2015 was a big year for grocery suppliers in Australia. In March 2015, following years of consultation with major food retailers and the Australian Food & Grocery Council (“Council”), the federal government formally introduced into parliamentthe Food and Grocery Code of Conduct (“Code”). The Code, which is a voluntary prescribed one under the Competition and Consumer Act 2010 (Cth) of Australia (“CCA”), includes some significant and important provisions to ensure key elements of grocery supply agreements are discussed and agreed upfront.
Who does the Code apply to?
The Code applies to all grocery retailers and wholesalers that have elected to be bound by it. This includes grocery companies that carry on a supermarket business and companies that buy groceries from suppliers to resupply to supermarkets, which have given their written notice to the Australian Competition and Consumer Commission (“ACCC”) (who is responsible for regulating compliance with the Code) to indicate their agreement to the Code. The current subscribers to the Code include Coles, Woolworths, Aldi and About Life. Those suppliers that deal with a retailer or wholesaler that has agreed to be bound by the Code will automatically be covered by it.
How does the Code assist suppliers?
The Code will have a significant impact on supply chain relationships, including those businesses that are involved in the manufacture and supply of food and groceries to prescribing retailers in Australia, whether they are local suppliers or overseas suppliers.
The majority of the obligations imposed by the Code fall on the retailer, which, given the well-documented allegations raised by various suppliers of the inappropriate use of market power by retailers, provides more certainty, transparency and fairness for suppliers in their dealings with retailers.
In particular, the Code’s intention is to:
- help regulate standards of business conduct in the food and grocery supply chain;
- provide greater transparency and certainty in commercial transactions in the grocery supply chain;
- minimise the likelihood of disputes arising from a lack of certainty in respect of the commercial terms agreed between the parties;
- provide an effective, fair and equitable dispute resolution process for raising and investigating complaints arising from the commercial dealings between the parties or otherwise under the Code; and
- assist industry participants in monitoring the operation and efficacy of the Code in an industry-wide roundtable.
What are some of the key requirements under the Code?
Some of the key aspects of the Code include:
- agreements must be in writing: retailers must only trade in groceries with suppliers if they enter into a written agreement (“Grocery Supply Agreement”), prior to supply, which must set out (amongst other things):
- any requirements the retailer has in respect of the delivery of the groceries;
- circumstances in which the retailer may reject groceries;
- the quantity and quality requirements relating to the groceries;
- the circumstances in which the agreement may be terminated (if the Grocery Supply Agreement provides for termination);
- that the parties must deal with each other lawfully and in good faith;
- variations: substantive restrictions on retrospective and unilateral variations to Grocery Supply Agreements;
- shelf allocation: greater transparency on the basis of shelf allocation for branded and private/home label products – suppliers will not be forced to make payments to a retailer in order to secure better positioning on supermarket shelves (save for promotions);
- de-listing of products: restrictions on de-listing a supplier’s grocery products unless it is in accordance with the terms of the Grocery Supply Agreement and only for genuine commercial reasons;
- shrinkage: restrictions on retailers requiring suppliers to make payments to the retailer as compensation for shrinkage, for example theft or loss occurring once the retailer has taken possession of groceries (historically, some suppliers have been expected to fund shrinkage and wastage in a retail business even though they have no control over that business);
- stocking: restrictions on retailers requiring suppliers to make any payment as a condition of stocking or listing that supplier’s groceries except in particular instances;
- product quality and standards: a retailer may only reject fresh produce supplied by a supplier if it fails to meet fresh produce standards and/or quality specifications provided by the retailer to the supplier (or contained in the parties’ Grocery Supply Agreement) and only within 24 hours of the time of delivery and prior to the retailer’s acceptance of the fresh produce;
- intellectual property: a recognition of the importance of intellectual property rights and confidentiality in driving innovation/investment in new products and protecting suppliers from having their branded groceries adopted by the supermarkets and used to create their own range;
- disputes: a low cost and fast track dispute resolution mechanism for retailers and suppliers, including mediation and arbitration; and
- Code Compliance: a retailer must appoint a Code Compliance Manager (who must be independent of, and not managed by any member of a buying team in relation to a retailer).
What are the penalties for contravention?
For those parties that subscribe to the Code, a breach of the Code will amount to a breach of the CCA, which may result in substantial penalties.
However, it 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 bound by the Code, including, but without limitation, those arising under the CCA or any other legislation.
What can suppliers do?
Suppliers should check whether their retailers are subscribers to the Code and if so, review their current agreements with retailers to ensure that they comply with the obligations under the Code, including those referred to above.