In Australia, the supermarkets have considerable power when it comes to dealing with suppliers, and unfortunately, suppliers and farmers don’t often have that same bargaining power.

This week brought the news that the Australian Competition and Consumer Commission (ACCC) has moved against Coles over what seemingly could be described as an alleged misuse of its market power to coerce payments from suppliers.

The ACCC alleges that, in 2011, Coles sought to boost earnings by requiring grocery suppliers to pay ongoing rebates. If a supplier refused, they were threatened with commercial consequences. The allegations concern 200 small grocery suppliers.

Essentially, this is about Coles revamping its supply chain to achieve efficiencies – in other words, to make more money. In 2011, Coles came up with an “Active Retail Collaboration” program, which it believed would benefit both large and small suppliers.

But there was a price to be paid. Coles allegedly wanted 200 small grocery suppliers to pay rebates in return for receiving these benefits and it wanted an immediate yes or no if the supplier was going to play ball. Otherwise, there would be consequences.

Farmers know there is an imbalance of power in the food supply and retail sector; and this story came as no surprise to many.

Dr Alexandra Merrett is a senior fellow at the University of Melbourne and a specialist in competition and consumer law. Until 2012, she was a senior enforcement lawyer with the ACCC.

On the online blog The Conversation this week, Dr Merrett examined why the ACCC initiated the action against Coles for unconscionable conduct rather than misuse of market power. It seems the common law in this area has improved the chances of successful litigation ever since the Full Court found that Lux had engaged in unconscionable conduct when selling vacuum cleaners door-to-door.

“While that decision is very fact specific, it clearly broadened the scope of the statutory prohibition, such that the ACCC may feel greater confidence in categorising Coles’ alleged conduct as unconscionability rather than as a misuse of market power.”

She says actions brought against corporations for misuse of market power are notoriously difficult to prosecute. “They are long-running, expensive and extremely complex”.

She cites the 2006 ACCC action against Safeway (now Woolworths) for unfair conduct towards bread suppliers and which resulted in an $8.9 million fine.

“That case took nine years from the time of filing to the handing down of final penalties: any benefit for Safeway’s victims had clearly dissipated in the meantime,” Dr Merrett says.

On the face of it, an action brought on the grounds of unconscionable conduct should be quicker, less complex and stand a greater chance of success; perhaps a result before the end of next year and the prospect of multiple fines if each individual charge is proven.

“In any case, the key outcomes will be damaging to Coles’ reputation (which may well result even if the ACCC doesn’t win) and the closer scrutiny of its ongoing conduct,” Dr Merrett says.

“Suppliers, in particular, are likely to be more vocal in complaining about the conduct of Coles and Woolworths if they can see that the ACCC is able to take timely and effective action on their behalf.”

The allegations have raised serious concerns throughout Australian small business and the national farming community. They highlight the imbalance of power in the food supply and retail sector in which farmers and other suppliers are at a distinct disadvantage. A misuse of market power is against the national interest; it is certainly against the interests of the weaker players.

This imbalance does not promote trust and goodwill between supermarkets and their farmer suppliers. Both should be working towards a fair profit, not driving vulnerable farmers to the wall.

Farmers want to see the implementation of fair arrangements that prevent any further activities or outcomes that negatively impact on farmer revenue. As a member of the National Farmers Federation, TFGA supports a mandatory code of conduct that ensures transparency and equity across the supply chain. The NFF was actively involved in the development of a prescribed voluntary code with retailers and processors.

Should the ACCC allegations prove true, this will add weight to the industry’s decision to move to a mandatory approach. However, we have not shut the door to what a prescribed voluntary code could offer in terms of a productive way forward on this issue.
TFGA CEO Jan Davis’ Tasmanian Country column today