Editorial: Supermarket conduct code makes sense

Photo / Sarah Ivey

In theory, the power that this country's two major supermarket chains wield over their suppliers should benefit shoppers. The low prices they pay for produce should be reflected at the check-out counter.

But, according to a Green Party survey of fruit and vegetable growers, that is not happening. The survey found supermarkets applied mark-ups of up to 500 per cent on fresh produce.

To compound matters, growers were often forced to sell the produce for less than it cost them to grow it. That has implications for the quality and range of produce on supermarket shelves.

It needs to be said that the Greens' survey was of just 75 growers. That is hardly comprehensive. But its conclusions bear a close relation to the situation in Britain, which has bedevilled that country's competition watchdogs for the past decade.

There, a code of practice for supermarkets was introduced as far back as 2002 in an effort to ensure a fairer deal for growers. It proved ineffectual, and, as claims of bully-boy tactics by the biggest supermarkets escalated, a new and stricter code was introduced in February this year. This required, among other things, standard terms and conditions.

The code is aimed at the power imbalance between the supermarket chains and smaller growers, which in Britain prompted the likes of retrospective adjustment, whereby suppliers would receive a lesser price if their produce failed to sell. It was not aimed at supermarket mark-ups.

Nor need it be. Where competition thrives, addressing that lies in the hands of consumers. Most people can easily go to another retailer if they feel prices are excessive.

Perhaps that was what Consumer Affairs Minister Heather Roy had in mind when she said, "the Government isn't about to start dictating to retailers what their profit margins should be". But if she was referring to supermarkets' dealings with suppliers, she was being overly simplistic. Even Britain's Conservative Party went into this year's general election pledging to introduce an ombudsman, who would name, shame and fine supermarkets guilty of unfair dealings with suppliers.

That provides evidence enough of the size of the problem in Britain. It may not be as substantial in this country, but the Greens' survey suggests it exists. Only 15 per cent of the growers said their business ran at a profit, and 87 per cent said they were forced at times to sell their produce at less than it cost to produce. In some instances, say the Greens, suppliers are played off against each other.

All this is far from academic to the consumer. A 2008 report by Britain's Competition Commission found that supermarkets' transfer of excessive risk and unexpected costs to their suppliers was likely to lessen the latter's ability, and incentive, to invest in new capacity, products and processes.

In some cases, growers would not survive. If unchecked, this process would lead to supermarkets having lower-quality fruit and vegetables and less product choice. Conversely, if there were more small suppliers in a market, prices should go down.

The Green Party wants this country to follow Britain and adopt a supermarket code of conduct. The Food and Grocery Council says the concept should be investigated but only if the British code succeeds in improving retailer-supplier relationships.

That seems overly cautious. Current market conditions are not optimum for fair and free competition. Suppliers would benefit from having their dealings with supermarkets placed on a more equitable footing. So would consumers. And if the situation is nowhere as bad as in Britain, the supermarkets have nothing to lose.