Anti-Competitive Behaviour in the Supermarket Industry Targeted in New Code of Conduct

With anti-competitive behaviour within the supermarket industry in focus, the government has promised to accept all recommendations of a recent probe into the Food and Grocery Code of Conduct.

New obligations on supermarket chains will require them to treat their suppliers fairly, enforced by hefty fines. The mandatory code (once in place) would also police unreasonable demands or threats by supermarkets on suppliers and will apply to companies with an annual revenue of $5 billion which includes Woolworths, Coles, Aldi and Metcash.

A voluntary code in the supermarket industry has been in place but when former Labor minister Dr. Craig Emerson looked into it he realised it wasn’t doing its job and was quoted by ABC News as saying; “it had no penalties and no disputes raised after 2021.”

“So what it really means is that the supermarkets will need to treat their suppliers respectfully, and not use that bargaining power, their superior bargaining power, the muscle that they have, particularly over smaller suppliers.”

It’s unlikely consumers will see a direct effect on prices but the changes will benefit suppliers, meaning they could compete at lower prices.

In February, a report by former chair of the ACCC Allan Fels, commissioned by the peak trade union body the ACTU, found supermarkets were exploiting their market power in ways that hurt Australian households.

The ACCC is also conducting its own inquiry into supermarket prices, with its interim report due to be handed to the government by the end of August.

You can read more from the ABC here.

And to access a copy of the Release of the Final Report of the Review of the Grocery Code of Conduct from the government, head here.

 

What is Anti-Competitive Behaviour?

 

This refers to actions taken by a business or organisation to limit, restrict or eliminate competition in a market, usually in order to gain an unfair advantage or dominate the market.

As per the ACCC (Australian Competition & Consumer Commission) website, they share the following:

  • Competition leads to lower prices and more choice for consumers. It also inspires better quality products and services.
  • The Competition and Consumer Act 2010 bans business behaviours that damage competition.
  • It is illegal for businesses to collude in a cartel or to impose minimum resale prices.
  • A range of other behaviours break the law if they substantially lessen competition.
  • Businesses can seek an exemption for anti-competitive conduct.

For further reading on competition and anti-competitive behaviour, head to their webpage here.

 

What Happened During Covid?

Covid posed conditions for consumers that were not considered normal. When economic conditions operate as normal, the ACCC monitors anti-competitive conduct as outlined in Section 45 of the ‘Competition and Consumer Act.’ This act prohibits contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market.

However, industry conditions impacted by the Covid-19 pandemic, meant the ACCC at the time authorised businesses that normally competed with one another to coordinate their activities and share resources in ways that would normally be illegal.

The big supermarket companies were allowed to work together to ensure shelves were stocked with food and groceries, the banks were permitted to jointly provide debt relief and medical equipment suppliers were authorised to work together to boost the supply of equipment needed to deal with the COVID-19 pandemic.

These anti-competitive practices usually result in inefficiency and higher prices for consumers.

But at the time, ACCC chair Rod Simms, said relaxing the rules was warranted for the moment.

“At a time of crisis such as in war or with a pandemic, where there is a common enemy to fight for the nation’s survival, and so a sense of national purpose, coordination is both efficient and carries little or no downside,” he said. He also added that coordination between competitors during this period will lead to “much better outcomes.”