Australia: Supermarkets and suppliers beware - the Food and Grocery Code of Conduct has arrived and will take effect on 1 April 2025

On 12 December 2024, the Australian Government introduced a new Food and Grocery Code of Conduct (Code), following an independent review of the Code in 2023 -2024. 

The purpose of the Code is to address bargaining power imbalances between Australian supermarket retailers and their suppliers, particularly smaller suppliers. This follows concerns and complaints relating to the conduct of supermarkets towards suppliers and has the objective of improving standards of business behaviour in the food and grocery sector. 

The Amended Code is mandatory and will come into full operation on 1 April 2025. This article outlines the changes that businesses should look out for. 

What changes to businesses need to be aware of? 

The Code is mandatory 

Previously, the Code only applied to supermarkets that have volunteered to be bound by it. 

Under the new Code, supermarket retailers and wholesalers with an annual turnover greater than $5 billion will be automatically captured by the Code, with no option to opt out.  

Financial Penalties 

The reforms impose additional obligations for supermarket retailers and wholesalers with significant penalties for non-compliance including: 

• For breaches of clauses that provide essential protections to suppliers, the following maximum penalties will apply:
  
  • $10 million;
    
  • 3 times the benefit from the breach; or 
    
  • where the benefit cannot be determined, 10% of turnover in the last 12 months.
    
• Maximum penalties for other breaches will be 3,200 penalty units (currently $1,001,600).
  
• Infringement notices for industry code breaches will apply at 600 penalty units ($187,800) being an increase from 50 penalty units (currently $15,650) which otherwise applies for industry codes.

Further, the introduction of financial penalties into the Code will: 

• introduce maximum pecuniary amounts for more serious breaches of the Code that can be sought through the courts; and 
  
• give the ACCC the power to issue infringement notices as an alternative to commencing court proceedings.

 Avenues for dispute resolution

The Code provides parties with mediation and arbitration mechanisms to aid with resolving disputes including by:

• requiring supermarkets to appoint a Code Mediator to resolve disputes, where requested by a supplier. The decisions of the Code Mediator will bind supermarkets to award compensation up to $5 million;
• raking available avenues for compulsory independent mediation and (in some circumstances) arbitration on request from suppliers; and
• where mediation has not settled a dispute, independent arbitration can be used to settle disputes as agreed between the supermarket and supplier. 

Increased protection for suppliers

The Code has a focus on the increased protection of suppliers against retribution from supermarkets by:

• including protection against fear of retribution in the purpose of the Code such that the operative provisions of the code are interpreted consistently with this purpose;   
  
• ensuring that retribution captured under the obligation to act in good faith includes action taken against suppliers for exercising their rights under the Code;
  
• requiring that any incentive schemes and payments that apply to a supermarket’s buying teams and category managers are consistent with the purpose of the Code; and
  
• requiring supermarkets to have systems in place for their senior managers to monitor the commercial decisions made by their buying teams and category managers in respect of a supplier who has pursued a complaint through mediation or arbitration.

Increased transparency measures

The Code also increases transparency measures by including: 

• the introduction of a Code Supervisor to produce annual reports on compliance with, and otherwise provide oversight of, the Code;
  
• requiring grocery supply agreements to include the basis for determining prices; and
  
• requiring all new grocery supply agreements, to require supermarkets to provide a simple guide to any exceptions that are included in the agreement.

How we can help

If you have any questions on how your business may be affected by the Code or would like to understand how your business can ensure compliance with the Code, please do not hesitate to contact our experts listed in this article.