GOVERNMENT RESPONSE TO THE SENATE ECONOMICS REFERENCES
COMMITTEE’S 2011 FINAL REPORT ON THE IMPACTS OF SUPERMARKET
PRICING DECISIONS ON THE DAIRY INDUSTRY
The Senate Economics References Committee’s (the Committee) 2011 inquiry into The
impacts of supermarket price decisions on the dairy industry is the second inquiry into
Australia’s dairy industry completed by the Committee since 2010. In 2010, the Committee
released its report: Milking it for all it’s worth – competition and pricing in the Australian
dairy industry. The Government would like to thank the Committee for the time and effort it
has put into both inquiries.
This Government response deals explicitly with the recommendations outlined in the
Committee’s 2011 final report on The impacts of supermarket price decisions on the dairy
industry. The 2011 inquiry has re-examined many of the issues raised in the 2010 inquiry
and provides a new set of recommendations. However, as indicated in the Government’s
response to the Committee’s first interim report, the Government has also tabled a separate
response to the Committee’s 2010 inquiry: Milking it for all it’s worth – competition and
pricing in the Australian dairy industry.
Responses to recommendations
Recommendation 1:
The committee urges processors to make their pricing structures for sourcing drinking milk:
•
Reflect the volume they estimate they require to meet their total commitments;
•
Offer more stability in prices rather than changing frequently; and
•
Not be dependent on the final retail sales of branded vs private label milk.
The Government agrees in principle to the recommendation
This is a commercial matter for industry and the Government encourages all participants in
the dairy industry to be transparent in their transactions along the supply chain. The
Government acknowledges that in some instances, if processors are encouraged to provide
more stable prices to farmers, they could set a fixed price which minimises their risk but
which may be less profitable for farmers.
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Recommendation 2:
The committee recommends that contracts with dairy farmers should offer a clear, consistent
formula for milk pricing with unambiguous conditions.
The Government agrees in principle to the recommendation
While the Government recognises that this is a commercial matter for industry, it encourages
the development of contracts with a consistent formula for milk pricing and unambiguous
conditions.
Recommendation 3:
The committee recommends that the Government commission a study of the dairy industries
in Queensland, New South Wales and Western Australia. The study should focus on the
future sustainability of the dairy industry in each of these states and their capacity to meet
future local consumer demand. The report of the study should also examine possible policy
options and be tabled in the Senate.
The Government agrees in principle to the recommendation
The future sustainability of the dairy industry across Australia depends to a large extent on its
ability to remain competitive in a global dairy market. Research and development also
contributes to its competiveness and sustainability. The Government works with the dairy
industry through the provision of matched funding to undertake research, development and
extension activities.
The Government provides around $18 million annually to Dairy Australia to undertake these
activities, which include survey work to better understand the nature of all regional markets
and the factors influencing the productivity of individual dairy farmers. Dairy Australia
produces a comprehensive study of the Australian dairy industry in its annual Situation and
Outlook report. This report includes regional outlooks for all dairying regions and is updated
quarterly.
The Government will work with the dairy industry to provide clear public information on
industry cost structures including input costs and farm-gate prices in each of the dairy regions
across Australia.
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Recommendation 4:
The committee recommends that the ACCC review its approach to publicly releasing
information about its investigations with a view to providing greater general information
about its current enforcement activities and relevant issues of particular public concern.
The recommendation is subject to the proviso that such action would not deny procedural
fairness to the parties involved or threaten the integrity of the ACCC’s investigations.
The Government agrees in principle to the recommendation
The ACCC is an independent statutory authority responsible for enforcing the Competition
and Consumer Act 2010 (the Act) and other relevant legislation.
As observed by the Committee, the degree to which the ACCC can be transparent depends on
many factors. It is important that the ACCC balance the provision of public information
about its enforcement activities with the need to observe procedural fairness and to ensure
that adequate protection for the commercial affairs and the reputations of individuals and
corporations is provided.
The Government notes the comments of the Chairman of the ACCC, Mr Rod Sims, on
27 August 2011 when he stated that in its ‘enforcement and compliance work, the
communication effort is central − the ACCC needs to explain what it is and is not doing, and
why 1.’
The Government supports transparency where possible and appropriate; however, ultimately,
the degree to which the ACCC discloses information relating to its investigations is a matter
for the ACCC.
Recommendation 5:
The committee recommends that the Government initiate an independent review of the
competition provisions of the Competition and Consumer Act 2010.
The Government notes the recommendation
The Government believes it is important that Australia’s competition laws provide a strong,
robust framework that guards against anti-competitive conduct, but otherwise leaves
businesses free to act as they see fit. The Government considers it unacceptable for
businesses to engage in any conduct in breach of our competition or consumer laws.
The Government is committed to ensuring the ongoing effectiveness of these laws. Since
coming into office, the Government has legislated to clarify the misuse of market power
prohibitions and has criminalised hard-core cartel conduct under the Act. The Parliament has
1
Sims, R. ACCC: Future Directions The Law Council Competition and Consumer Workshop 2011
(27 August 2011).
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also recently passed the Competition and Consumer Legislation Amendment Bill 2011 to
clarify the operation of the merger and acquisition laws in relation to ‘creeping acquisitions’
and the Competition and Consumer Amendment Bill (No. 1) 2011 to target anti-competitive
price signalling and information disclosures – initially in the banking sector.
Additionally, the Government welcomes recent comments by Mr Sims, where he expressed
an intention for the ACCC to take action ‘even where the law is not completely clear’ 2 and
notes the CEO of the ACCC, Mr Brian Cassidy’s comments that ‘some judicial interpretation
and rulings on the substantially changed section 46 is needed before it is possible to say
whether the changes have been effective or something else needs to be done’ 3.
The Government recognises the concerns raised by some participants in the dairy industry,
but is mindful of the ACCC’s media release of 22 July 2011, in which it states that it
considers there is no evidence that Coles has acted in breach of the Act in relation to milk
discounting and that it will continue to monitor conduct within the dairy industry and grocery
sector for signs of anti-competitive behaviour.
The ACCC, as the independent regulator responsible for the investigation and enforcement of
our competition and consumer laws, will continue to actively monitor issues in the
supermarket sector and is equipped to take action should evidence arise of a breach in the
Act.
The Government believes that the competition provisions of the Act should not be reviewed
until the ACCC has had the opportunity to further test the law in the courts. It is only after
the laws have been suitably tested that any weaknesses in the law can be appropriately
identified.
Recommendation 6:
The committee recommends that the Government review the effectiveness of collective
bargaining laws and arrangements for agricultural industries, with a view to strengthening
that framework to create a more equitable balance of power between the negotiating parties
and to otherwise improve their operation.
The Government notes the recommendation
The Government notes that the collective bargaining framework in the Act is being actively
used by agricultural industries, with approximately a quarter of all collective bargaining
authorisations involving collective bargaining by primary producers. The Government
considers that the collective bargaining arrangements in place under the Act are generally
operating effectively for dairy farmers and recognises that collective bargaining can enhance
the welfare of Australians where it increases productivity and efficiencies for the businesses
involved in the arrangement, resulting in benefits to Australian businesses, consumers and the
economy more generally.
2
Sims, R. Senate Hansard, Economics Legislation Committee Estimates, Wednesday 19 October 2011.
Cassidy, B. Senate Hansard, Economics References Committee - Impacts of supermarket price decisions on
the dairy industry - Thursday 6 October 2011.
3
4
In light of this, the Government considers that it would be premature to conduct a review of
the collective bargaining arrangements at this time.
Government Senators Recommendation 1:
Government Senators recommend that the Government takes steps to promote awareness of
options for agricultural industries to develop more effective collective bargaining
arrangements.
The Government agrees in principle to this recommendation
The Government supports the provision of information that promotes awareness of options
for more effective collective bargaining arrangements. When new collective bargaining
provisions were introduced in 2007, the Government undertook a significant information and
awareness campaign targeted at industry sectors that could benefit from the new
arrangements.
The ACCC plays a key role in educating businesses on their rights and obligations under the
Act, including the collective bargaining arrangements through its education and outreach
activities. Specifically, the Government notes the ACCC, through its Education and
Engagement Managers, works closely with small businesses and their representatives,
including those in rural and regional areas, to disseminate information and assist them
understand the Act and the role of the ACCC. To assist outreach with the small business
sector the ACCC has also established a Small Business Consultative Committee which meets
biannually and includes representation from the agriculture sector.
The ACCC has also produced a number of publications specifically for small businesses and
provides articles for inclusion in industry journals, magazines, association
publications/newsletters and mainstream media. The ACCC has direct engagement through
participation in conferences and events organised by industry associations and community
organisations. The ACCC is available for broader liaison activities, including meetings with
local industry groups to explain the ACCC’s role and function.
The ACCC publishes a Guide to Collective Bargaining Notifications and Streamlined
Collective Bargaining for Small Business publication as sources of advice on collective
bargaining for a number of industries, including the dairy industry. The ACCC’s Infocentre
also offers further information on collective bargaining arrangements and is available on
1300 302 502 or via www.accc.gov.au.
The Government notes that, for the dairy industry, another avenue for promoting awareness
and developing capacity may be through Dairy Australia’s regional development programs.
These programs, which are well supported by local dairy farmers, are located in the eight
dairy regions throughout Australia (Gippsland, Western Victoria, Murray Region, Tasmania,
Subtropical, New South Wales, South Australia and Western Australia) and focus on issues
relevant to each of these regions.
The Government encourages the ACCC, and other relevant bodies, to continue to promote
awareness amongst dairy farmers of the collective bargaining arrangements in public forums
and through working with industry groups.
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Recommendation 7:
The committee recommends that the Government initiate the following:
•
A review of the effectiveness of Produce and Grocery Industry Code of Conduct and
mediation process undertaken though the Produce and Grocery Code Ombudsman. The
review should include a consultation process regarding options to strengthen the Code,
including that it captures entire supply chain relationships, and whether a revised Code
should be made a prescribed mandatory industry code under the Competition and
Consumer Act 2010.
•
A consultation process on the need for a new statutory office to address issues regarding
supply relationships in the grocery sector, and the role, powers, coverage and
governance regarding such an office.
The Government notes the recommendation
The Produce and Grocery Industry Code of Conduct (the Code) is a voluntary industry code
of conduct administered by the Produce and Grocery Industry Code Administration
Committee (the Code Committee). The Government, through the Department of Agriculture,
Fisheries and Forestry provides secretariat support to the Committee.
The Code covers vertical transactions within the produce and grocery industry supply chain
and guides the conduct of businesses within the industry. The objects of the Code are to:
•
promote fair and equitable trading practices amongst industry participants;
•
encourage fair play and open communication between industry participants as a means
of avoiding disputes; and
•
provide a simple, accessible and non-legalistic dispute resolution mechanism for
industry participants in the event of a dispute.
The Code is intended to cover all participants (except consumers) in the Australian produce
and grocery industry, including growers, processors, wholesalers, distributors and retailers.
The Government subsidises a mediation service for dispute resolution.
The Code is an industry owned code and therefore it is appropriate that industry review the
effectiveness of the Code. The Government is willing to continue to engage with industry
about the operation and effectiveness of the Code and would consider facilitating an
industry-Government partnership to review the Code.
The Government has recently conducted an extensive consultation process with a wide range
of stakeholders as part of the development of the National Food Plan. In this process
elements of industry proposed the need for a new statutory office. The Government has
listened carefully to those views and will respond accordingly through the drafting and
release of a Green Paper as part of the development of the National Food Plan.
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The work underway through the Food Processing Industry Strategy Group and the Senate’s
Select Committee on Australia’s Food Processing Sector may also provide further input for
consideration by the Government into these issues.
ADDITIONAL RECOMMENDATIONS: SENATOR XENOPHON, SENATOR
WILLIAMS, SENATOR HEFFERNAN, SENATOR MADIGAN, SENATOR MILNE
Going ‘Down Down’: The long-term viability of the Australian dairy industry
Additional Recommendation 1:
Amend section 46 of the Competition and Consumer Act 2010 to effectively prohibit
anti-competitive price discrimination. Consideration should be given to relevant legislation in
place in the United States and United Kingdom, and the reintroduction of an 'effects test' as
per section 49 of the Trade Practices Act 1974.
The Government notes the recommendation
The Government is committed to providing a robust and effective competition and consumer
law, backed by appropriate and proportionate sanctions that can be effectively enforced by
the ACCC as the independent regulator.
The then Trade Practices Act 1974 contained an explicit prohibition from 1974 to 1995 on
specific types of price discrimination which had the effect of substantially lessening
competition.
The repeal of the former section 49 of the Act, which prohibited anti-competitive price
discrimination, was recommended by the Swanson Committee 4, the Blunt Committee 5 and
the Hilmer Committee 6. The inquiries raised various concerns, including that the former
prohibition: caused price inflexibility; reduced price competition; was contrary to economic
efficiency; and had not been of assistance to small business. The Hilmer Committee noted
that price discrimination generally enhances economic efficiency, except where such conduct
would contravene sections 45 (anti-competitive agreements) or 46 (misuse of market
power). 7
The prohibition was subsequently repealed in 1995. Its repeal was subsequently endorsed by
the Dawson Committee 8.
As indicated in the Government’s response to Recommendation Five, the Government
believes that the competition provisions of the Act should not be reviewed until the ACCC
has had the opportunity to further test the law in the courts.
4
Trade Practices Act Review Committee (1976).
Trade Practices Consultative Committee, Small business and the Trade Practices Act (1979).
6
National Competition Policy Review (1993).
7
Ibid, p79.
8
Review Of the Competition Provisions of the Trade Practices Act (2003).
5
7
Additional Recommendation 2:
Amend the Competition and Consumer Act 2010 to provide for a general divestiture power
whereby the ACCC could, in appropriate cases, apply to the Courts for the breakup of
monopolies or dominant companies that engage in conduct that undermines competition.
The Government notes the recommendation
The Government is committed to providing a robust and effective competition and consumer
law, backed by appropriate and proportionate sanctions that can be effectively enforced by
the ACCC as the independent regulator.
Currently, section 81 of the Act provides that divestiture can only be ordered by a court, upon
application by the ACCC or any other person, if a merger or acquisition within three years
has resulted in a substantial lessening of competition within a market.
The Government notes that the two most recent comprehensive reviews of Australian
competition law – the Hilmer and Dawson Committees, recommended against extending the
application of the divestiture power within the Act. The reviews noted that a general
divestiture power would create considerable uncertainty for business. A divestiture power
would also place a significant obstacle in the way of foreign investment and domestic
company growth to achieve international standards of efficiency and competitiveness. Both
reviews concluded that the many disadvantages of providing a general divestiture power
outweighed the possible advantages of such a power.
As indicated in the Government’s response to Recommendation Five, the Government
believes that the competition provisions of the Act should not be reviewed until the ACCC
has had the opportunity to further test the law in the courts.
Additional Recommendation 3:
That the ACCC undertake a full investigation into whether Coles has engaged in misleading
or deceptive conduct as a result of an advertising campaign that may have created the
impression that prices are coming down across the supermarket when only a percentage of
products have in fact been reduced.
The Government notes the recommendation
The Government considers it unacceptable for businesses to engage in any conduct in breach
of our competition or consumer laws. The ACCC, as the independent regulator responsible
for the investigation and enforcement of these laws, is actively monitoring issues in the
supermarket sector and is equipped to take action should evidence arise of a breach in the
Act.
8
The Government notes the statements by Mr Cassidy, during Senate Estimates on
19 October 2011, that the ACCC is monitoring the situation and that if it finds that there is
misleading behaviour it will take action 9. The Government is confident in the capability of
the ACCC to enforce the law.
Additional Recommendation 4:
That the Federal Government give a direction to the ACCC under the Competition and
Consumer Act 2010 to formally monitor pricing behaviour by the supermarket chains and
along the supermarket supply chain.
The Government notes the recommendation
The Government understands that there are concerns about the behaviour of some of the
major market players towards suppliers in the grocery sector.
The Government notes that in 2008, the ACCC examined pricing practices at the grocery
retail level and the factors influencing the pricing of inputs along the grocery supply chain in
its inquiry, Report of the ACCC inquiry into the competitiveness of retail prices for standard
groceries. In this report, the ACCC concluded that the grocery retailing market is
‘workably competitive’. The report also noted the positive impact that ALDI has had on
grocery prices competition. Since the release of the report, Costco has also entered the
Australian market and the expansion of ALDI has led to further price competition.
Additionally, the Government also notes that the Senate’s Select Committee on Australia’s
Food Processing Sector is conducting an inquiry into aspects of the supermarket supply
chain. As part of its terms of reference, the Committee will examine the competitiveness and
future viability of Australia’s food processing sector in global markets and the impact of
Australia’s competition regime and the food retail sector, on the food processing sector.
The Government also notes that the ACCC, as the independent regulator responsible for the
investigation and enforcement of these laws, is already actively monitoring issues in the
supermarket sector and is equipped to take action should evidence arise of a breach in the
Act. The ACCC has also indicated it will continue to monitor the supermarkets for signs of
anti-competitive behaviour as part of its normal operating activities.
9
Senate Hansard, Economics Legislation Committee Estimates, Wednesday 19 October 2011.
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Additional Recommendation 5:
That the Federal Government establish an Office of the Australian Small Business and
Farming Commissioner.
The Government notes the recommendation
On 20 May 2011, the Minister for Small Business released a paper to generate comments on
options for providing small businesses with a low cost, speedy dispute resolution mechanism
that does not duplicate existing services.
Option Four of this paper considered the introduction of a Small Business Advocate or
Commissioner to offer independent representation of small business interests and concerns
within the Australian Government.
There were 49 submissions received from a range of stakeholders which included leading
industry and small business associations. No submissions were received from the farming or
produce and grocery industries.
In light of the submissions received, the Government is carefully considering its role in small
business dispute resolution.
The Government also notes its response to Recommendation 7 in relation to the
consideration of the need for a statutory office through other existing consultation processes.
Additional Recommendation 6
That the Federal Government develop a mandatory industry code of conduct under the
Competition and Consumer Act 2010 dealing with relationships between industry participants
along the supermarket supply chain. Such a code should also include the major supermarket
chains.
The Government notes the recommendation
The Government refers to its response to Recommendation 7. The Government is willing to
continue to engage with industry about the operation and effectiveness of the existing
voluntary Produce and Grocery Industry Code of Conduct and would consider facilitating an
industry-Government partnership to review the Code.
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Additional Recommendation 7
That the Federal Government extend the Australian Consumer Law framework dealing with
unfair contract terms to business to business agreements involving small businesses and
farmers.
The Government notes the recommendation
The Government introduced laws dealing with unfair contract terms which took effect at the
Commonwealth level on 1 July 2010 and have been in place in the laws of all jurisdictions
from 1 January 2011, as part of the Australian Consumer Law.
The Government notes that these provisions have only been in place for a short period of time
and that, should extension of the provisions be considered in the future, careful consideration
would need to be given to the costs and benefits of doing so.
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