New Food and Grocery Code creates a more transparent supply chain

Australia’s highly competitive and highly concentrated food and grocery marketplace has entered a new era with changes to the Food and Grocery Code of Conduct that will further increase fairness and transparency.When it was introduced in 2015, the Code of Conduct was an important step towards creating a more equitable playing field for supermarkets, wholesalers and their suppliers. It was the first industry-led, voluntary code of its kind and brought about significant improvements in the nature of negotiations between all parties.In 2018, the independent review conducted by former Australian Competition and Consumer Commission chairman Professor Graeme Samuel recommended a number of improvements in the Code and the amendments made in 2020 are largely in line with those recommendations.We at the AFGC have been working hard over the past two years to achieve workable outcomes for our members, particularly on the issue of dispute resolution, including in relation to pricing matters.Code arbiters and an independent reviewerA key change is the appointment of code arbiters by signatory supermarkets and wholesalers. The arbiters take the place of code compliance managers and the new roles are empowered with the autonomy and authority to hear – in confidence – disputes raised by suppliers and propose remedies. Those remedies can include a requirement that a retailer or wholesaler pay compensation to a supplier, or that an agreement be varied.Coles, Woolworths Aldi and Metcash have all now announced their code arbiters. Coles has signed up former Victorian Premier Jeff Kennett, Woolworths has named employment lawyer Helen McKenzie, Aldi has lawyer and economist Bronwyn Gallacher and Metcash has lawyer Martin Shakinovsky.The code arbiters and the creation of a new position of independent reviewer represent a major improvement in the dispute resolution framework. While the federal government is yet to name the Independent Reviewer, the position, once filled, will ensure suppliers are afforded due process in any dispute and help identify emerging and systemic issues related to compliance with the Code.The improvements in confidentiality are a valuable achievement, particularly as the Samuel review noted that dispute mechanisms in the Code had been underutilised by suppliers “due to a fear of retribution for making complaints”. Code arbiters and the independent reviewer are required not to disclose information obtained from suppliers during a complaint process and they will not be able to disclose the identity of a supplier who has made a complaint without the consent of the supplier.Enhanced good faith obligationsAnother important change brought about by the 2020 amendments are improvements to the good faith obligation and fair dealing principles to ensure retailers and wholesalers’ obligation to act in good faith is clearly understood. The 2020 Code amendments provide guidance on what can be taken into account when deciding an action by a retailer or wholesaler has been in good faith. Included in these factors is whether a retailer or wholesaler has acted arbitrarily, recklessly or with ulterior motives, or whether any action might constitute retribution against a supplier for past disagreements or complaints.Retrospective agreement changes bannedThe amendments to the code have banned retrospective changes to grocery supply agreements. This means that parties entering a new Grocery Supply Agreement (GSA) or varying, extending or renewing an existing one cannot make any agreement to conditions that have a retrospective effect.New rules around negotiation of price changes also encourage retailers and wholesalers to respond more swiftly to notifications of price changes by suppliers and, importantly, prohibit retailers and wholesalers from requiring suppliers to disclose commercially sensitive information during the negotiations. Retailers and wholesalers will, from January 2021, be required to report on their price increase processes in the annual report filed by their code arbiter.Scene set for stronger relationshipsThe purpose of the Food and Grocery Code of Conduct is to build and maintain trust throughout Australia’s food and grocery supply chain and to ensure transparency and certainty for the many suppliers who work to keep shelves stocked across the country. AFGC welcomes the latest amendments to the code and welcomes the ongoing support of all parties. We also want to thank and acknowledge the work by the federal government and in particular the assistant treasurers who have worked with us over the past two years to help to bring the recommendations of the Samuel review to fruition.