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Manufacturers supplying Coles and Woolworths have signed a new agreement to force an end to what suppliers say are harsh bargaining practices by the giant chains. The agreement, signed at the weekend, gives the competition watchdog stronger powers to oversee bargaining processes. The Small Business Minister, Bruce Billson, says the new agreement is a substantial piece of work. He is speaking here to Marius Benson.
MARIUS BENSON:
Bruce Billson an agreement between the suppliers and the supermarket giants is often discussed but no action has been taken, but you say now this is a substantial result.
BRUCE BILLSON:
That’s right, it’s a significant step forward Marius, um, and congratulations to the Australian Food and Grocery Council, Coles and Woolworths for sitting down and understanding that in the supply chain where smaller businesses are supplying these very large supermarkets that there’s a need for a code to govern and shape the relationships between the businesses involved in, in this industry.
BENSON:
And the first thing to note about this code before going into the details is that it’s voluntary, just voluntary.
BILLSON:
Yes and that’s one of the issues that we will be examining. This code is an excellent step in the right direction. We’ve been urging the parties to sit down and work through what they know about their industry and the pressures that are there in the supply chain to give it their very best shot. They’ve done that, they’ve produced the code. It is voluntary so there will be pressure from all angles for people to sign up to participate. And secondly it needs to go to a regulatory impact statement where other participants in the supermarket supply chain, other supermarkets, other producers that aren’t part of the Food and Grocery Council can examine the code, receive input and then we can proceed to evaluate its potential effectiveness.
BENSON:
But when your talking about supermarkets and people supplying supermarkets you’re really only talking about Coles and Woolies. That’s 80 per cent of the story isn’t it?
BILLSON:
Yeah they’re the vast majority Marius and that’s why we’re pleased that both Coles and Woolworths have acted constructively and collaboratively to develop this code with the Food and Grocery Council. But there are more involved and there are a broader range of stakeholders, consumers such as you and I, those that are watching to see how this area of the economy where there are two very dominant players ah use their market strength in a thoughtful way, recognise that collaborative and mutually respectful relationships are needed with their suppliers.
BENSON:
Do you think the suppliers are getting a rough deal in their dealings with Coles and Woolies?
BILLSON:
There have been some examples of that Marius. Some have been raised with me directly and I know the ACCC is investigating a number of examples where the conduct appears to have been quite unconscionable. I think this code is recognition that there is an opportunity to improve that relationship. That the supermarkets are very large players and if you are a supplier to them, you’re very reliant on that relationship continuing even if that relationship isn’t a particularly positive one. So we’ve seen those inquiries being progressed, we should know more about that from the ACCC early in the new year and alongside that you’ve also got this development of the code.
BENSON:
What will change under this code? What will be different?
BILLSON:
Well it’s the behaviours that the code seeks to address Marius. It’s ah, ah clear statement between the parties about the way they will conduct themselves, the respectful nature of those commercial arrangements, the no surprises basis of commerce, rather than seeing a small supplier being told to unilaterally change the pricing or the way in which they engage with the big business. This code’s saying that the supermarkets won’t go about too many of these surprises which can be very damaging to the smaller business. But often the smaller business might have no market power or capacity to push back, you know faced with demands that might be quite damaging to their business and quite unreasonable. But not something that can be resolved just through the normal commercial negotiations.
BENSON:
And what will it mean for customers if suppliers are not as squeezed as they have been in the past? Does that mean customers will be paying more?
BILLSON:
No I wouldn’t have thought so, I mean we have seen some ferocious competition at the till where the big supermarkets are fiercely competitive with each other and we have seen some examples where that pressure has worked its way down the supply chain so that the suppliers are at the pointy end of that competition. What this is about is recognising that competition on merit is good for the economy, it’s good for those participating in the economy and is good for consumers. But where that competition is fierce and where there’s an imbalance in market power, there is a greater duty and responsibility on those big businesses to wield that power with care so that they’re not causing harm and damage elsewhere. Where competition is not competitive, where there are inappropriate and unscrupulous kind of commercial arrangements, that’s no good for anyone Marius. That’s not good for consumers because in the longer term fair competition won’t be available to them to see new product choice, price pressures that you’re looking for and it’s not good for the suppliers because they’ll be squeezed out of business and then the big supermarkets might be left with very limited opportunity to make it available as an offer to their customers.
BENSON:
Bruce Billson thank you very much.