ACCC, supermarkets still at odds

03 Oct, 2014 08:50 AM
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Coles has so far been the target of legal action but this does not rule out Woolworths

COLES, Woolworths and their suppliers may have put aside their ­differences to reach a deal aimed at stamping out supermarket bullying, but they still have to convince the ­government that their voluntary code of ­conduct has teeth.

The peace plan was back in the spotlight this week when competition chief Rod Sims used an industry conference in Canberra to air concerns that loopholes in the code of conduct will leave suppliers exposed.

Behind the scenes, the industry was in talks with Small Business Minister Bruce Billson's office providing additional assurances that any side deals between the supermarkets and suppliers would fall under the code and could still be policed by Sims.

One idea now on the table is a two-year sunset clause on the code, which the supermarkets and suppliers are likely to agree to.

It is in their interests to make it work.

The alternative is a UK-style mandatory code of conduct, which the industry does not want, or more legal action similar to the competition watchdog's current case against Coles.

Coles, Woolworths and the Australian Food and Grocery Council (AFGC) nutted out a draft agreement last year in response to allegations that the supermarkets were squeezing suppliers.

This was designed to tackle accusations that the supermarkets were forcing sup­pliers to make payments in return for stocking their products, securing shelf space and promoting their products.

Sims, the chairman of the Australian Competition and Consumer Commission (ACCC), is worried about provisions in the draft code that mean suppliers may still have to pay supermarkets for products that are unfit for sale.

Under the code, the supplier must wear the cost of "waste" if it is their fault. Fair enough.

But Sims says there are loopholes in the code, which means that even if the waste was the supermarket's responsibility, the supplier will pay for it if both sides agree.

The code also rules out changes in contracts between supermarkets and suppliers – unless both parties agree otherwise.

This is called contracting out, which the supermarkets say is a commercial reality and provides the vital flexibility both sides need to run their businesses.

Sims wants the code to rule out certain behaviour altogether, though, instead of opening the door for elements of the rules to be traded away.

Potential for pressure on suppliers

Could suppliers still be coerced into an agreement by the mighty Coles and Woolworths?

Sims's concerns are understandable, given the supermarket's enormous market power and their reputation for squeezing suppliers and favouring their own in-house brands. But the supermarkets and AFGC, which have been united on their position for a year, believe his concerns are misplaced.

They believe the regulator does not have a deep understanding of the issues or the need to strike the right balance between commercial reality.

"It is important to both suppliers and retailers that they not be restrained from being able to reach agreement on terms that are mutually acceptable.

"Put another way, suppliers and retailers wish to continue to contract with one another in a manner that is commercially practical and appropriate," the Retailer and Supplier Roundtable argued in a paper sent to Treasury last week.

The contracting out options are designed to allow food manufacturers and super­markets to do up-front deals to share the burden of waste, rather than giving the supermarkets an escape clause.

That is the case they are making to Billson as they try and speed up the glacial progress of getting the code before Parliament.

The supermarkets are proposing to include Fair Trading provisions in the code to give suppliers comfort that there will not be an abuse of market power.

This includes a commitment that any side deals between the supermarkets and suppliers would still apply to the code and be subject to ACCC scrutiny.

Sims is no friend of the supermarkets, although he says they only take up about 2 per cent of his time.

Referring to an unconscionable conduct case against Coles currently before the courts, Sims is hinting of "further action" shortly.

Coles has so far been the target of legal action but this does not rule out Woolworths, which has also been the subject of ACCC investigations.

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READER COMMENTS

Cattle Advocate
9/10/2014 7:46:03 PM

With 75c/lt milk sold retail in Aus. Garry Mitchell from NFU on the 2014 milk price war in UK ''Tesco has assured us that it is fully committed to the group of dairy farmers contracted to supply it with its own-label milk and the price that group receives will reflect that commitment. But the damage of milk price wars stretches beyond those dedicated to supplying retailers. It can have impact on those supplying fresh milk markets but not aligned to any one supermarket, as well as those dairy farmers whose milk goes into cheese or high value dairy products''
Cattle Advocate
9/10/2014 7:58:31 PM

A 2012 UK report on unfair dealings between suppliers and retailers found that 10 EU members had started attacking 'Bad practice' and 5 more were in the process of doing the same. Traidcraft's Fiona Gooch ''Failure to act would not only have a detremental impact on farmers across the EU and in developing countries but ultimately undermine consumer choice in the long term''

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