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The federal government has confirmed it will impose new obligations on large supermarket chains to treat their suppliers fairly, enforced by hefty fines.
In a move that has been anticipated for several months, the voluntary 'code of conduct' the supermarkets wrote themselves a decade ago will now become mandatory with tougher prohibitions against making unreasonable demands or threats to suppliers.
This was the main recommendation of a review conducted by former Labor minister Craig Emerson and finalised this week. The government will adopt all of Dr Emerson's recommendations.
The code will apply to supermarkets with annual revenue of $5 billion. That covers Coles, Woolworths, Aldi and wholesaler Metcash, but Dr Emerson added it would likely cover Costco in future and also Amazon if it decided to sell groceries online.
Supermarkets will be required to deal with suppliers "in good faith" and prevented from "retribution" against suppliers who complain.
Supermarkets who fail to meet these requirements would open themselves to fines worth three times any benefit they derived from their misconduct.
Alternatively, the fine could be up to $10 million, or 10 per cent of the supermarket's annual turnover if the benefit can't be determined.
Those fines would need to be approved by a court, but consumer watchdog the ACCC could also issue up-front 'infringement notices' worth up to $187,800 if they believe there has been a breach.
These figures are similar to those suggested in Dr Emerson's interim report in April.
New process for compensation will rely on supermarkets to play ball
The court-imposed fines are considered the last resort, and Dr Emerson also recommended a new process for suppliers who feel they have been wronged to seek compensation.
Under the current voluntary code, suppliers must have their case heard by 'arbitrators' appointed by the supermarkets themselves. That system has led to very few successful complaints.
Instead, the mandatory code will require that supermarkets appoint mediators rather than arbitrators in the first instance, and that an independent arbitrator then be available to make decisions about compensation when mediation fails.
A difficulty is that supermarkets can't be forced to participate in arbitration under Australia's constitution, but Dr Emerson said the supermarkets had agreed "in principle" to respect the arbitrator's decisions up to the value of $5 million for small suppliers.
Legislation the next step as government also eyes customer experience
In a statement on Sunday night, Treasurer Jim Chalmers and ministerial colleagues said the government would adopt Dr Emerson's recommendations "in full."
"The review found that the current voluntary code is failing to address the imbalance of bargaining power between supermarkets and their suppliers, including farmers.
"Suppliers fear retribution from supermarkets if they raise concerns or exercise their rights … We're cracking down on [this] anti-competitive behaviour."
Making the code of conduct mandatory can be done swiftly, because it is set up in regulations that can be varied by ministers.
But the new penalties will require legislation to change the Competition and Consumer Act, which the government has said it will "prioritise" but does not have a specific timeline for. The Coalition has previously indicated support for a mandatory code.
Separately, the government has asked the ACCC to study supermarket pricing as it effects both customers and suppliers. An interim report is due by the end of August, but ACCC Chair Gina Cass-Gottlieb said that would not include recommendations.
The government has also commissioned quarterly price monitoring reports from consumer advocacy group Choice, the first of which was released last week.