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http://www.abc.net.au/radionational/programs/backgroundbriefing/2013-12-29/5158628 UPDATE: Coles and Woolworths have agreed to a voluntary code of conduct to help protect suppliers from the imbalance of power in the grocery market. ABC News Online 18 November 2013. Originally broadcast on 24 March 2013. Food producers are claiming their margins are being squeezed by the supermarkets’ appetite for profits, and one supplier has now alleged blackmail in confidential evidence supplied to the ACCC. The consumer watchdog is investigating Coles and Woolworths for allegations they abuse their dominance. The 'Big Two' control over 70 per cent of the grocery market. Barry Fawcett, the founder and former CEO of Aristocrat pickles, says that the big supermarket chains have a culture of constantly attempting to revise their terms of trade to the detriment of suppliers. ‘They would find avenues to either squeeze more margins out of you or request more money to be spent on the product to keep it on the shelf,’ he says. Another supplier, who didn't want to be identified, says it's not possible to negotiate with the giant retailers because the threat of being deleted is constant. But Coles Managing Director Ian McLeod told Background Briefing he has full confidence in the professional behaviour of Coles' buyers, and he is certain the retailer will be cleared of any wrongdoing by the ACCC. ‘I am absolutely confident that there hasn’t been any systemic abuse of market power in Coles,' he says. 'Our buyers operate in a professional way. We want to make sure that we have a good relationship with our suppliers, not a bad one.’ As part of its well-known ‘down down’ campaign, Coles cut prices across a large number of food products in its stores nationwide. The company had always claimed that it absorbed the cost of those discounts through making its business work more efficiently. But now Mr McLeod concedes that the supermarket has been passing on the cost of the discounts to some suppliers. ‘If you’re seeing suppliers who’ve got margins that are maybe four or five times the rate of your own profit margins, then if you’re looking at the share of the investment in terms of bringing prices down, we felt as though suppliers in some instances can contribute more,’ Mr McLeod says. The food industry has been going through a major restructure, with manufacturers finding it tough to operate in Australia because of the high Australian dollar, increasing labour costs and the supermarkets' behaviour. Many are operating on wafer thin margins, while others have already collapsed. The iconic Australian brand of tomato sauce, Rosella, folded earlier this month. Bill O’Meara was a Rosella forklift operator and says the insolvency has sent him broke. ‘At 8.30 in the morning we were told that the company had gone into receivership,’ he says. ‘There were some down faces that day, very down.’Food Holdings, which also owns other well-known Australian food brands like Aristocrat. Mr Fawcett sold Aristocrat to Gourmet Food four years ago. When he owned the business, he says he relied on Coles and Woolworths as his two main customers. ‘Coles and Woolworths would represent around 62 to 63 per cent overall,’ Mr Fawcett says. He says that large orders from the ‘Big Two’ retailers meant his company was producing 200 jars a minute, or around five semi-trailers a day. Such large orders meant that if his company had fallen foul of either of the major retailers, Aristocrat would likely have collapsed. ‘You’d have to reconsider whether or not you continued in business,’ he says. ‘The amount of money you spent on machinery—you just had to make that machinery work. If it didn’t work you’re in all sorts of trouble.’ During the initial stages of the ACCC's investigation into the supermarkets' conduct, over 50 producers have approached them, on the condition of confidentiality. ‘Speaking to the ACCC, it puts these things out in the open,’ the anonymous supplier says. ‘Companies understand that it’s not isolated situations that they go through.’ This supplier claims he’s been blackmailed by a supermarket buyer. ‘At some stage we started feeling—and this is what I hear from other companies as well—that their behaviour was really blackmailing,’ the supplier says. ‘The supermarkets expect a certain quantity of sales from your products and if that is not met they request a lump sum of money to be passed on to pay for that shortfall. Or another example is being asked to pay to be on the shelf in the first place, and that would mean a lump sum that has to be paid.’ Mr McLeod, Coles Managing Director, says the company thoroughly investigates every allegation of illegal market behaviour. ‘If they want to write to me I’ll personally investigate it,’ he says. ‘And I’ll get back to them personally as well, and I’m absolutely confident there’s no systematic abuse within Coles.’ ‘From a Coles policy perspective we want a good, positive, constructive dialogue, and a good constructive result from the relationship that we’ve had with our suppliers, to bring the best possible prices on offer to our customers every day.’ Mr McLeod says he is working on a voluntary code of conduct with other industry representatives.