ACCC announces new inquiry into power imbalances in perishable agricultural products in Australia

By Mihkel Wilding, Carolyn Harris
03 Sep 2020
The ACCC's Perishable Goods Inquiry yet again puts the supermarket sector on notice.

On 26 August 2020 the Australia Competition and Consumer Commission (ACCC) announced that it had been directed to commence a formal three-month inquiry into power imbalances in bargaining power in supply chains for perishable agricultural products in Australia (Perishable Goods Inquiry).

The Perishable Goods Inquiry has been initiated by Treasurer Josh Frydenberg and Agriculture Minister David Littleproud to take a detailed look at whether trading practices throughout supply chains, including the relationship between farmers, processors and retailers, deliver "efficient and equitable outcomes" across the supply chain as a whole.

This is the fifth inquiry into the agricultural sector since 2016 following the creation of the Agriculture Unit within the ACCC in late 2015.

Media reports indicate that the focus of the Perishable Goods Inquiry may be on dealings between agricultural suppliers and supermarkets, and that the inquiry is formal to allow for private submissions to be made without breaching confidentiality obligations which may apply to the material to be produced.

Dairy farmers have been particularly vocal in their support for the Perishable Goods Inquiry and their request to extend the new Dairy Code to cover supermarkets.

Like the Dairy Inquiry, the Perishable Goods Inquiry has formal powers to compel the production of information from suppliers under the Competition and Consumer Act 2010 (Cth) (CCA). Such powers can, for the ACCC, be a useful tool in cases where the terms of trade between a farmer or wholesaler and a customer are subject to contractual confidentiality restrictions, which might restrict the supplier voicing concerns. However, in some cases, depending on the scope of the request, formal requirements to produce information can be onerous and costly for the suppliers required to produce information. The tight timeframe for the inquiry may impose a practical limit on the ACCC's ability to use those powers widely.

Focus on the agricultural sector

The agricultural sector is not a new area of focus for the ACCC, and the ACCC is active in policing this sector.

Most recently in July 2020, the ACCC commenced a self-initiated review of the chicken meat industry in Australia.

The ACCC has already conducted detailed market studies in the cattle and beef (2016-2017) and wine grape (2018-2019) sectors. It also conducted a highly publicised formal inquiry into the dairy industry (2018-2019), and is responsible for administration and enforcement of the Horticulture Code and Dairy Industry Code (both mandatory industry codes under the CCA).

The ACCC has used past inquiries as a source to bring enforcement action where it has found issues of concern.

In 2018, the ACCC successfully brought proceedings in the Federal Court of Australia against Mitolo Group Pty Ltd, Australia's largest potato wholesaler, for breaches of both the Horticulture Code (resulting in a $240,000 penalty) and a declaration that certain terms of contracts between Mitolo and potato growers entered between December 2016 and February 2018 were unfair contract terms and therefore void and unenforceable.

The ACCC has been directed to assess whether there are any imbalances in power in the markets for the supply of perishable agricultural goods and whether any imbalances lead to adverse outcomes for market participants. When holding the inquiry, the ACCC must take into consideration the following matters:

  • the relative power held by different suppliers in the market for the supply of perishable agricultural goods, including the concentration of power at different levels of the domestic supply chain, bargaining power of suppliers in the supply chain and allocation of risk between suppliers in the market;
  • the practices and behaviours of suppliers in the market and the effect of those practices on consumers and the broader economy;
  • the effectiveness of the new Dairy Code of Conduct (which commenced 1 July 2020), including whether to extend the Code across the entire domestic dairy supply chain (which currently only applies to the trading relationships between farmers and milk processors that buy their milk); and
  • the Government’s long-standing policy that it does not regulate prices in the markets for the supply of perishable agricultural goods.

Powers to seek evidence, documents and information

The Government is encouraging all farmers/producers of fresh food to make a submission to the ACCC as part of the inquiry. Farming associations and agricultural interest groups may also be interested in making a submission.

Under Part VIIA of the CCA, the ACCC also has the power to seek evidence, documents and information from businesses within the supply chain through the use of compulsory notices. Refusal or failure to comply with a compulsory notice is a criminal offence.

The ACCC will provide a report to the Government by 30 November 2020.

Key takeaway for agribusiness

The Perishable Goods Inquiry yet again puts the supermarket sector on notice. It is also likely that farmgate supply arrangements will again come under the spotlight in a range of agribusiness sectors for possible "unfair contract terms" or other unfair practices.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.