The nation's major supermarkets should be subject to a mandatory code of conduct with penalties of up to $10 million if caught abusing their market power, an interim review has recommended.
Former Labor minister Craig Emerson, who was appointed by the government in January to lead a review of the Food and Grocery Code of Conduct, said the change was necessitated due to a "heavy imbalance in market power between suppliers and supermarkets."
National Farmers Federation president David Jochinke welcomed the findings, saying that improved transparency and accountability measures could help farmers under the thumb of supermarkets who suffer from a "massive" power imbalance.
"Farmers need this stronger protection in negotiations where there is a large number of small producers dealing with a small number of large retailers," he said.
In its response to the interim report, Woolworths called for any mandatory code to apply to all major retailers operating in Australia, including global retail giants such as Amazon and Costco, "who have global revenues many times the size of Australian supermarkets."
The company also said other large Australian retailers such as Bunnings and Chemist Warehouse who compete in some grocery categories with the big supermarkets.
The Albanese government commissioned the review as it searched for levers that would reduce cost-of-living pressures.
Dr Emerson said the existing code was ineffective as it is voluntary and carries no penalties for breaches and that supermarkets with annual revenues exceeding $5 billion, that would cover Coles, Woolworths, ALDI and wholesaler Metcash, be forced to sign up to a mandatory code.
These supermarkets hold a market share of more than 80 per cent in Australia.
The review also poured cold water on calls from the Coalition and The Greens to introduce a forced divestiture trigger in legislation to address market power issues in the supermarket industry.
"The Review supports greater competition in the supermarket industry, which can be facilitated by an effective, mandatory Food and Grocery Code of Conduct, robust enforcement of Australia's competition laws by the ACCC ( Australian Competition and Consumer Commission) and wide competition policy reforms relating to planning and zoning laws." it said.
"If forced divestiture resulted in a supermarket selling some of its stores to another large incumbent supermarket chain, the result could easily be greater market concentration.
"If large incumbent supermarket chains were prohibited from buying the divested stores, that would leave only smaller supermarket chains and foreign supermarkets as potential buyers. Further, if these smaller chains were not interested, or were not in a position to buy, these stores would be forced to close."
The review also proposed to better protect farmers from commercial retribution by monitoring commercial decisions by retailer buying teams following a disagreement.
Consultation is open until April 30.
The existing code, established in 2015 following complaints about the conduct of supermarkets towards their suppliers, can only encourage supermarkets to act in good faith when dealing with suppliers in setting out general conduct rules in areas such as payment arrangements, price increases and fresh produce standards.
NSW Farmers vice president Rebecca Reardon said the recommendations could help address a long-term issues of supermarkets having an "unfettered" ability to leverage their market power against suppliers, with a lack of accountability or penalties for any unconscionable behaviour impacting the supply chain.
The ACCC has also been commissioned to undertake a separate inquiry into supermarket pricing, while the Senate has also established a Select Committee on Supermarket Prices which is due to report next month.
