By Mike Cherney

SYDNEY--Australian supermarkets should be subject to hefty fines under a mandatory code of conduct that oversees how grocers deal with their suppliers, an interim government report has recommended.

The report, published by Australia's treasury department, recommended that an existing code of conduct be made mandatory and Australia's competition regulator be given powers to pursue penalties for breaches of the code. The current code doesn't include financial penalties.

The report offers an update on the Australian government's efforts to tighten oversight of the supermarket industry amid concerns that there isn't enough competition in the sector.

The two main grocers, Coles and Woolworths, in particular, have come under increased scrutiny as food prices have increased, though supermarket executives have rejected allegations of price gouging and contend that competition is robust.

The report suggests Australia's competition regulator be able to use the courts to seek penalties of up to 10 million Australian dollars (US$6.6 million), 10 percent of a supermarket's turnover, or three times the benefit of a breach of the code. The report also suggested the creation of a mediation process that could be used by suppliers if they have a dispute with a grocery chain.

"A heavy imbalance in market power between suppliers and supermarkets in Australia's heavily concentrated supermarket industry necessitates an enforceable code of conduct," the report's author, former trade minister Craig Emerson, wrote in a foreword.

Emerson recommended the mandatory code apply to Coles, Woolworths, discount chain Aldi and wholesaler Metcash.

Still, the report came out against requiring supermarket chains to divest stores, saying that could lead to even greater market concentration or force stores to close if a buyer couldn't be found.

A final report is expected by June 30. Emerson was appointed in January to review the code.

Australian regulators are separately investigating pricing and competition in the supermarket sector, and a Senate committee in Parliament is looking at similar issues.

Write to Mike Cherney at

(END) Dow Jones Newswires

04-07-24 2018ET