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Billion-dollar fines under supermarket proposal

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Australian supermarkets could face billions of dollars in penalties for severe abuses of power, under a new proposal tabled on Monday.
Australian supermarkets

A review of supermarkets has proposed a mandatory code that could see retailers fined billions of dollars for breaches.

The Federal Government ordered the review in January amid growing concern about supermarkets setting unfair prices for customers.

An interim report, out today, has made several recommendations ahead of the review’s final findings in June.

Australian supermarkets

Coles and Woolworths control roughly two-thirds of Australia’s supermarket sector. Each company reported profits of more than $1 billion last financial year.

The supermarkets have faced mounting accusations of underpaying farmers for their produce and charging unreasonably high amounts for some of their products, or ‘price gouging’.

Australian businesses can legally charge what they want for products – even if customers think it’s too high – but cannot lie about the reasons for their prices.

Supermarket code of conduct

Since January, former Labor MP Craig Emerson has led a review of the voluntary Food and Grocery Code of Conduct, developed by supermarket retailers in 2015.

It was designed to ensure fair business practices between supermarkets and suppliers. Coles, Woolworths, Aldi and IGA suppliers Metcash are all signed on to the code. However, there are no penalties for breaching it. Emerson shared interim findings this week.

The supermarket proposals

The interim review recommended a mandatory code of conduct and strong enforcement from the Australian Competition and Consumer Commission (ACCC) to drive competition in the supermarket sector.

Emerson called for severe penalties for supermarkets found in breach of the code. He proposed fines for major breaches calculated at 10% of total annual sales. Under this modelling, penalties for Coles and Woolworths could surpass $4 billion.

The ACCC would be responsible for identifying breaches and pursuing legal action against retailers, on suppliers’ behalf.

Disputes could be heard in court, or settled through compensation payments.

The review also warned against the Federal Government forcing supermarkets to sell stores to limit market dominance. It found a lack of potential buyers could lead to store closures and job losses.

Federal Government response

Treasurer Jim Chalmers described the current code as being “too easy to walk away from”, and must change.

Chalmers said the government would support a mandatory code of conduct and significant penalties for breaches.

The Treasurer backed Emerson’s opposition to forcing supermarkets to sell off some of their stores, saying there are “better, more effective ways” to improve competition.

What happens next?

Parts of the report will now be subject to public feedback ahead of a final report due in June.

Several other inquiries into the conduct of Australia’s supermarkets are already underway. This includes a Senate inquiry launched in December, and an ACCC probe due to table its findings next year.

Consumer group CHOICE is also developing price transparency reports, to be published every three months for the next three years. They will compare and monitor prices for essential items at different supermarkets.

Supermarket’s response

Woolworths supported a mandatory code of conduct, suggesting it include global retailers and other Australian companies also selling grocery items.

It named Amazon, Costco, Bunnings, and Chemist Warehouse among those it thinks should be subject to the same rules as Australia’s supermarkets.

Woolworths said it would now consider the report “in detail”, and continue to assist with the review.

Coles has said it would “remain committed” to supporting both its customers and suppliers, and it would “continue to work constructively” as part of the review process.

Metcash (IGA) said it was considering the details of the report and the implications for its business, but said it had “no objection” to making the code “in its current form” mandatory.

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