Fines favoured over divestiture powers in supermarket code of conduct review

Wololworths says average prices for food dropped 0.2 per cent in the most recent quarter.

Wololworths says average prices for food dropped 0.2 per cent in the most recent quarter. Photo: Getty

An interim report has recommended that Australia’s consumer watchdog should be able to fine supermarkets for breaches of a mandatory code of conduct, but stopped short of calling for powers to break up the supermarket duopoly.

Led by Craig Emerson, an economist and former Labor politician, the interim report recommended that the voluntary grocery and supermarket code of conduct should be made mandatory and supermarkets should face fines if they break it.

Dr Sanjoy Paul, associate professor in the UTS Business School at the University of Technology Sydney, said the supermarket sector is currently under intense scrutiny because of their pricing practices.

“We saw supermarkets, suppliers and partners blame inflation, but prices increased above inflation in many cases,” he said.

“Consumers feel supermarkets are greedy.”

He said the recommendations in the report mainly rely on heavy penalties to keep supermarkets in line.

“I don’t believe imposing penalises will be everything required to address the issues we’ve been talking about,” Paul said.

“Recommendation one is making the grocery code of conduct mandatory, which is great, but that doesn’t address the entire supply chain and the transparency issues.”

The Australian Competition and Consumer Commission (ACCC) would be able to pursue penalties of up to 10 per cent of a supermarket’s annual turnover, $10 million or three times the financial gain of the breach of the code.

Divestiture powers

The Nationals, Liberals and Greens have all called for Australia’s consumer watchdog to have the power to break up the supermarket duopoly, but Emerson’s report stopped well short of recommending it.

“This review’s recommendations to make the code mandatory, with heavy penalties for major breaches will, alongside effective enforcement of the existing competition laws, constitute a far more credible deterrent to anti-competitive behaviour than forced divestiture laws,” Emerson said in the report.

Economists have previously argued that granting either the courts or the ACCC the power to break up monopolies that abuse their market powers would drive down prices by creating more competition, but Prime Minister Anthony Albanese also shot down the idea.

“What do you do if there’s two supermarkets in a particular town or regional or community and one of them is Woolworths and one of them is Coles?” Albanese said on ABC Radio.

“What do you do? Tell Coles to sell to Woolworths? That would lead to an increased concentration of market power as well, or do you somehow get a foreign company to come in and have a presence in a regional town?”

Anthony Albanese supported the review’s decision not to recommend divestiture powers. Photo: Getty

Other recommendations

The review also recommended that the ACCC establishes a direct complaint line for suppliers to raise market issues and the establishment of “annual reports on disputes and on the results of the confidential supplier surveys”.

Paul said while there are “great recommendations”, there is scope for improvement.

“Recommendations six and eight talk about proactive investigation, I believe that it should be clearly articulated how those investigations should be conducted and how transparent it will be,” he said.

“Proactive investigations will bring more positive outcomes, but again in terms of pricing, which was the main topic in the last couple of years, I believe that somehow that needs to be addressed.”

It also recommended that to allay fears of suppliers receiving negative consequences for raising concerns, “protection against retribution” should be included in the code.

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