The food and grocery code now applies to all grocery supply agreements
The remade came into effect on 1 April 2025. The code is mandatory for large grocery businesses.
Previously there were transitional arrangements that meant some new code requirements did not apply to grocery supply agreements that started before 1 April 2025. This transition period ended on 1 April 2026.
All code requirements now apply to all grocery supply agreements, regardless of whether an agreement was entered into before, on or after 1 April 2025.
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Grocery supply agreements are set out in the code
The sets up a framework for grocery supply agreements. A grocery supply agreement is any agreement between a grocery supplier and a large grocery business for the supply of groceries.
An agreement includes any related grocery supply documents
A grocery supply agreement is not just the principal agreement and documents made under that agreement. It includes all contracts or agreements between a large grocery business and a supplier that relate to the supply of groceries. These other documents may include:
- freight agreements
- promotion agreements
- supplier portal documents
- purchase orders.
A grocery supply agreement must be in writing
Large grocery businesses must make sure the grocery supply agreement sets out in writing:
- any delivery requirements
- the circumstances in which the large grocery business can reject groceries
- when suppliers will be paid, and circumstances in which payment may be withheld or delayed
- the duration of the agreement, if the agreement is intended to operate for a limited time
- any quantity and quality rules
- the circumstances in which the agreement may be terminated.
Failure to include provisions about these topics will make the large grocery business liable to civil penalties.
Payments to suppliers
The code places obligations on large grocery businesses for paying suppliers.
Suppliers must be paid within a reasonable timeframe
Under the code, a large grocery business must pay a supplier for the grocery products delivered and accepted under the grocery supply agreement. This must happen in the timeframe stated in the agreement.
Suppliers must always be paid within a reasonable time after they provide an invoice for the products.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Exceptions to certain code requirements
Allowable contrary provisions
The food and grocery code has rules for what can and can’t be in grocery supply agreements. The rules protect suppliers from certain conduct of large grocery businesses.
The code provides exceptions for some of these rules, sometimes referred to as ‘allowable contrary provisions’ or ‘opt out’ clauses.
These exceptions only apply when the large grocery business and supplier agree to ‘opt out’ of the relevant code rules in their grocery supply agreement. The opt out must be reasonable in the circumstances and certain conditions must be met.
Conditions for allowable contrary provisions
These exceptions only apply to code rules for the following types of arrangements in grocery supply agreements:
- Varying a grocery supply agreement without supplier consent, known as ‘unilateral variation’.
- Making deductions from the supplier’s invoice because of an outstanding amount owing to the large grocery business, known as ‘setting off’ or ‘set-offs’.
- Requiring payments from suppliers for:
The exceptions only apply if large grocery businesses include information about the opt out provisions in the grocery supply agreements. Large grocery businesses must ensure all grocery supply agreements:
- identify any opt out provisions in the agreement
- include a clear statement to explain that any opt out provision is an exception to, and removes, the relevant code protection
- explain why the opt out provision is reasonable.
The exceptions only apply if large grocery businesses meet additional conditions that apply depending on the type of opt out provision.
Failure to comply with any of these obligations will make the large grocery business liable to civil penalties.
Limits on varying a grocery supply agreement
Failure to comply with these obligations will make the large grocery business liable to civil penalties.
Unilateral variations
A large grocery business must not vary a grocery supply agreement without the written consent of the supplier.
This rule does not apply if all the following conditions are met:
- The grocery supply agreement includes information about:
- the ability of the large grocery business to make the variation
- the changed circumstances in which they can make the variation
- the basis for calculating any numerical adjustments to the supply terms, such as the amount of goods supplied.
- The variation is:
- made in accordance with the grocery supply agreement
- reasonable in the circumstances.
- The supplier is given reasonable notice, in writing, of the terms and reasons for making the variation.
Retrospective variations
A large grocery business must not vary a grocery supply agreement retrospectively under any circumstances.
Setting off payments against supplier invoices
A large grocery business must not set off any amount against a supplier’s invoice.
‘Setting off’ or ‘set-offs’ refers to a large grocery business deducting an amount from a supplier’s invoice for paying a separate amount the supplier owes.
This rule does not apply if several conditions are met, including if:
- the supplier has consented in writing, or
- where the grocery supply agreement allows them to do so, and the amount is reasonable.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Requiring payments from suppliers
The code includes rules about the types of payments large grocery businesses can and cannot request from suppliers.
Suppliers don’t have to pay for wastage
Generally, a large grocery business can’t request a supplier make any payment to cover any grocery wastage that happened at:
- the premises of the large grocery business
- the premises of a contractor or agent of the large grocery business
- the premises of any other entity that is a retailer or wholesaler.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
This rule does not apply if several conditions are met, including:
- the supplier expressly agrees to pay for wastage in the grocery supply agreement
- the payments are reasonable compared to the costs incurred by the large grocery business due to the wastage
- the agreement outlines how to calculate the payment
- the large grocery business takes reasonable steps to lessen those costs.
When requesting payments for wastage, the large grocery business must remember their obligation to act in good faith under the code.
A supplier may want to renegotiate the terms relating to wastage in their grocery supply agreement. For example, they may want to negotiate a lower charge because they have reduced their actual wastage. The code prohibits large grocery businesses from using this as an opportunity to negotiate other, unrelated terms and conditions of the grocery supply agreement.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Example of payment for wastage
A supplier enters into a grocery supply agreement that clearly explains the circumstances in which the supplier must pay for wastage that happens at the premises of a large grocery business. The agreement also defines how to calculate the payment.
Wastage happens at the large grocery business’s premises, and the large grocery business incurs costs of $500 as a result. The large grocery business seeks compensation of $1,500 from the supplier under the agreement.
The large grocery business has probably broken the rules in the code. The payment is not reasonable when compared to the large grocery business’s wastage costs.
Suppliers don’t have to make payments to be a supplier
A large grocery business must not require a supplier to make a payment as a condition for stocking or listing that supplier’s products.
This rule does not apply if several conditions are met, including:
- the supplier expressly agreed to do so in the grocery supply agreement
- the payment being for products that have not been stocked or listed by the large grocery business in 25% or more of its stores or distribution centres in the previous year
- the payment being reasonable in the circumstances.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Suppliers don’t have to pay for better positioning or increased shelf space
A large grocery business must not require a supplier to pay to secure better positioning or increased shelf space.
This rule does not apply if several conditions are met, including:
- the supplier expressly agreed to do so in the grocery supply agreement
- the payment being reasonable in the circumstances.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Suppliers don’t have to pay for the large grocery business’s ordinary activities
A large grocery business must not require a supplier to pay for any of the large grocery business’s ordinary business activities.
Ordinary business activities include:
- a member of the buying team visiting the supplier
- artwork or packaging design
- consumer or market research
- opening or refurbishing a store
- hospitality for the large grocery business’s staff.
This rule does not apply if several conditions are met, including:
- the supplier expressly agreeing to do so in the grocery supply agreement
- the payment being reasonable in the circumstances.
Failure to comply with this obligation will make the large grocery business liable to civil penalties.
Suppliers don’t have to fund a promotion
A large grocery business can’t require a supplier to fund part or all the costs of a promotion unless:
- the supplier has agreed to do so in the grocery supply agreement
- the funding is reasonable in all the circumstances.
If a supplier agrees to fund a promotion, the large grocery business may hold the promotion only after giving the supplier reasonable notice in writing.
Large grocery businesses who order grocery products from a supplier in connection with a funded promotion:
- must be transparent about how they calculate the order quantity
- must not over-order. If they do and they sell any over-ordered product for more than the promotional price, they must pay the supplier the difference between the promotional price and the supplier’s full price for that product
- if they’re a retailer, cannot cancel or reduce the order by more than 10% without the supplier’s written consent
- if they are a wholesaler, cannot cancel or reduce the order by more than 20% without the supplier’s written consent.
The rules for cancelling or reducing the order don’t apply if the retailer or wholesaler either:
- gives the supplier reasonable written notice, or
- compensates the supplier for any net resulting costs, losses or expenses they incur due to not receiving reasonable notice.
Failure to comply with these obligations will make the large grocery business liable to civil penalties.