A new code of conduct will help protect food suppliers from unfair treatment by the major supermarket chains, the Food and Grocery Council says.

The council, which represents food manufacturers, has agreed to a voluntary code with Coles and Woolworths which will govern supply chain relationships.

The code prohibits the supermarkets from using suppliers’ intellectual property to develop their own products and cannot change contracts retrospectively.

Australian Food and Grocery Council chief executive Gary Dawson says the code is aimed at ensuring a “fair go” for suppliers “in a market where there is an imbalance of power”.

“On the one hand it’s a dynamic, highly competitive market,” Mr Dawson said.

“We don’t want to clog that up with red tape, but we do want the market to operate fairly and so that’s why we’ve pursued this with the retailers.

“It’s in the interest of consumers, suppliers and retailers to have a viable and innovative food and grocery supply chain that has the confidence to invest and innovate, and really that’s what this code is about.”

Mr Dawson says the code will have legislative “teeth”.

“The code is intended to be a prescribed code, so that means it will be tabled in Parliament as a regulation under the Competition and Consumer Act,” he said.

“Ultimately a breach of the code will be a breach of the Act, and that brings into play the audit and enforcement powers of the [Australian Competition and Consumer Commission], so it does have some real teeth behind it.”

Code an opportunity to improve relationship

Federal Minister for Small Business Bruce Billson says the new agreement will help protect suppliers in their negotiations with the powerful supermarkets.

“It’s a clear statement between the parties about the way they will conduct themselves, the respectful nature of those commercial arrangements, the no-surprises basis of commerce rather than seeing a small supplier being told to unilaterally change the pricing or the way in which they engage with the big business,” Mr Billson said.

“Often the smaller business might have no market power or no capacity to push back when faced with demands that might be quite damaging to their business and quite unreasonable, but not something that can be resolved through the normal commercial negotiations.”

Mr Billson says he believes the major supermarkets appear to have acted unconscionably in the past negotiations with suppliers.

“I think this code is recognition that there is an opportunity to improve that relationship, that the supermarkets are very large players, and if you are a supplier to them you’re very reliant on that relationship continuing even if that relationship isn’t a particularly positive one.”

Mr Billson says he does not believe the new code will result in consumers paying higher prices for goods.

“Where that competition is fierce and where there is an imbalance in market power, there is a greater duty and responsibility on those big businesses to wield that power with care so they’re not causing harm and damage elsewhere.

“Where competition is not competitive, where there are inappropriate and unscrupulous commercial arrangements, that’s not good for anybody.”