What the recent spotlight on supermarkets tells us about business code of conduct

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A business code of conduct - or industry codes - provides the necessary regulatory support for any given industry.

In an ideal world, business codes of conduct guard against misconduct and opportunistic behaviour conducted by a business, and help to regulate the relationship between industry participants and customers.

Current students and those already in the workforce who have studied courses such as a Bachelor of Business or a Graduate Certificate in Business Administration online would also already have an understanding of the additional intent of business codes of conduct to foster long-term changes to business culture.

The deep-seated problem with business codes of conduct, however?

They can be mandatory - or voluntary.

Prescribed mandatory codes provide a set of rules and regulations of minimum standards for an industry, prescribed under the Competition and Consumer Act 2010.

Non-prescribed voluntary codes are a form of industry self-regulation, are usually 'flexible' and can change in response to industry or consumer needs.

And in the case of supermarkets that fall under the Food and Grocery Code of Conduct, it sits firmly in the 'voluntary' camp.

A report ordered by the government has warned changes are needed to address the heavy imbalance in market power between suppliers and supermarkets in Australia.

Former Labor trade minister Craig Emerson's interim report to the government conceded the current Food and Grocery Code of Conduct is "not effective", "contains no penalties for breaches" and supermarkets "can opt out of important provisions by overriding them in their grocery supply agreements".

It stopped short of calling for the break up of big supermarkets as per the Greens calls to force the breakup of big supermarket chains, and instead cited heavy penalties and proper enforcement would be a "far more credible deterrent to anti-competitive behaviour than forced divesture laws".

It's a situation that highlights the need for the proper regulation, monitoring and enforcement of business codes of conduct.

Codes can play a valuable role in bringing industry participants together - often small businesses and their larger counterparts - to find ways to address problems arising from commercial dealings between them.

They are also designed to enhance the welfare of Australians through the promotion of competition and fair trading.

Instead, Australians are left in the vulnerable position of being overcharged and price gouged by major corporations that have large shares of the market, resulting in higher inflation and exacerbating cost-of-living pressures.

All because of weakened, voluntary, 'self-regulated' business codes of conduct.

Coles and Woolworths in particular were able to increase profit margins because of low competitive forces and the ability to avoid passing on wholesale cost reductions to shoppers.

The federal government's plan to make the grocery code of conduct mandatory and introduce hefty fines for breaches could, however, turn the tide.

Emerson's interim report recommends the code "be made mandatory and apply to all supermarkets with annual revenues exceeding $5bn, which at present are Coles, Woolworths and Aldi and (the) wholesaler Metcash."

It also calls for the code to better protect suppliers by outlining new protections against retribution for complaints.

Retribution may come in the form of unfavourable renegotiation of terms and conditions of supply, relocation of shelf space to less popular areas within stories, and even a total delisting of suppliers' products.

Under the proposal the Australian Competition and Consumer Commission (ACCC) would be able to see penalties for any major or systemic breach of up to $10 million, 10 per cent of a supermarket's annual turnover, or three times the benefit gained from the breach, whichever is greatest.

Less serious breaches would attract a penalty of $187,800.

Because these steps would require lengthy court processes to change, the Emerson interim report states the new system should also incorporate other interim measures for suppliers to raise issues both informally and confidentially, options for mediation, and offer safeguards for suppliers.

Despite major supermarkets consistently defending their pricing, stating that they must balance the needs of customers, suppliers and their workforce and arguing any expansion of margins was a result of improved productivity, the government ordered the Emerson interim report in response to growing pressure over the cost of living.

The supermarket sector is now also subject to a Senate inquiry and a separate probe by the competition regulator.

Treasurer Jim Chalmers has said the government wants a fair go for families and farmers alike.

"This work is all about making our supermarkets as competitive as they can be so Australians get the best prices possible," he said.

Emerson is due to provide a final report by June 30.

Until all reports and inquiries are complete, Australians can only hold their breath in the hopes of more regulated and enforceable industry codes to hold larger corporations to account and help ease the cost of living.