In August 2020, the ACCC conducted a three month inquiry in response to the Australian Treasurer's direction to investigate any perceived bargaining power imbalances in perishable agricultural goods (PAG) markets and determine whether they may impact the efficient operation of these markets. The inquiry considered trading practices throughout the PAG supply chain, including relationships between suppliers, processors and buyers in the meat, eggs, seafood, dairy and horticulture industries.
In response, the ACCC made recommendations with a specific and ongoing focus on changes to the unfair contract terms (UCT) framework. Earlier this year, we wrote about significant upcoming changes to the UCT laws and in particular, the introduction of civil penalties in this area in 2021. Notably, the ACCC's focus on UCTs in agribusinesses sits alongside their push towards introducing unfair trading provisions that began from the Harper Review in 2015 and was most recently considered in the Digital Platforms Inquiry in 2019.
The PAG reforms signal a need for agribusinesses to renew their standard form contracts with small businesses and seek legal advice concerning the upcoming UCT changes which will increase the number of standard small business contracts caught by the legislation. In particular, it is important to review your standard form contracts to ensure that UCTs are not present in agreements with small businesses to avoid civil penalties when they come into place. Given the UCT laws have been in effect for some time, it is uncertain whether there will be any transitional period for the new laws once they are enacted.
ACCC concerns in PAG markets
In its report, the ACCC identified what it sees as significant bargaining power imbalances and market failures that in the ACCC's assessment have led some processors to conduct harmful practices at the expense of producers.
Examples of the concerns identified by the ACCC include:
- Some one-sided contracting practices leading to the inclusion of potentially unfair contract terms regularly being present in producer supply agreements;
- Practices that go beyond hard bargaining that inefficiently allocate risk to producers or suppliers, which may put them at financial risk;
- A lack of transparency in relation to prices or quality assessment processes across a number of PAG markets;
- Concerns about potential commercial retribution for producers who raise concerns with processors; and
- Concerns that some supermarkets require cost offsets and for suppliers to disclose confidential financial information or intellectual property during cost increase negotiations.
The ACCC expressed the view that these issues have potentially limited productivity growth as a result of reduced confidence and investment by producers.
In response, the ACCC made the following four recommendations for reform in PAG markets:
1. Strengthen the business-to-business unfair contract terms framework according to the Legislative and Governance Forum on Consumer Affairs
The ACCC proposes strengthening the framework by:
- 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 negotiation between parties to a contract.
2. Introduce an economy-wide prohibition on unfair trading practices to the ACL
The Report recommends inserting provisions that prohibit unfair trading practices on an economy-wide scale to the ACL. This is intended to reduce perceived significant harms that may not currently captured by the ACL, and which will not be covered by the proposed reforms to unfair contract terms laws. Such a provision is said to provide greater flexibility and is less likely to restrict innovation when compared to a code across PAG industries.
The ACCC's spotlight on this issue started from the Harper Review in 2015, which noted that many overseas jurisdictions have enacted prohibitions against unfair trading conduct. This was examined again in further detail in both the Customer Loyalty Schemes Review and Digital Platforms Inquiry in 2019, where it was suggested that comparable jurisdictions (including the EU, UK, USA, Canada and Singapore) adopt a combination of general and specific protections in relation to unfair trading practices that can be used as model for Australia. For example, the US FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce". Similarly, the EU also prohibits the abuse of a dominant market position which includes imposing unfair trading conditions.
The ACCC however, has recognised that such reform would not be "an unrestrained prohibition on all unfair conduct" and that safeguards and guidance will need to be put in place first.
3. Mandate the Food and Grocery Code for retailers and wholesalers, and introduce significant penalties for contraventions
The ACCC proposed that the Food and Grocery Code be made compulsory for all relevant retailers and wholesalers in the sector. Additionally, they suggested that civil pecuniary penalties and infringement notices should be available for contraventions. This would mean that signatories will not be able to contract out of protections under the Code, given that its purpose is to mitigate the bargaining power imbalances between retailers and suppliers in negotiations. A genuinely independent dispute resolution process is also recommended.
4. Encourage governments and industries to explore measures to increase price transparency in PAG industries, in order to increase competition in those markets
The ACCC raised the need to improve market transparency as a result of identified information failures and information asymmetries across PAG industries. The ACCC raised this in the context of some horticulture producers having no visibility over supermarket prices for their produce, and some beef and sheep producers with little transparency over the carcase grading process.
However, the ACCC did not offer any specific way forward or make recommendations as to what mechanisms might deliver price or market transparency as this would differ on an industry to industry basis. Potential measures include compelling market participants to publish prices, requiring prices to be communicated in a standardised form across specific sectors and tasking industry bodies with collecting, analysing and publishing market data.
Further ACCC action
The Report noted that the ACCC has a dedicated Agriculture Unit and will have an ongoing focus on issues in PAG industries. In the particular, the Commission will:
- Investigate the potential UCTs identified in the chicken meat industry;
- Investigate reports that horticulture wholesalers are trading without Horticulture Produce Agreements. The ACCC will conduct further Horticulture Code audits in 2021 to examine these concerns.
- Engage directly with agricultural industry associations in 2021 to explain how the ACCC's new small business collective bargaining class exemption may be beneficial and how businesses can access the regime.