GROCERY manufacturers say a voluntary code of conduct agreed with the major supermarket chains will curb profits being transferred to Coles and Woolworths and denied it will push up grocery prices.
Australian Food and Grocery Council chief executive Gary Dawson said the new regime would help limit the $4 billion suppliers handed over to retailers each year in the form of rebates, discounts and shelf and listing fees.
"There's only so much profit in the pot and there's a limit on how much can be transferred," he said handing the final draft code of conduct to the federal government on Monday.
"Hopefully by putting some sensible limits around paying for listing [on shelves] and promotions and paying for prominence it might bring some rationality back into that area of costs," he said.
"That will hopefully slow down the profit transfer between retailers and suppliers."
Australia's largest baker, Goodman Fielder, and largest soft drink bottler, Coca-Cola Amatil – both of which have suffered at the hands of the major retailers in the last two years – welcomed the agreement, The Australian Financial Review reports.
"In the major issues of intellectual property protections and brands . . . and the agreement to give up retrospective changes in terms and the creation of a clear and transparent dispute resolution process it's really a huge step in the right direction," said Goodman Fielder chief executive and AFGC deputy chairman Chris Delaney.
"Most importantly it's a recognition by the retailers that it's important to have a productive relationship with manufacturers - together we have to rebuild the industry rather than negotiate value off one another," Mr Delaney said.
"While it's voluntary we both agree it will be a prescribed code so once you opt in . . . eventually this will be read into the competition act and therefore a violation of the code is a violation of the Competition Act."
Coca-Cola Amail chief Terry Davis - who called earlier this year for a national debate over aggressive supermarket practices - said the code was a "first step in the right direction" and gave retailers and suppliers a clear framework for doing business.
However, farmers dismissed the voluntary code as "spin", a defensive strategy designed to head off more draconian measures such as a mandatory code and proposed changes to competition and consumer laws that could crimp their power.
Retail analysts also warned that the code could lead to higher prices for groceries, if retailers and suppliers cut back on promotional spending, and could stifle further growth in retailers' gross margins, if for example, they could no longer charge shelf fees or force suppliers to pay the bulk of the cost of promotions.
Australian Competition and Consumer Commission (ACCC) chairman Rod Sims welcomed the final draft of the code, saying it was an improvement on earlier versions deemed inadequate by the ACCC.
However, he said the commission was pressing ahead with its investigation into allegations of unconscionable conduct and misuse of market power against the major grocery retailers.
"We're primarily focused on past behaviour – we'll look and see whether the code addresses that," Mr Sims said. "But the focus of our investigation is about matters that occurred some time ago. The rubber will hit the road next year.
"We have an enforcement role so we'll be keen to make sure what's there (in the code) allows us to fulfil that role," he added.
The ACCC launched the investigation earlier this year after claims from suppliers that retailers had persistently demanded additional payments above and beyond contract terms, imposed penalties and payments on suppliers that did not form part of negotiated terms of trade and did not reflect actual costs incurred by the chains, threatened to remove products from supermarket shelves or disadvantage suppliers if claims for extra payments or penalties were not paid.
Many of these practices will be prohibited under the voluntary code of conduct, which was agreed between Woolworths, Coles and the AFGC over the weekend.
Two of the most unpopular and controversial practices in the grocery trade – demands for fees in return for shelf space and arbitrary delisting of suppliers' products – will be banned.
Signatories will also be prohibited from using suppliers' intellectual property to develop their own private label products and will not be able to retrospectively alter contract terms. An AFGC/KPMG report released in June showed that suppliers paid $4.19 billion in rebates, discounts, promotions and shelf fees last year, 20.4 per cent more than in 2009. And in a report last year, Macquarie Bank estimated that about $1.2 billion in profits had been transferred from suppliers to retailers in the past three years.
Mr Dawson rejected suggestions the code would push up costs and prices.
"We deliberately steered clear of adding unnecessary red tape so it shouldn't increase costs," he said.
Small Business Minister Bruce Billson indicated the government would revisit a mandatory code if retailers failed to comply and it were found the code lacked "tools and teeth".
"If there is non-compliance, if it appears the code is ineffective then we will take further steps to make sure these commercial relationships, where there are quite significant imbalances in market power are properly managed and guided through an effective code."