Supermarkets could face billions in fines for grocery code breaches as Labor commits to reforms

Woolworths, Coles, ALDI and IGA owner Metcash are signatories to Australia’s voluntary food and grocery code of conduct, but it could soon become mandatory, along with tough new penalties. Photograph: Asanka Ratnayake/Getty Images

Labor has promised to legislate massive new fines for breaches of the grocery code of conduct, which would be made mandatory under changes proposed by Craig Emerson’s independent review.

On Monday the Albanese government will announce it is adopting in full the recommendations of Emerson’s report on the code, an interim version of which was released in April amid consumer and supplier complaints about soaring supermarket profits.

The central recommendation is to impose maximum penalties for the more harmful breaches of the code of up to $10m, three times the benefit gained from the contravening conduct, or 10% of turnover in the preceding 12 months.

Given Coles’ and Woolworths’ annual turnovers of more than $40bn each, that recommendation could result in the competition watchdog seeking penalties in the billions.

In the final report, to be released on Monday, Emerson said larger penalties should apply to breaches of: “obligations on supermarkets to deal with suppliers lawfully and in good faith; have and retain written grocery supply agreements; train staff; and keep records” and those that did not “address retribution” against suppliers.

The final report adds a call for penalties of just over $1m “for breaches of other substantive provisions in the code”. Penalties for less serious breaches would be up to $187,800.

“Suppliers’ fear of retribution has been a major obstacle to the pursuit of their rights under the code,” Emerson said.

The report said suppliers feared that complaints or reasonably rejecting requests from a supermarket could result in “being offered less-advantageous trading terms, reduced volumes in orders, poorer shelf location, limits on distribution across stores and having products delisted altogether”.

Emerson recommended that the code be made mandatory for all supermarkets with an annual Australian revenue of greater than $5bn.

This would apply to Woolworths, Coles, ALDI and Metcash – which owns IGA, which are all signatories to the voluntary code, but is also likely to capture Costco in time and could capture Amazon if it expands its grocery offering.

The treasurer, Jim Chalmers, and assistant competition minister, Andrew Leigh, promised to create an anonymous supplier and whistleblower complaints mechanism within the Australian Competition and Consumer Commission.

In a statement the pair promised to “prioritise” legislation to enact the reforms.

But bipartisan support is in doubt, as the opposition leader, Peter Dutton, has labelled Emerson’s work “a Mickey Mouse review that has been conducted by Labor” and questioned whether it will result in a reduction in prices.

The Coalition is considering laws to break up supermarket chains if they breach the code, as urged by Nationals leader David Littleproud, although some Liberals have warned against the plan or suggested it should be limited.

Emerson, the former competition and trade minister, has called such a penalty as “too heavy handed” and not a credible threat.

Chalmers and Leigh said the review “is an important part of the Albanese government’s broad competition reform agenda, which includes an ACCC inquiry into supermarket prices, funding for Choice to conduct quarterly price monitoring reports … and progressing legislation to implement the biggest change to our merger reform system in almost 50 years”.