As many food suppliers across Australia negotiate new contracts for 2016 and beyond, knowing their rights under the new Food and Grocery Code is critical to achieving a fair outcome.
The new voluntary industry code for the food and grocery sector in Australia was developed due to growing concerns regarding the dealings of major supermarket chains with suppliers and the great disparity in bargaining power.
The purpose of the Code is thus to regulate commercial relations between grocery retailers and wholesalers with grocery suppliers.
Specifically the Code endeavours to:
- regulate standards of business conduct in the grocery supply chain and aims to build and sustain trust and cooperation through that chain;
- ensure transparency and certainty in commercial transactions in the grocery supply chain and to minimise disputes between parties;
- provide an effective, fair and equitable dispute resolution process arising between grocery retailers or wholesalers and suppliers; and
- promote and support good faith in commercial dealings between grocery retailers, wholesalers and suppliers.
As a voluntary instrument, the Code is only binding on a retailer or wholesaler that elects to ‘opt-in’. A corporation may so elect by giving written notice to the Australian Competition and Consumer Commission. A corporation may also at any time withdraw their agreement by written notice.
Broadly, retailers and wholesalers will have a certain period of time to offer to vary a pre-existing grocery supply agreement to comply with the requirements of the Code. Once the offer is made, a supplier may accept it, in which case the retailer or wholesaler will have to vary the agreement within six months. Suppliers should be aware of their rights before accepting an offer that seeks to make those rights subject to exceptions.
The Code deals with requirements regarding the delivery of groceries, when groceries may be rejected, payment terms, the term of the agreement if it is intended to operate for a limited time, quantity and quality requirements of the groceries, and when it can be terminated.
Subject to some exceptions, there are now restrictions on retailers requiring a supplier to pay for shrinkage, wastage, product stocking and listing, better positioning on supermarket shelves, funding of promotions and delisting products.
Some of the obligations under the Code include the following:
Payment to suppliers
Retailers must pay suppliers for the products they deliver within the timeframe set by a grocery supply agreement, and in any event, within a reasonable timeframe after receiving an invoice.
Retailers are generally prohibited from setting off any amount against a supplier’s invoice unless the supplier has consented in writing.
Payments for shrinkage and wastage
Retailers must not require suppliers to pay for shrinkage, which refers to the loss of grocery products after a retailer has taken possession. Retailers are also generally prohibited from requiring suppliers to pay for wastage which occurs at the premises of the retailer (or their contractor, agent or another retailer).
Payments for better positioning/promotions
Retailers are generally prohibited from requiring suppliers to make payments to obtain a better position for their products or an increase in the shelf space allocation. Similarly, suppliers are generally not required to fund the retailer’s costs of promotions.
Retailers can only delist a supplier’s grocery product where permitted under the grocery supply agreement and where this occurs for genuine commercial reasons.
Fresh produce standards
A retailer must accept all fresh produce delivered in accordance with clear written specifications. If fresh produce fails to meet the specifications, a retailer may only reject it within 24 hours, provided it gives written notice within 48 hours.
Retailers must protect suppliers’ confidential information such as relating to product development, proposed promotions or pricing, and ensure it is not used for a purpose beyond that agreed with the supplier.
Reporting and keeping records
Code compliance managers are required to prepare a periodic report on the number, nature and action relating to complaints received for investigation. A retailer or wholesaler must keep the original or copy of each grocery supply agreement for six years after the agreement ends.
There is also a dispute resolution process for suppliers to lodge complaints and seek to have their disputes with retailers and wholesalers resolved. A supplier may make a complaint to a Code compliance manager or take a complaint directly to mediation or arbitration (or to the Australian Competition and Consumer Commission).
Positive step forward for suppliers
The new Code introduces an important duty for retailers and wholesalers to act lawfully and in good faith at all times in dealing with suppliers.
The benefit to suppliers will ultimately depend on the number of retailers and wholesalers that elect to opt-in’ to the Code. The fact that ALDI, Coles and Woolworths have already done so bodes well for the success of the Code’s objectives. The obligations on retailers and wholesalers under the Code are however often made subject to exceptions. It will therefore be critical for suppliers to be well aware of their rights before accepting an offer to vary a pre-existing, or enter into a new, grocery supply contract.
If you would like to discuss anything in relation to the above, please do not hesitate to contact us.