The Australian Federal Government announced on Monday that it would make the Food and Grocery Code of Conduct mandatory for Australia’s grocery giants, opening up the possibility of $10 million fines.

The announcement comes as a direct response to a report by former labor minister Dr. Craig Emerson, who was tasked in January with leading a review into whether the Code of Conduct remained fit for purpose. The Government has committed to adopting all of Dr Emerson’s 11 recommendations. Among them are requirements that grocery supply agreements must include the basis for determining prices, greater emphasis on addressing the fear of retribution held by suppliers, and ensuring that exceptions allowed for in supply agreements are reasonable and transparent.

Most importantly, however, remains Recommendation 1: “The Food and Grocery Code of Conduct should be made mandatory.” Per Dr Emerson’s Report:

For the Code to be effective it needs to protect against adverse conduct, be subject to the credible threat of effective enforcement and penalties, and not be undermined by the threat of signatories walking away from their commitments. This can be achieved only by making the Code mandatory.

Until today’s announcement, compliance with the Code of Conduct was voluntary. Now, all supermarkets, including online supermarkets, that meet an annual Australian revenue threshold of $5 billion will be subject to the mandatory Code of Conduct. This means that a plethora of Australia’s grocery giants – Woolworths, Coles, Aldi, and Metcash – could be subject to penalties of up to $10 million, should they commit the most harmful breaches or 10 percent of turnover in the preceding 12 months.

In adopting the recommendations, the Government recognized that “more needs to be done to achieve a competitive and sustainable food and grocery sector that works for Australian farmers and families”. Consistent with Dr Emerson’s report, the Government signaled its commitment to creating an anonymous supplier and whistle-blower complaints pathway through the Australian Competition and Consumer Commission (ACCC).

The Code of Conduct is prescribed under the Competition and Consumer Act 2010 and seeks to moderate grocery retailers and wholesalers in their dealings with suppliers. The Code of Conduct was created in 2015 with the express purpose of building trust and cooperation in the supply chain, ensuring transparency and certainty in commercial transactions, and promoting good faith dealings and effective dispute resolution processes. Dr Emerson’s review represented the amalgamation of 65 meetings, two producer roundtables, two processer roundtables, and 88 formal submissions.

Woolworths Group is a founding signatory of the Code of Conduct and contributed to the review. In an official statement, Woolworths Group expressed support for the Code of Conduct becoming mandatory, stating, “We firmly believe healthy retailer and supplier relationships are key to the continued success of our sector, as well as serving the needs of millions of customers”.