THE federal government's draft food and grocery code of conduct is ready, but an end to market power abuse may not be in sight.
Small Business Minister Bruce Billson says the federal government is now awaiting feedback from key parties.
The voluntary draft code is designed to help curb market power abuses in the retail supply chain, with specific focus on actions by the dominant retail duopoly Coles and Woolworths.
Mr Billson said it was a “shame” the National Farmers Federation (NFF) withdrew from the process last year after demanding a mandatory code.
But its development has continued, with a consultation paper released this year ensuring the draft code complied with powers within the Competition and Consumer Act 2010.
Submissions to the consultation closed in September.
Not 'a bad effort'
Speaking to Fairfax Media, Mr Billson said the government had completed its work and returned the draft to participating parties, like the Australian Food and Grocery Council, for their final examination.
According to Mr Billson, the draft he received “wasn’t a bad effort”, rating it six or seven out of 10.
“It dealt with some of the more egregious areas of conduct that have caused the most angst and frankly some economic harm to the suppliers,” he said.
Mr Billson said these included requirements placed on suppliers to participate in promotional activities, amid fears non-participation may lead to delisting or “some hostility towards your interests”.
Other areas, he said, included unilateral mid-term contract variations, with little capacity “to push back”, even where there’s been some stock spoilage or shrinkage, with an expectation suppliers would have to fund the losses, even though they don’t control the retail premise where “some shoplifting may have taken place”.
“They were some of the more glaring examples and that (draft) was a good step in the right direction,” he said.
But Mr Billson said he was “troubled” by a provision that said the code would not enforce action on bad behaviour, unless it was by agreement between the parties.
“But that took us right back to where we started with the imbalance in the bargaining position of the parties,” he said.
“Agreement making wasn’t an adult-to-adult transaction - it was like a parent/child (transaction) and by leaving that provision in there, it left the door open for some of the issues that the code was seeking to address.
“We’ve gone and reworked that with quite an extensive degree of negotiation and consultation.”
Mr Billson said the original code also limited appeal and rights to redress, which was unacceptable.
“We were hoping to enhance that suite of options to problem solve, not constrain it, and then we went out to consultation and a range of other issues were raised,” he said.
“We’ve worked very closely and collaboratively – there’s been some straight talking as well.
“It hasn‘t all been easy sailing but it’s an important piece of work and we’re keen to get that right.
“We want to get that implemented and then learn from its operation and if it needs further refinement or adjustment after the initial period then let’s do so.”
Mr Billson said he’d also been in constant contact with Agriculture Minister Barnaby Joyce in developing the draft code and “I know what he’s looking for”.
He said Mr Joyce had been seeking to advance a range of policy objectives, “mindful this is an industry-led code”.
“I’ve been quite adamant that we didn’t want to lose sight of that because the industry knows best what kind of conduct and interactions, and dare I say it, mischief, which goes on in the industry,” he said.
“We want that commercial acumen to be brought to the table so we’ve got the best field evidence, the best commercial insights and then we can bring the best instruments and tools to support healthy and fairer competition and good commercial conduct.”
Mr Billson said his initial ambition was to release the code this year.
But he said it was now “such a significant issue” that he’ll be required to consult with his cabinet colleagues on the final code which will push out its release into next year.
Voluntary or mandatory code?
Debate is being clouded by confusion over descriptions of it being a voluntary or mandatory code, but Mr Billson said it’s an opt-in enforceable code.
“Some people think it’s a voluntary code, in that you can decide you can abide by it one week and not the next and then maybe the week after, but that’s not right,” he said.
“It’s a code that says ‘respondents agree to be bound by it’ and once they’ve made that agreement it’s then enforceable.
“Compliance with it is mandatory, once you choose to opt-in to the framework.
“The major supermarkets have said they’ll opt-in and I’m encouraging others in the retail supermarket industry and in the supermarket supply chain to also participate.”
Mr Billson said many farmers aren’t direct suppliers to supermarkets and sell their various products through intermediaries and aggregators.
But he said the supermarket code would set an important benchmark against which to strengthen and improve the horticultural code of conduct that needs completing.
Mr Billson said he saw the two codes as “companion measures” designed to get a fairer and healthier trading environment for farmers and producers.
“Barnaby (Joyce) and I are continuing our work on what we can do to strengthen the horticulture code,” he said.
“It’s fair to say our view is that has not been a spectacular success.
“Some of the provisions relating to the supply agreements that supposedly pre-existed before the horticulture code was introduced, have been a big escape clause.
“Many have said they had pre-existing supply agreements and therefore the code doesn’t apply to them.”
Mr Billson said in 2014, the Australian Competition and Consumer Commission (ACCC) had received zero complaints about transactions in the horticulture sector relating to its code.
“That either means things are spectacularly healthy and good in the horticulture supply chain, which I find incredibly hard to believe based on the field evidence I get when I’m out on farms with producers,” he said.
“Or it means the code’s not anywhere near as effective as it needs to be and I think it’s the latter.”
Links to Harper Review
Mr Billson said the Harper competition review was occurring alongside the code’s development.
He said the goal of the government’s competition review was to ensure the nation’s competition laws support efficient businesses, big and small, “and provide genuine prospects to thrive and prosper”.
“It’s been a generation since the competition law toolkit has been examined and an awful lot has changed in the economy over the last 22 years,” he said.
“The farming community would know the concentration in the retail market in supermarkets has had a bearing on different channels to market.
“There have been efforts to provide for a healthy and fair competitive environment for the horticulture code (but) it hasn’t achieved its ambitions.
“There’s been quite a lot of focus on the way in which the major (supermarkets) interact with their supply chain and that’s been the subject of quite a lot of work.
“There is some litigation underway and it’s not my role to prejudge that, but that gives you a sense something’s not quite right,” he said.
“I’ve been putting an awful lot of effort into a food and grocery code that’s also trying to ensure that important - but in some respects quite unique - relationship between suppliers and the supermarkets is kept within some reasonable guardrails.
“We’re trying to get those unique competitive tensions right and the safeguards right so that efficient businesses big and small can thrive and prosper and that success in the market place is determined by merit not by economic muscle.”
Mr Billson said Professor Harper and his team had consulted widely and recently released an interim report which was a “sign-post to preliminary conclusions”.
“Throughout the process so far there have been more than 500 submissions so people have been very engaged in the process, including the farming community,” he said.
Fair playing field
National Farmers’ Federation (NFF) CEO Simon Talbot recently said the draft competition report was an important step toward positive reforms to underpin Australia’s competitiveness for the next 20 years.
“The Harper Review is a critical opportunity to get the policy settings right, so that Australian farmers can compete on a fair playing field in domestic and overseas markets,” Mr Talbot said.
“Key priorities for the agricultural sector include measures that will rebalance the supply chain, including misuse of market power, unfair contract terms and greater flexibility in collective bargaining, among several other recommendations.”
Mr Talbot said the NFF maintained its principal policy of a mandatory supermarket code to ensure a “whole of supply chain approach that encompasses all retailers” and provides assurances that any breaches have government backing.
“We want to see the implementation of fair policy settings that positively impact on farmer revenue,” he said.
“The NFF and its 31 member organisations will be monitoring the outcomes of this process very closely.”