Supermarket code needs a pinch of salt

If one took at face value some of the spin from the supermarkets right now you could be forgiven for thinking peace had broken out with their suppliers.

In brandishing a document titled Food and Grocery Code - Statement of Principles and Guidelines, the supermarkets are saying they have been proactive in brokering a resolution with their suppliers in which every player wins a prize.

It's a document whose genesis resulted from a September 2012 meeting between the suppliers (food manufacturers and primary producers), governments and the supermarkets. And it was completed at Christmas.

It is one of the great motherhood documents of all time. But it contains only one piece of tangible detail - the one that gets to the heart of the debate and demonstrates the real lack of trust between the supermarkets and many suppliers.

The food and grocery code was proposed to be voluntary by its authors (the supermarkets), a point which has already been changed thanks to concerns by suppliers, in particular protests from the National Farmers' Federation. Australian Competition and Consumer Commission chairman Rod Sims let this out of the bag last week when in front of Senate Estimates and he referred to a legally enforceable code of conduct.

This first draft has 10 key principles. These include bargaining in good faith, being fair, just and reasonable, showing respect for commercial relationships, using simple and easy to understand terms and conditions, prior agreement between the parties on all terms and conditions, full disclosure and transparency, and a confidential and supportive complaints and dispute resolution process.

But this statement of principles and guidelines now has to go through a legal sieve that will transform it from that feel-good guideline into a legal document nutted out by lawyers Gilbert & Tobin. This is when the fight really gets going.

Notable in the detail of these guidelines on dealing with other members of the supply chain are "never using language that suggests you are punishing, taking advantage of a suppliers' weakness or bullying a supplier to achieve a particular outcome" and "not threatening harsh outcomes such as removing product without consideration for fair process with the supplier".

These are worthy of mention because they are just the kind of behaviours that Sims suggests he has identified in discussions with suppliers on an anonymous basis.

And this forms the basis of the investigation that the ACCC is now undertaking to ascertain whether the big supermarkets have engaged in unconscionable conduct and/or misused their market power.

Thus the feel-good Food and Grocery Code is a clear attempt by the supermarket industry to get some control over the agenda and find a manageable outcome that will not be too onerous for them. The last thing they can afford is a layer of additional regulation that for example places a cap on their home-brand products or sales.

They need to be seen to be playing ball with their suppliers and the regulators; and with a government that coming into an election is sniffing the wind to work out whether consumers/voters are more concerned about the power of big business or getting cheaper products in their trolleys.

Thus the supermarket operators have gone into overdrive to push their messages to media and the government. Woolworths has been more overt than Coles in this. Its message has been simple. Let us deal with our suppliers because, whatever we are doing, it is delivering lower prices to the customers and that is who counts.

Its a pretty compelling argument from the public's perspective and one that's hard for the ACCC to fight - given the second "C" stands for Consumer. It's the main reason that several ACCC investigations over the past five years into the dominance of the two supermarkets have failed to achieve much.

Woolworths in particular has also been underplaying its power and in particular its market share. In briefings with the financial community on the company's results, chief executive Grant O'Brien has been boasting Woolworths has increased its market share.

But trawling the corridors of Canberra the Woolworths caravan has been downplaying this.