ANDY PARK:
Well, the big supermarkets are lacing up their gloves for fights from both sides of the ring. Today, the Australian Competition and Consumer Commission announced legal action against Coles and Woolworths and the government unveiled its mandatory Food and Grocery Code. The new draft Code sets out to improve the way suppliers are treated by the big retailers and also aims to prevent retribution against those who complain. But will this Code see the supermarkets on the ropes? Bad behaviour or simply ducking and weaving the penalties? Andrew Leigh is the Assistant Minister for Competition Charities and Treasury. Welcome to Drive.
ANDREW LEIGH:
Thanks, Andy. Great to be with you.
PARK:
Before we talk about the draft mandatory Code, what was your reaction to the ACCC’s announcement that it would be taking Coles and Woolworths to court over anti‑competitive behaviour, or allegations thereof this morning?
LEIGH:
These are incredibly serious allegations, Andy. The allegations involve 266 Woolworths products, 245 Coles products. The ACCC is alleging similar conduct from both of them. That they had a product price that was running for a long time, they then spiked the price, dropped it down a little bit, and then put a ‘prices dropped’ or a ‘down, down’ label on it. The ACCC’s media release talks about one example from Woolworths, where it was selling Oreos for about a year at $3.50, spiked the price up briefly to $5, dropped it down to $4.50 and then put a ‘prices dropped’ promotion on it. Now, that’s just one of the many products that they’re making this allegations on. Obviously they’re going to be tested in court, but if true, I mean, we’re talking about millions of dollars. And at a time when Australians are feeling the cost of living, the squeeze, they need to know they’re getting real specials at the supermarket, not fake ones.
PARK:
With the draft Code that you’re releasing today, how does it define who the Code will apply to?
LEIGH:
Well, the Code applies to those who are selling groceries with a turnover above $5 billion. Right now, that catches Woolworths, Coles, Aldi and Metcash.
PARK:
And is that the threshold that applies to the individual arms of this group or the group as a whole? Because that was unclear.
LEIGH:
Well, it’s the group as a whole when it comes to Woolworths, Coles and Aldi. And then Metcash comes in with all of its entities wrapped in there. It is possible that Costco will exceed that threshold as it is coming close to that figure. If Amazon chose to expand its sales of groceries and went over the $5 billion threshold, then it too would come inside the Code.
PARK:
Because, I mean, to give the examples of the Woolworths Group, they recorded $67 billion in sales. Big W alone made up $4.6 billion in sales. So, would Big W be on its own and subject to this Code separately?
LEIGH:
Well, this is covering food and grocery sales. So, if your food and grocery sales are above $5 billion, you’re in. Big W doesn’t have food and grocery sales above that threshold at the moment.
PARK:
And if a business meets that threshold one financial year, but their accounts fall below $5 billion the next, does that mean that the Code will no longer apply to them?
LEIGH:
They’d be in it for any year where they were above it. We haven’t in practice confronted the situation you’re talking about, Andy. These suppliers tend to grow year‑on‑year. It’s a rare year in which total turnover is down. So, I would expect if Costco passes the threshold, that they would be in and continue to be in.
PARK:
The Code requires supermarkets to deal with suppliers, quote, in good faith, which seems like a difficult thing to define to me. How do you define good faith?
LEIGH:
Well, this is a standard which is subjective, but we have good case law on it. It’s certainly something which is, we believe, appropriate to be litigated. We’re also increasing the penalties. Previously, the Code as set up by the Liberals and Nationals has been a pretty toothless Code. We want to see families and farmers get a fair deal. The way in which we manage to do that is by ensuring that the Food and Grocery Code of Conduct has penalties. And that then means, Andy, that suppliers are willing to raise complaints. Right now, there’s a real reluctance among suppliers to raise complaints because they know that, best case scenario, there are no penalties applied. Worst case scenario, they’ve gone and damaged their relationship with a supermarket. And when we’ve got only a very limited number of people that farmers can sell to, then that’s a real concern.
PARK:
And if they do come forward under this draft Code, it’s set out that the large supermarkets appoint a Code mediator or a Minister‑appointed Code Supervisor so how do those roles operate?
LEIGH:
Yeah, we’ve got Code arbiters at the moment who, frankly, aren’t doing much work because of the fear of retribution, and they’ll be redesigned as Code mediators and then the complaints will be able to be made to them. Craig Emerson, who’s a former competition Minister, has done important work in order to secure the in‑principle agreement of Woolworths, Coles, Aldi and Metcash to be bound by a decision of the Code mediator for compensation up to $5 million. That’s a real credit to him because there are constitutional limitations on what we can do in this space. He’s secured the guarantee that the Code mediators can do their job. It’s really critical.
PARK:
It’s 04:13 you’re listening to ABC Radio National Drive. Minister Andrew Leigh with me. Will the government’s draft mandatory supermarket Code rein in bad behaviour towards suppliers? This Code also aims to prevent retribution against suppliers who complain about bad behaviour from the supermarkets. How does it define what that is and what is an act of retribution then? How do we define that?
LEIGH:
Well, there’s going to be an anonymous channel to make complaints through the Australian Competition Consumer Commission. The ACCC can also use that information to form views about systemic Code breaches and that could trigger an investigation. That then means that there are much stronger incentives for the supermarket against engaging in any retribution, in particular for the fresh food sector. And I know this has been a real concern for farmers because you’ve got spoilage challenges there. There’ll be protections under the Code, strengthened to deal specifically with issues that they face, because in context, you know, if you’ve got a bunch of berries that are about to go off, you just can’t afford the situation in which your main supermarket supplier has turned you away. So, we need the supermarkets to behave more reasonably, specify the basis for determining prices, to conduct forecasts with due care, to have reasonable quality standards. All of those things will help the fresh food suppliers.
PARK:
What’s the maximum penalty that supermarkets could face under this Code?
LEIGH:
The maximum penalty is going to be $10 million, and so that’ll be a significant penalty, moving and moving it up quite substantially.
PARK:
How do you ensure that the costs of these fines aren’t carried by the consumers at the end of the day?
LEIGH:
Well, so let me just finish on the penalties and then I’ll answer that excellent question. $10 million, 3 times the ill‑gotten gains, or 10 per cent of turnover in the previous 12 months. So, the penalties will be very considerable. That would only be applied, of course, in the worst circumstances. Andy, this question of penalties arises any time you’re talking about corporate misconduct. Invariably, if we were worried about that, then we wouldn’t have appropriate penalties in place for corporate malfeasance. The fact is, we need the incentives in place to ensure that managers are doing the right thing. We need to make sure that we have a competitive market in which firms are looking after consumers, looking after suppliers, looking after their workers. And so we make no apologies for having raised the penalties for anti‑competitive conduct. And indeed, in the ACCC action today, part of the alleged behaviour takes place after a period where we raised the penalties, and that will apply to those to Coles and Woolworths, if they’re found to be liable.
PARK:
Have to leave it there. Assistant Minister for Competition Charities and Treasury Andrew Leigh. Great to talk to you this afternoon.
LEIGH:
Likewise. Thanks, Andy.