code will complement rather than override the existing provisions of the Act and Australian Consumer Laws. In particular, existing provisions relating to unconscionable conduct, misleading or deceptive conduct and misuse of market power continue to apply.

Further, the Code is not intended to exclude any person or the ACCC from enforcing any rights, or seeking any remedies available in respect of the conduct of any retailer or wholesaler bound by the Code, including those arising under the Act or any other legislation.

Where the conduct of a party bound by the Code is also subject to the Horticulture Code of Conduct or the Franchising Code of Conduct, the terms of the Code won't apply to the extent that they conflict with those other codes.

What impact will the Code have on industry?

Whilst the voluntary Code has been heralded as a historic step towards levelling the playing field for food and grocery suppliers in their transactions with the major supermarkets, its effectiveness will rely on robust industry participation.

At the time of publication of this article, Aldi is the only major supermarket retailer to officially sign up to the Code. Other supermarkets have the Code under consideration and are yet to decide whether to sign up.

The Code will be reviewed three years after commencement and if it is found to be ineffective the Government may consider a mandatory regime.

Footnote

¹The Code is contained in the Competition and Consumer (Industry Codes-Food and Grocery) Regulation 2015 (Cth)

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.