How effective is a voluntary code?

As the Australian Food and Grocery Council wraps up the final tweaks in its proposed voluntary code of conduct for supermarkets and food and grocery manufacturers, questions regarding the effectiveness of self regulation in our duopolistic market have been raised.

The voluntary code is designed to curb the power of supermarkets and ensure a fair go for smaller suppliers.

Sounds great in theory, however not everyone is convinced that the code will provide benefit for smaller, local manufacturers as the two supermarket giants, Coles and Woolworths, continue to reign.

The recent departure of the National Farmers Federation from negotiations has bolstered the cloud of doubt surrounding the value of a code based on voluntary participation.

Jock Laurie, president of the NFF, said the federation has lost confidence in the ability of the code to protect farmers’ interests, despite a positive start to negotiations last year.

“Australia has an extremely concentrated supermarket retail sector, which risks an abuse of power by the supermarkets over tier suppliers,” he said.

“The primary purpose of a code either voluntary of mandatory, is to ensure the retailers do not misuse their market power.”

 The National Farmers Federation has called upon the federal government to help deliver a mandatory code which would include safeguards against a misuse of power, address concerns over contract negotiations and provide adequate dispute resolution avenues including a confidential complaint process.

The code

The code, which is based on negotiations from last September under the request of Assistant Treasurer David Bradbury and Agriculture Minister Joe Ludwig, includes input from Coles and Woolworths, the AFGC and the NFF.

The code is centred on the principles of codifying contractual arrangements between suppliers and retailers, ensuring that efficiency in the supply chain is achieved, and that the supply chain is not overregulated.

CEO of the AFGC, Gary Dawson, believes that a voluntary code would be just as effective as a mandatory code in ensuring the participation of the supermarket giants, especially considering failure to sign up could result in poor supplier relationships.

“It would be very difficult for suppliers given how competitive the market is. An important element of the code is about ensuring efficient retailer/supplier relationships,” Dawson told Food Magazine.

“To Woolworths’ and Coles’ credit, they have taken that on board and we are working through those issues.”

Dawson said that the AFGC is working with the retailers to develop an effective code that provides more contractual certainty, encourages investment in innovation, provides for appropriate sharing of risk and an effective dispute resolution mechanism – all without adding unnecessary compliance costs on suppliers.

“It’s in the interests of consumers, suppliers and retailers to have an efficient and viable supply chain in Australia. We want to get on with the job of building a competitive sector, both domestically and internationally, and will continue to pursue mechanisms for improving relationships across the supply chain,” he said.

Dawson also stressed that while a voluntary code will not be legislated, it would still be enforceable by the ACCC.

 “The AFGC remains committed to the process which began last year to work with government, the ACCC, other industry bodies and the major retailers to develop a voluntary industry code which is enforceable by the ACCC.”

“Whether an industry code is mandatory or voluntary, the key issue is that it must be effective without simply adding unnecessary compliance costs on suppliers.”

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