The Australian Competition & Consumer Commission has handed down its report from the perishable agricultural goods inquiry, making four recommendations.
The inquiry was launched in August to look at broad trading practices throughout the supply chain, including relationships between farmers, processors and retailers for fresh foods including meat (beef, lamb, pork, chicken), eggs, seafood, fruit and vegetables.
The 162 page report found said the ACCC had identified a range of harmful practices associated with bargaining power imbalances and market failures, which stem from the processor-producer and supermarket-supplier relationships. It received more than 80 submissions with around half of those supplied confidentially as well as stakeholder consultations.
The report said the degree of perishability influenced how the market structure evolved. “The more perishable a product, the weaker the producer’s position from which to negotiate favourable terms of supply with the buyers of their goods, and the more vulnerable they are to take-it-or-leave-it terms from buyers or exploitative conduct.
PAG markets were often characterised by many producers but few processors and retailers. “Economies of scale at the processing and retail levels result in market structures where there is a relatively small number of buyers acquiring the majority of produce,” the report said.
The result was a PAG supply chain that was “particularly susceptible to market failure in the form of a lack of competition, information asymmetry, and the inappropriate (inefficient) allocation of risk.”
The inquiry found that imbalances in bargaining power in the processor-to-producer relationship manifested in a range of ways:
- one-sided contracting practices reflecting imbalances in bargaining power, including potential unfair contract terms regularly being present in producer supply agreements;
- practices that go beyond hard bargaining, including to inefficiently allocate risk to producers or suppliers, which often puts producers at risk of significant financial detriment;
- a lack of transparency in relation to prices or quality assessment processes across a number of PAG markets; and
- resulting from all of the above, reduced confidence and investment by producers, potentially limiting productivity growth.
Its recommendations were:
Recommendation 1: The business-to-business unfair contract terms framework should be strengthened in the ways agreed to by the Legislative and Governance Forum on Consumer Affairs. This framework should be strengthened as currently proposed by the consumer affairs ministers and agencies of the Australian federal, state, and territory governments. This includes:
- making the inclusion of UCTs in standard form contracts illegal and subject to penalties;
- removing the contract valuation threshold;
- reforming the small business definition threshold; and
- providing greater clarity on what constitutes an effective opportunity to negotiate between parties to a contract.
Recommendation 2: An economy-wide prohibition on unfair trading practices should be introduced into the ACL.
The findings of this report provide further evidence that an economy-wide unfair trading practices provision is needed. Introducing a prohibition on unfair trading practices to the ACL is necessary to reduce the significant harms that are not currently captured by the provisions of the ACL, and which will not be covered by the proposed reforms to unfair contract terms laws.
An unfair trading practices provision is likely to provide greater flexibility and is less likely to constrain innovation when compared to a code across PAG industries.
Recommendation 3: The Food and Grocery Code should be strengthened, including by making it mandatory for retailers and wholesalers, and by introducing significant penalties for contraventions.
Despite recent amendments, the Food and Grocery Code still has significant shortcomings that lead to potentially harmful behaviours being under-regulated.
The Food and Grocery Code should be made into a mandatory code, applying to all relevant retailers and wholesalers in the sector, and should be updated to make civil pecuniary penalties and infringement notices available for contraventions. Signatories should not be able to contract out of protections under the Code, given it is intended to address the fact that retailers and wholesalers hold the bargaining power in negotiations with suppliers. The Code also needs to provide a genuinely independent dispute resolution process.
Recommendation 4: Governments and industries should explore measures to increase price transparency in PAG industries, in order to increase competition in those industries.
The ACCC has identified that information failures and information asymmetries occur across PAG industries. Improving market transparency can be an important tool for increasing competition and the confidence that industry participants have in markets.
The ACCC has previously made recommendations for improving transparency through the cattle and beef, and wine grapes market studies, and the Dairy Inquiry. However, the ACCC has not made specific transparency recommendations in this inquiry. This is because any price or market transparency mechanisms need to be carefully considered to avoid unintended consequences, and must be tailored to a particular industry.
The full report can be read here.
