Ladies and gentlemen thank you for joining us this morning.
We are here to announce that the Australian Food and Grocery Code will come into force as of tomorrow.
This industry led initiative recognises concerns about the pressure, particularly smaller suppliers are facing in the supply chain, to our largest supermarkets in Australia.
This Code is about looking after the interests of consumers because we know if suppliers are uncertain or anxious about their supply arrangements that will impede their preparedness to invest, to innovate and to provide good value to Australian consumers.
What this Code does is it sets a framework for fair and healthy commercial interactions between the supermarket chains and their suppliers.
It acts, if you will, as a bumper rail within which fair and free commercial negotiations can take place, but not to see those negotiations stray into areas that are detrimental to the suppliers and then in turn to Australian consumers.
The Code enables our supermarket chains to agree to be bound by it, but once having opted into the Code it is binding and will be supervised by the ACCC.
Key elements of the Code include a requirement to have a Grocery Supply Agreement. This is about transparency, this about openness and predictability for suppliers in their dealings with the supermarket chains.
There are parameters within which those Grocery Supply Agreements may then be varied with the agreement of the supplier, but always with the opportunity for the supplier to challenge those variations or the grounds on which the major supermarket chains may seek to vary those agreements, having entered into them.
There is a mediation process where a dispute arises, where senior members of the supermarket chains can consider those concerns and, failing that, and an avenue to raise those concerns outside the supermarket chains and the supply arrangements themselves.
There is a requirement for documentation to be maintained, so that where concerns arise that will provide the evidence basis on which the ACCC may choose to intervene to exercise its general powers under the Australian Competition and Consumer Act.
This is a very substantial step forward in an area of commercial dealings that has drawn an awful lot of attention.
Where suppliers are not confident, are not seeing a predictable commercial relationship, feel that their interests are not being aligned with the interests of the supermarket chains – that is bad news for the Australian economy, for the supplier and consumers. It acts as a chill on investment, on product innovation, on the choice and value that Australian consumers are looking for.
This is a very significant day. A grocery supply Code of Conduct that will bind the conduct of those that agree to be bound by it to ensure that there is safe, healthy, mutual, respectful relationships with their suppliers. That will give us a thriving and vibrant grocery supply sector that is good for our economy, that is good for consumers and that is good for the ongoing relationship of those suppliers that have a very heavy dependence on the supermarkets that they supply to.
Gary, I invite you to add some thoughts.
Thanks Minister, it’s a great pleasure to be here today because this is a real step change in trading relationships and really what is the most important sector of the economy for Australian consumers -the food and grocery space. It is where consumers buy the essentials of life every day and the importance of healthy, vibrant, competitive trading relationships in that sector cannot be overstated.
It is an historic day. This Code will make a real difference in that market and it is essentially about ensuring suppliers get a fair go and consumers get the benefit of a vibrant, dynamic, competitive market. So for both consumers and suppliers it is critical to ensure that this market operates effectively.
It has to be said that this has been done through a collaborative approach; the retailers have been at the table throughout. In fact it was their willingness to come to the table that made this Code possible and full credit to the Minister and to the Government for picking up that agreement that was reached with the retailers, progressing it through to now being tabled in Parliament -giving it real teeth so it is both a meaningful and enforceable Code.
As I say, step change in trading relationships, it really sets us up for a much more stable, more competitive, more evenly balanced trading situation for the future and quite an historic day.
Thank you Minister.
So this takes force as of tomorrow.
Just to explain the consultative process that Gary touched upon. The draft that had been worked up by the Food and Grocery Roundtable has been through an extensive consultation process. Through that we engaged more broadly with the Australian community and a number of changes have been introduced.
There is now a new reasonableness test, which deals with proposals to vary or to seek changes to Grocery Supply Agreements. Broadening the good faith obligations, so that is a burden and responsibility shared by both parties. Improved dispute resolution processes. Improved record keeping that provides the evidence from which further action, where that is necessary, can be taken by the ACCC.
We have created a wholesaler regime which sees that tailored regime focusing on differing business models that are in the supermarket sector, and there is also a review provision – within three years this Code will be reviewed to see where there is a need, if there is one, to strengthen, to make some changes and that ensures that it responds to the dynamic food and grocery sector.
We are happy to take some questions.
There has been a habit of Senator Leyonhjelm in recent times to introduce disallowance motions. Do you know whether you’ve got his support on this and it’s obviously a disallowable instrument, I assume...
That is correct.
… Whether there will be any resistance from the crossbench in the Senate?
We will be engaging with the crossbenchers to ensure its smooth passage through the Senate. Yes, it is able to be disallowed. I have had no indication that any Senator has that intention.
And that is for a number of reasons: one, this is an industry-led initiative, so in terms of Senator Leyonhjelm’s outlook, this is minimum effective regulation. Instigated and led by industry, buttressed and strengthened by the Government through its consultation process.
Secondly, I have not heard anybody suggest that the Code is not necessary. There is a clear public policy justification and in the lead up to the election we made it clear that we would support the efforts of industry to formulate this Code, given that industry knows best the detail and the nitty gritty of their commercial relationships.
And then we would bring our view to the Code to strengthen it, to ensure that consumers are the focus and that their interests are protected.
I am very optimistic that there will not be any move to disallow it in the Senate.
Minister, this only applies to those who sign up to it in terms of retailers. Have you had any indication from Coles and Woolies that they will sign up, and if they don’t what can you do?
I have been very encouraged by the positive response of all the major supermarket chains through the development of this code.
Originally, it was proposed and drafted by Coles and Woolworths in collaboration with the suppliers’ representative organisation – that is the Australian Food and Grocery Council.
When we put it out for consultation we had a lot of engagement with Metcash and also with Aldi and again they have been very supportive of the Code.
So there is no good reason, no good reason whatsoever why those supermarket chains would not move quickly now to signal their commitment to the Code, having made that decision they are then bound by the Code and it will be overseen by the ACCC.
If we cannot get to that point, I have made it clear that the Government is prepared to escalate the Code to one that forces their participation. I do not think that is necessary. That would be at odds with the spirit of the discussions to date and the indications of support that I have received.
I am now calling on those supermarket chains to follow through on those words, to advise the ACCC that they agree to be bound by the Code and we can get on with what is a very substantial improvement in the operating arrangements within the grocery supply sector.
Is there a deadline to which you would like to see them sign up?
I have indicated to them I would like them to do that sooner rather than later. We have not nailed a date.
I am encouraged by the positive response that I have received.
As I mentioned earlier, I can see no good reason why they would not move quickly to formally notify the Commission that they are prepared to be bound by the Code.
Gary – is there anything you would like to add?
One of the strengths of the collaborative approach that’s been taken here is that the major supermarket chains have been involved in this right from the start.
It was their willingness to come to the table that made this possible, really. So they have been involved literally in the drafting of this from the start and so that is one of the strengths. That is why it’s so relevant to the trading relationships in a real way.
Notwithstanding that, it is a strong, enforceable code that does address the pressure points, does address the areas of friction that have caused such angst in those trading relationships over recent years.
We think it’s a good balance. It is minimal effective regulation, it is light touch regulation consistent with the Government’s view, consistent with the industry’s view and that is one of the real strengths of the Code.
Do you think suppliers will end up seeing more money for their products through this Code?
Well it doesn’t really go to price, what it goes to is an effective competitive market.
If they have a better chance of, I guess, a more even ground to compete on if they feel that they are not going to be discriminated against by asking what they think is a fair price for their products?
It means there is more confidence for them to invest and I guess to negotiate a fair deal.
That is really what it’s about – ensuring suppliers, Australian suppliers, get a fair deal and consumers get the benefit of a competitive market.
It is about injecting certainty and confidence on the supplier’s side when they go into those negotiations. I guess some greater confidence that they will get a fair deal.
We know the National Farmers’ Federation stepped out of the process a couple of years ago.
Where does that leave them now, do you think? And does this Code also help to serve the interests of farmers, who have also raised a lot concern about the behaviour of the supermarket duopoly in recent times.
Yes the NFF did decide to exit the roundtable, and the work was progressed by Coles, Woolworths and the Australian Food and Grocery Council.
What I am pleased to advise is the NFF did engage in the subsequent consultation process. So for those producers that are supplying directly to the supermarket chains then there is a utility value and benefit in this Code.
This Code is not the only measure though that seeks to ensure proper relationships with suppliers.
The Horticulture Code is something Minister Joyce and I have indicated needs to be reformed and strengthened – that is a companion measure that sits alongside the Food and Grocery Code.
And to give you a sense of my view that this is a substantial step forward, late in the consultation process some – particularly in the wine growing community, even in the alcohol sector – wanted to say ‘Please include us’ so that was the judgement of the market saying this is a good measure and a substantial step forward.
I think it represents a very effective starting point for the examination of the Horticulture Code to make sure it is strengthened and made more effective and that is a task that Minister Joyce and I have at this time.
Will there be more to say about this in the Harper Competition Review, he has got more steps to take there to give the Government more powers to oversight the market?
The Harper Review is a very important review process and we are looking forward to receiving the panel’s final report this month.
They have yet to settle on their final recommendations. That report has not come to Government, but they are well advanced.
One of the areas that it speaks to is the importance of codes. It actually makes the case that codes are very important to support effective, vibrant, mutually respectful commercial relationships, particularly where there is a big imbalance in market power. One of the reasons why this Code has been developed is many suppliers felt whilst they could engage in a commercial negotiation, they felt very diminished in their power to influence the outcome because of the economic mass of the supermarket chains. Harper points to that, says codes are very important to support good conduct.
It also points in its draft recommendations too, the need for the remedy mechanisms to be able to be accessed easily by those that have felt they have been poorly treated. That is another recommendation and then there is some further proposals to strengthen some of the other provisions of the law to make sure that they are effective and ensure that efficient businesses – big and small – can thrive and prosper.
That is our aim. Efficient businesses, big and small, to thrive and prosper.
That goes to making sure Australia is the best place to start and grow a business.
Having surefootedness in those commercial relationships and transparency is a key part of that.
Where did you get to in the end with the Agriculture Minister on the Code, because we have obviously been in talks with him and he supported, the National Party, supported a mandatory Code.
Yes, and what I have explained is that this is an opt-in binding Code.
There was some misunderstanding in sections of the community that because it was called ‘voluntary’ under the section of the competition consumer law you could choose to abide by, and then choose not to, and really not be that committed.
That would be to mischaracterise the nature of this code.
The only voluntary action is for a supermarket chain to decide to be bound by it.
Once they have made that decision to opt-in, it then becomes binding. It is mandatory and it is supervised by the Commission.
That is an appropriate step, I think that is reasonable because we are putting new burdens and new disciplines on the supermarket chains and that is where we are saying, you have come forward with this idea, we have supported you and now it is good to go, sign up and let us get on with it.
So you’re saying that Barnaby and the National Party are happy.
Yes, it went through Cabinet. I spoke with the National Party colleagues. They were obviously running the mandatory line. I explained this as an opt-in binding code and the differences in that have been appreciated and they have also recognised that we have got work to do on the Horticulture Code which is really a primary focus for their interests.
Can you give an assurance that consumers will not be paying more for groceries because of this? Because, I mean, as much as we do not like to see companies being exploited, if we are making it harder for Coles and Woolworths to screw down on their suppliers, that would inflate your prices wouldn’t it?
Yes, not my word – screwing down – you can use that word, but this is about promoting fair and healthy and transparent competition.
That is good for value. That is good for prices. And I think consumers are the net beneficiary of those changes. Even the supermarkets themselves have recognised that there needs to be some bumper rails on their conduct and special care given to the immense market power and presence that they have in our economy.
So I think consumers are unquestionably a net beneficiary of this. There will be a contest over price; there will be a contest over quality, a contest over innovation - that is business, that is commerce.
This simply says – have those negotiations and those transactions done in a fair and healthy and transparent way.
This is pro competition and we think competition is good consumers and good for value so that is where I am at with that.
So, does this mean an end to $1.00 a litre milk and .85 cent loaves of bread?
Well some of the businesses there have chosen that pathway over a longer period of supply time.
So they have said well we will enter into arrangements and let us look at Murray Goulburn, for instance, where they have entered into a supply arrangement for home brand milk but they have gone into it for a much longer period and they saw advantage in having, perhaps, their margins curtailed slightly for the certainty of a longer term supplier agreement. And on that basis they have been able to invest and innovate and bring new capacity to their business.
What this says is those discussions; we are not seeking to curtail them. Have them on the table – transparent, open and each party can weigh up their interests. It also says though, once those agreements have entered in to, be very aware that unilateral changes or seeking to exercise some variation to the agreement needs to be done within a reasonable and respectful way.
There are avenues that we have put in place in this code to achieve that goal.
Price is set in a competitive market and so the stronger the competition the better the outcome for the consumer on price. This does not change that at all, in fact it is pro-competitive. And in the long run, if you have viable, strong supply chains they will be investing in efficiencies, investing in innovative new products, responding to consumer preference much more rapidly and much more effectively and so in that sense it is pro-competitive and very much in the consumers interest.
Minister Billson, there was a lot of movement late last week around labelling and Rowan Ramsey had a meeting on Thursday to look at the potential findings of the inquiry into labelling and country of origin. What is your view on what he proposed late last week?
It is good input to the work that the Prime Minister has outlined and the Government is turning its mind to.
We are working to make sure that consumers can be confident and certain about the products that they are buying. There is some confusion around some of the language. They are technically precise terms but for the average consumer they might be hard to navigate. So that is the measure, we are trying to ensure that there is no additional unwarranted regulatory burden but recognising consumers should be entitled to know what it is they are buying and where it has come from.
We have had a positive response to that, effective collaboration with many industry groups and as you know this crosses a number of portfolio areas so in addition to Ministers Macfarlane and Joyce leading that work, there is my contribution, there is also the contribution of Senator Nash and there is also a trade implication there as well.
We are working to bring forward a proposal for more understandable, more useable food labelling in accordance with the Prime Ministers announcement and we are making good progress on it.