Competition and consumer issues in the agribusiness and food sector remain a key priority area for the ACCC.
Importantly, the ACCC has a dedicated Agriculture Unit, established in 2016, tasked with examining and enforcing competition and unfair trading issues in the sector with a view to improving enforcement and compliance with the Competition and Consumer Act 2010.
The ACCC has been active in education and enforcement of competition and consumer law issues in the agribusiness and food sphere over the past year. This includes:
- bringing proceedings for misleading and deceptive conduct, the use of unfair terms and breaches of the Horticulture Code;
- taking other enforcement action, including relating to unfair terms;
- undertaking market inquiries and proposing wide ranging regulatory reforms for the dairy, beef and cattle industries; and
- publishing guidance and surveying compliance with new information standards (including new country of origin requirements for food labelling and free range egg standards).
This update provides a brief snapshot of the ACCC's extensive activities and continued strong interest in this sector over the past year.
1. ACCC takes sting out of misleading marketing
Misleading marketing and labelling of food and agricultural products remains a consistent enforcement area for the ACCC.
The ACCC recently initiated proceedings against one of Australia's largest agribusiness companies, Landmark Operations Limited (known as Seednet), alleging that Seednet had made false, misleading and deceptive claims about the strength, disease resistance and fertility of its barley variety 'Compass' in a product fact sheet. Explaining the ACCC's concerns, ACCC Deputy Chair Mick Keogh stated that:
'Farmers have told us they suffer harm as a result of misleading marketing because, without correct information, they assume or are incorrectly advised that other factors such as the weather are to blame when crops don't succeed or perform in the way that has been represented by suppliers.'
In other enforcement action, Hoyt Food Manufacturing Industries paid a penalty of $10,800 after being issued with an ACCC infringement notice for making false or misleading representations that its oregano product contained oregano (except for trace ingredients). Testing revealed that the product was approximately 50% olive leaf. In announcing the payment of this penalty, ACCC Commissioner Sarah Court highlighted that:
'[s]uppliers of food products must ensure the accuracy of representations about the ingredients on labelling and any other packaging… [as] consumers use labelling on food products to make their purchasing decisions and are entitled to expect accurate labelling'.
More recently, the ACCC has indicated that it will be investigating the honey industry, after allegations have surfaced of 'fake honey' being sold on supermarket shelves, specifically that laboratory testing of a range of honey products shows that almost half of the samples were 'adulterated' and unwittingly being sold as 'pure' honey in Australia. The ACCC has confirmed it is taking the allegations seriously, with ACCC chairman Rod Sims stating: 'I think there's a chance that some consumers have been misled, that's the allegation we are investigating… Whenever you've got allegations about such an important staple product, then it becomes a very high priority for us.'
2. New Country of Origin food labelling requirements come into force
The ACCC's focus on misleading labelling will ramp up in light of the new Country of Origin food labelling requirements. These requirements became mandatory from 1 July 2018, after a two year transition period. Businesses supplying food products should be reviewing all packaging and labelling to ensure compliance with the new requirements.
The ACCC will now shift from an educative approach to an enforcement based approach. The ACCC has confirmed that it is actively monitoring compliance with these new requirements, and explained that it is most likely to take enforcement action where large or national traders fail to comply with the requirements and this conduct impacts a large number of consumers.
3. Spotlight on unfair contract terms used by agribusinesses
The ACCC recently commenced proceedings against Mitolo Group, alleging that contract terms in its standard form agreement with potato farmers were unfair and in breach of the Horticulture Code. The terms under challenge allowed Mitolo to unilaterally alter other contract terms, declare potatoes as 'wastage' (with no mechanism for review) and prevented farmers from selling to other purchasers.
In another example, Warrnambool Cheese and Butter, one of the largest milk processers in Australia, has agreed to amend unfair terms in its milk contracts following ACCC involvement. These terms allowed Warrnambool to unilaterally vary milk price (and other supply terms), without providing farmers with the right to terminate the agreement early without paying a financial penalty.
AWB Harvest Finance Pools also revised its standard form grain pool contracts following engagement with the ACCC. Its contracts included terms that provided AWB with the unilateral right to increase fees to growers, introduce new fees after the contract was signed and reject grain at its absolute discretion.
4. New Standard hatched for 'Free Range' eggs
Since April 2018, the term 'free range' may only be used by egg producers complying with the National Information Standard on free range egg labelling. To assist businesses, the ACCC has released guidance for egg producers on how it will enforce the new Standard.
The Standard follows a long history of enforcement action by the ACCC for false or misleading 'free range egg' claims. Most recently, the ACCC brought proceedings against Snowdale for false or misleading claims that their eggs were 'free range', when most hens did not in fact leave Snowdale's sheds. Snowdale was ordered by the Federal Court to pay a penalty of $750,000.
ACCC Chairman Rod Sims said:
'If egg producers use images, pictures, or words, other than free range, that imply their eggs are free range when they are not, this would likely raise concerns under the Australian Consumer Law. The ACCC is monitoring the market to ensure that free range claims are truthful and accurate and will continue to take action against those that don't.'
5. ACCC has beef with cattle industry
As part of its market study activities, the ACCC has published a report on the cattle and beef industry, focusing on addressing the information imbalance between processors and cattle producers. The study considered anti-competitive conduct, market structures, transparency and efficiency in beef and cattle supply chains.
Key recommendations from the ACCC's study included that:
- more resources be dedicated to educating farmers about pricing grids and carcase grading;
- market reporting for 'over-the-hook' transactions be upgraded and based on actual transactions;
- state governments implement uniform livestock agent licencing and establish buyer registers;
- existing technology be used by processors to implement objective carcase grading; and
- the transparency of livestock sales be increased overall.
A progress review conducted this year led the ACCC to conclude that there has been little improvement in the transparency and efficiency of Australian cattle markets. Disappointed with the lack of progress, ACCC Deputy Chair Mick Keogh flagged that the ACCC 'will engage with Commonwealth and state governments through the Agriculture Ministers' Forum to push for implementation of recommendations'.
6. Proposed reforms to dairy industry, including a mandatory code
The ACCC also recently released its final Dairy Inquiry report. Among the report's recommendations, the ACCC has proposed the introduction of a mandatory code of conduct to correct imbalances between dairy processors and farmers.
While the content of the code would be set by the government, the ACCC recommended that the code include the following components:
- obligations for processors to give farmers information about price and non-price terms in a transparent and timely manner;
- a prohibition on retrospective step downs and an obligation to provide adequate notice of other step downs (with the opportunity to terminate within a reasonable time without penalty);
- a prohibition or limitation on the unilateral variation of agreement terms by processors without farmer consent; and
- obligations for contracts to include effective dispute resolution processes.
Importantly, the ACCC has stated that the mandatory code would not regulate farm-gate milk prices or restrict the types of contracting options that a processor can offer. The ACCC would enforce compliance with such a code and have powers to take enforcement action under the code where necessary, such that there would be consequences for failure to comply with the mandatory code. It recently released a guide to its recommendation around the proposed mandatory code.
In addition to recommending the introduction of the mandatory code, the ACCC also made various recommendations which would change how processors and farmers contract for milk supply, including that processors should simplify contractual documents, obtain written acknowledgement of terms and conditions and that the industry should establish a process for an independent dispute resolution body to resolve farmer/processor disputes.
7. ACCC warns milk processors about misleading on milk prices
Dairy processors have been warned by the ACCC not to mislead farmers about milk prices. This follows reports that some processors have blamed their private-label milk contracts with supermarkets for the low prices offered to farmers. The ACCC expressed concern that this was misleading, given that most contracts between processors and supermarkets contain pass through clauses allowing processors to pass-through movements in farm-gate prices to supermarkets.
8. Gazing into grapes - Market study into wine grape industry commences
The ACCC has commenced a market study into the Australian wine grape industry which will examine the competition, contracting practices, transparency, and risk allocation issues in the wine grape supply chain. The ACCC has released an issues paper and is seeking submissions on:
- the level of competition between purchasers of wine grapes;
- bargaining power and risk allocation across the entire supply chain,
- issues around price transparency and quality assessment;
- the nature of contracts between growers and winemakers (including the timing of price notifications and payments);
- the effect of the existing voluntary industry Code and dispute resolution processes; and
- the use of collective bargaining by growers.
The ACCC intends to publish draft findings for further comment early next year, with a final report to be issued before the end of June 2019. The report is likely to include recommendations to improve the competitiveness of the market,
9. First financial penalty imposed for a breach of the Horticulture Code of Conduct, and more to follow
The ACCC has reminded growers and traders in the horticulture industry to comply with the new mandatory Horticulture Code of Conduct. The Code was revised to alleviate concerns about commercial practices in fresh fruit and vegetable markets, and came into full effect on 1 April 2018.
The new Code contains provisions allowing the ACCC to take court action seeking a financial penalty for a breach, or issue an infringement notice. The key features of the Code include:
- a prohibition on trading in horticultural produce without a horticulture produce agreement (which may be accepted electronically);
- a requirement to specify and comply with a period within which to pay growers;
- an obligation for parties to act in good faith;
- the ability for traders to pool produce in an agreement (provided it meets certain quality standards);
- the ability for merchants and growers to use a formula to price produce, rather than fixed price; and
- a requirement to specify the 'FreshSpecs' Produce Specifications or other specifications used to assess produce quality.
The ACCC has shifted its focus to enforcement, with Stuart Dickson Produce, a Sydney fruit and vegetable wholesaler, being the first business required to pay a $10,500 infringement notice for an alleged breach of the Code. The infringement notice was for allegedly trading with a grower in horticulture produce without having a written horticulture produce agreement in place.
The ACCC Deputy Chair, Mick Keogh, reminded businesses that: '[n]ow that the compliance and education stage is complete, the ACCC will not hesitate to take enforcement action for breaches of the Code, including taking court action to seek penalties in the future.'
10. ACCC ponders first class exemption permitting collective conduct by agribusinesses
The ACCC is considering its first use of its new power to issue ‘class exemptions’. It has sought feedback on a proposed ‘class exemption’ that would allow eligible agribusinesses (as well as small businesses and franchisees) to collectively bargain with the customers they sell to or the suppliers they buy from. The class exemption (if made) would allow some businesses to collectively bargain without using these the existing ACCC ‘authorisation’ or ‘notification’ processes. For further details, read our article, ACCC explores first class exemption for collective bargaining.
Until and unless the class exemption is issued, agribusinesses proposing to engage in collective bargaining will need to continue to use formal processes. In this respect, the ACCC has recently authorised (ie immunised) a range of collective conduct by agribusinesses, including authorising law.
- all chicken growers contracted to chicken meat processor Baiada in South Australia to collectively bargain with Baiada for ten years.
- a group of agribusinesses (who are industrial energy users) to enter into a joint energy purchasing group to run joint tender processes for electricity and gas for 11 years.
11. Pig producers warned about cartel charges if they seek to collectively address oversupply
The ACCC has reportedly issued a letter to pig farmers warning them of the risks of engaging in cartel conduct, if they collectively decide to cull piglets due to oversupply of pigs in the market.
The warning arose because the industry peak body, Australian Pork Limited, approached the ACCC to ask for clarification about their options and whether it would be possible to authorise an agreed approach from the industry more generally to reduce supply.
While producers can independently decide to reduce their stock numbers, the ACCC warned that any collective agreements would constitute illegal cartel conduct as they would have the effect of reducing the availability of particular goods, which then artificially increases the demand and prices of those goods.
Under Australia competition law, collective conduct can be authorised by the ACCC, but only where the benefits of such conduct outweigh the potential competitive detriments. In this case, the ACCC Deputy Chair, Mick Keogh, commented that the conduct was 'highly unlikely' to be authorised by the ACCC due to the likely increase in cost to consumers.
12. ACCC launches online tool for anonymous agricultural sector complaints
To alert the ACCC to issues requiring potential investigation and enforcement action in the agribusiness sector, the ACCC recently introduced an online tool to allow anonymous complaints about competition and consumer issues or concerns. The ACCC will use this information to launch potential investigations into reported conduct. The anonymous nature of the complaint tool for agribusinesses is intended to address concerns about retribution, with the ACCC Deputy Chair Mick Keogh commenting that '[f]armers in the horticulture and viticulture industries have expressed concerns about potential retribution for others in the supply change if they contact the ACCC'.