Supermarkets will face big fines if they do not treat small suppliers fairly, the Government has announced.

The Government’s new Grocery Code of Conduct will come into force on September 28 and will prohibit abuse of power by supermarkets over suppliers.

“The big supermarket chains have not been treating local suppliers fairly – they have been taking advantage of their dominance and imposing unreasonable terms and conditions. We are calling time on their poor behaviour,” Commerce and Consumer Affairs Minister Duncan Webb said.

The new code requires the large corporates – Woolworths and Foodstuffs – to pay on time and treat suppliers fairly, have plain-English supply contracts and deal with small companies in good faith.

“It’s entirely reasonable and hardly too much to ask. Local suppliers have been stretched for a long time, and that’s stifled innovation and the development of our food supply chain.”

The Grocery Commission will act as watchdog to enforce new the rules and penalties for breaching the code include the greater of 3% of turnover or $3 million.

“These are penalties based on the Commerce Commission framework. They’re at the second tier, not the very highest tier of penalties, but we think that not only will they be a significant disincentive, but they’ll be proportionate to the roles that are found out.

“There’s a real loss of value across the supply chain we’re misbehaviour happens. These are significant disincentives to any of the supermarkets or supermarket chains from engaging in this kind of misconduct,” Webb said.

“If we don’t see the change that is required by the supply side and at the checkout end we will take further action and we have always been clear about that.”

Chris Quin, Foodstuffs managing director, said it supported the introduction of the code, to give clarity to the rules of engagement with suppliers and to drive better outcomes for consumers.

It had been working with the Ministry of Business, Innovation and Employment in relation to its submissions on the code.

“We also support the establishment of the Grocery Commissioner, who has appropriate powers and resources to monitor compliance with the code and other requirements, and we are already engaging positively with him.

 ”Good relationships with our suppliers have always been vital to our business and working together to improving value for New Zealanders.”

Steve Mills, Woolworths NZ commercial director for packaged goods, said the supermarket had consistently supported a mandatory Grocery Code of Conduct, throughout and before the market study process.

“We are proud of the strong relationship we have with the hundreds of local and international suppliers we work with and have been ranked as the best supermarket retailer to do business with for the last three years.”

In 2020, the Government commissioned a market study into the retail grocery sector by the Commerce Commission, looking at the factors affecting competition and supply. The final report was published in March last year.

In July, the Government passed the Grocery Industry Competition Act, the legislation that enabled the Grocery Code of Conduct and the position of the Grocery Commissioner to be established.

Other measures the Government has taken so far to improve competition in the grocery sector include banning restrictive land agreements that locked new entrants out of locations for new supermarkets, making unit pricing mandatory and requiring major grocery retailers to open wholesale offerings to other grocery retailers.