ACCC to address power imbalances in Australia's agriculture supply chains

By Andrew Hay, Simon Ellis
15 Jun 2021
Concerns about unfair bargaining power and reduced competition in Australia's agricultural sector are prompting regulatory change.

The Australian Competition and Consumer Commission has indicated that changes to the Competition and Consumer Act 2010 are likely over the next 12 months to address concerns about unfair bargaining power and reduced competition in Australia's agricultural sector.

The ACCC's response is against a background where:

  • Australian farmers rely more directly on prices received, more than most farmers globally.
  • Australian government subsidies to Australian farmers are among the lowest in the OECD.  For example, EU farmers receive more than 40% of their annual income from government subsidies.
  • significant geographic gaps exist in Australia between food production regions and domestic markets – creating the need for extended supply chains.
  • Australia has a lack of strong rural co-operatives, compared to other countries, having a capacity to bargain for their members.

Perishable Agricultural Goods Inquiry

On Friday 11 June, ACCC Deputy Chair Mick Keogh addressed the National Farmers' Federation and conference on competition in Australian agriculture, the impact of supply chains on the economy and the recent Perishable Agricultural Goods Inquiry (Inquiry) report.

The Inquiry was announced in August 2020 to investigate the bargaining power imbalances in supply chains for perishable agricultural products in Australia (looking at meat products – chicken, pork, beef, and lamb – eggs, seafood, dairy products, and horticultural goods) as well as the ability of current laws and regulations to address the harmful effects of bargaining power imbalances.

Competition issues in agricultural supply chains

Mr Keogh highlighted several findings of the Inquiry:

  • A number of features of perishable agricultural goods supply chains can lead to imbalances in bargaining power;
  • Farmers are particularly vulnerable to issues stemming from limited competition at the wholesale or retail level;
  • The more perishable a product, the weaker the farmer’s bargaining power often is;
  • Bargaining power imbalances are also present at the wholesale level of the supply chains for perishable agricultural goods; processors and wholesalers exist in a highly contested, tough bargaining environment;
  • ‘Hard bargaining’ is a feature of these supply chains, and it can drive efficiency and competitiveness; and
  • Market participants holding very strong bargaining power may not be constrained from using this power in a harmful way due to a lack of competition, high barriers to entry, or control over critical inputs or distribution systems.

ACCC keen to beef up regulatory protections

In response to the Inquiry findings, the ACCC has made a number of recommendations to strengthen Australia's fair trading laws through changes to the Act, including:

  • strengthening the Food and Grocery Code by making it mandatory for retailers and wholesalers and by introducing significant penalties for contraventions;
  • strengthening the small business unfair contract terms law (which is not specific to the agricultural sector) by:
    • making unfair contract terms unlawful and susceptible to civil penalties and other remedies by a court, as opposed to those provisions currently being unenforceable;
    • giving a greater number of businesses protection under the law by changing the definition of "small business" from 20 to 100 employees or an annual turnover threshold of less than $10 million (or removing the contractual threshold altogether); and
  • introducing an economy-wide unfair trading practices prohibition to address conduct that causes significant harm to businesses, but which does not meet the threshold of unconscionable conduct (which is typically a difficult threshold to meet) that may assist in establishing a norm of behaviour within the agricultural sector.

Changes already implemented

Mr Keogh cited the new small business collective bargaining class exemption, which came into effect on 3 June 2021, as benefiting the agricultural sector. The class exemption will allow small businesses and farmers to collectively bargain with their suppliers and processors which, according to Mr Keogh, means that farmers or small businesses "can share the time and cost of negotiating contracts, and have more say when negotiating".

Importantly however, the class exemption does not mean that counterparties to a collective bargaining group are required to deal with that group on a collective basis, and remain able to negotiate with each member of a collective bargaining group individually if they wish.

The announcement comes against the background of the ACCC's recommendation to improve market transparency in the perishable agricultural goods industries, in order to increase competition, prompting the Federal Government to commit $5.4m in funding to explore transparency issues in agriculture markets. It is expected that changes to the codes of conduct for Dairy, Wheat Port, Sugar and Horticulture are also likely over the next 12 months to improve supply chain fairness, competition and transparency. 

Get in touch

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.