The Commerce Commission has proposed the introduction of a mandatory code of conduct between suppliers and retailers, which it believes will improve transparency and relations between the two groups – a move supported by Horticulture New Zealand.
Horticulture New Zealand has backed the recommendations in the Commerce Commission’s final report in its study into the retail grocery sector.
The recommendations will improve the relationship between growers and grocery retailers, HortNZ chief executive Nadine Tunley said.
‘If implemented, these recommendations would help reverse the imbalance of power that the commission identified in its investigation,” Tunley said.
‘The improved relationship along with greater transparency should ensure that growers get a better return on their investment.”
The commission has proposed establishing a mandatory code of conduct between suppliers and grocery retailers to improve transparency and ban unfair conduct.
It recommended prohibiting unfair contracts and creating a disputes resolution scheme.
This scheme would resolve disputes in supply contracts and supplier relationships with retailers.
The commission also recommended establishing an independent grocery sector regulator charged with overseeing whatever recommendations the Government decides to adopt within the report.
Tunley said greater transparency should also enable consumers to understand better the price they pay for fruit and vegetables.
Grower returns have not increased for at least 10 years, while retail prices and costs – labour, freight and compliance – had steadily increased. Covid has brought about further, more recent, steep cost increases, she said.
The New Zealand Food and Grocery Council chief executive Katherine Rich called the report a victory for suppliers in terms of fairness, competition, and common sense.
“The Commission’s report delivers on all we brought to their attention, and more. The findings and recommendations confirm what we have been saying for years – competition in the market is not working well, stifling innovation, consumer choice, and genuine competition, and creating an environment where suppliers are treated unfairly.”
Commission chair Anna Rawlings said the UK and Australia both had supplier codes of conduct with frameworks that are similar to what the report had recommended.
“We favour the Australian code most likely as being readily applicable here,” Rawlings said.
“Many grocery suppliers fear having their products removed from store shelves if they do not agree to accept some costs, risks and contractual uncertainty.
“This can reduce the ability and incentive for suppliers to invest and innovate, reducing choice for consumers.”
The report recommended that the code of conduct be determined by the Government rather than be industry self-regulating.
The key features of the code include an overarching principle of good faith, requirements aimed at improving the upfront transparency of terms of supply, limits or prohibitions on certain conduct and access to a dispute resolution process, which is independent, affordable, timely, confidential and informed by specialist expertise.
The commission also recommended the Government consider a statutory authorisation or exception for collective bargaining by grocery suppliers.
The process would need to be limited to ensure that collective bargaining did not facilitate anticompetitive conduct and only applies to the business and circumstances where it would likely be beneficial.
Other major changes recommended by the commission are aimed at increasing competition to improve the price, quality and range of groceries and services available.
These included making more land available for new grocery stores by changing planning laws to free up sites, banning the use of restrictive land covenants and exclusivity clauses in leases that prevent retail grocery stores from being developed, and monitoring land banking by the major grocery retailers.
“The best way to improve competition in the retail grocery sector is through measures that will make it easier for independent grocery retailers to set up and expand,” she said.
“We found that the biggest challenges facing competitors are a lack of suitable sites for store development and difficulties in obtaining competitively priced wholesale supply of a wide range of groceries.”
Commerce and Consumer Affairs Minister David Clark said he knew there was a desire to see the Government act swiftly and he will immediately progress work to address the commission’s recommendations.
“The report sets out a clear justification for change in the grocery market. The status quo will not deliver fairer prices for consumers and a better deal for producers and suppliers, and I hope the sector will constructively engage in the changes that need to be made,” Clark said.