Agricultural competitiveness under the spotlight

Agricultural competitiveness under the spotlight

Published On 29/10/2014 | By Tim Gargett | Reform

The Agriculture Minister Barnaby Joyce has released the Federal Government’s Agricultural Competitiveness Green Paper – a key election commitment – and the overwhelming message is the desire to restore the balance of power to primary producers.

The Green Paper is a discussion paper, setting out the Government’s assessment of the public’s views on the critical problems and opportunities for improving Australia’s agricultural competitiveness. It presents a range of policy options and ideas from stakeholders, following approximately 700 submissions from the public.  It’s divided into 11 categories of policy ideas, including Infrastructure, Competition and Regulation, Finance, Business Structures and Taxation, Foreign Investment, Water and Natural Resources Management, R&D, Biosecurity and Accessing International Markets. Each category contains a summary of key issues, what the Government has done (or is doing) and a summary of the proposals to address these issues.

Importantly, the Government has not formally endorsed the proposals contained in the Green Paper and not all proposals will be pursued as they may conflict with broader Government policy directions or may not be affordable. However, the Green Paper process enables the Government to consider the merits of controversial proposals and before making their own recommendations with the subsequent release of a White Paper.

Issues raised in the Green Paper overlap with a number of other important government reviews also being currently conducted such as the Harper Competition Review (see our alert here) and Taxation White Paper.

The focus of the proposals to improve Competition and Regulation are to improve market competition, strengthen competition laws and improve regulation.

Strengthening competition laws (policy idea 8) 

One of the key areas raised by many stakeholders was the power imbalance between players in the industry and a question about the effectiveness of the current provisions of the Competition and Consumer Act (CCA). Many stakeholders considered that the CCA:

was not designed to address the power imbalances between participants at different points in the supply chain and that the competition policy framework more broadly could limit the development of the scale required to redress negotiating power imbalances.”

 Specific changes suggested by stakeholders included:

  • applying the “substantial market share” concept (aka the “Birdsville Amendment”) to the general prohibition on misuse of market power under section 46(1): this is no surprise, given the Green Paper is being driven by Barnaby Joyce, the architect of the Birdsville Amendment. It is in contrast to the Harper Competition Review’s draft recommendation to repeal the Birdsville Amendment;
  • introducing a flexible anti-competitive “effects test” into the misuse of market power provisions: it is not clear what this test will require as no further detail is given, but it could be to adopt the effects test recommended by the Harper Competition Review;
  • introducing a divestiture power enabling courts to break up a business that repeatedly breaches the CCA: again, this is in contrast to the Harper Competition Review, which rejected recommending the introduction of a divestiture power on the basis that divestment is likely to have broader impacts on the efficiency of the firm in question and could also have negative flow-on effects to consumer welfare;
  • reviewing competition laws to consider whether there are any barriers to greater consolidation among agribusiness firms (i.e. to create “national champions”): again, this is not surprising given Barnaby Joyce’s public support to date for creating national champions and criticisms of the ACCC’s treatment of Murray Goulbourn’s bid for Warrnambool Cheese and Butter. Rod Sims has dismissed such arguments (for more details see our previous alert); and
  • creating a supermarket ombudsman with penalty powers and a mandatory code of conduct for supermarkets (across all commodities) backed by direct financial penalties: this would be broader than the Food and Grocery Code of Conduct (aka Supermarket Code) agreed by Coles, Woolworths and the Australian Food and Grocery Council (the National Farmers Federation were invited to participate, but chose not to) (see our previous alert on this topic). The Government is still considering whether to prescribe the Code as a voluntary industry code under the CCA (see here for more details).

Other suggestions raised by stakeholders includes issues with exclusive dealing, powers to obtain information, documents and evidence under section 155 Notices, the unconscionable conduct provisions, increasing resources and specialist agribusiness at the ACCC and requiring the ACCC to publish more information on investigations and their outcomes.

The Green paper also notes what the Government is already doing, including “extending unfair terms protections to small business” and also mentions the recent unconscionable conduct cases brought by the ACCC against Coles.

Improving market competition (policy idea 7)

Related to the concern of power imbalance, stakeholders were also concerned about a lack of transparency and certainty in price, leading to difficulties in planning or investing and the perception that producers have been unfairly dealt with by other players in the supply chain. Specific changes suggested by stakeholders included:

  • introducing options to increase price transparency throughout the domestic supply chain: one suggestion was to regulate disclosure of transactions not undertaken on a public platform. It was not clear how this would work in practice, given it would require regular reporting of confidential information on often commercially sensitive material, as well as potentially increasing regulatory costs, which may be passed back to farmers contrary to the Government’s regulation agenda; and
  • introduce new marketing mechanisms which might restore the balance of power: the basis for this recommendation was that farmers are likely to be in a stronger negotiating position when they have a greater choice of markets to supply their product. The Government is interested in stakeholder views on whether new marketing systems would restore the balance of power to producers. Suggestions included increasing transparency (e.g. through reporting requirements for supermarkets), supporting marketing systems with independent appeals mechanisms or establishing a real-time, electronic bidding system for livestock.

The Green Paper also suggested facilitating the greater use of cooperative structures (which are regulated by the States) and also recognised that regulating agricultural prices to increase farm gate returns has resulted in adverse outcomes for industry at times (e.g. the wool reserve price scheme).

Improved regulation

Consistent with the Government’s aim to reduce unnecessary red and green tape, there is a focus in the Green Paper on removing unnecessary regulation. The Green Paper cited a recent report into on-farm red tape and estimates that famers spend over 20 days consumed with red tape.

The country of origin requirements were a main focus with concerns raised of circumvention by staging imports through third countries. This is a difficult area for the Government as it requires a balance between informing customers about the origin of products and also not imposing unnecessary red tape on agribusinesses. One suggestion was that it may be possible to make labelling on products clearer as to the imported and domestic components of a product.

The House of Representatives Standing Committee on Agriculture and Industry is currently inquiring into Country of Origin Labelling for Food (see our previous blog). The ACCC has recently released updated industry guidance on this topic (see our previous blog).

Reactions and next steps

There has been mixed reaction to the Green Paper, not surprisingly driven along self-interest lines.

The National Farmers Federation welcomed the focus on many of the sector’s policy priorities, including “rebalancing competition policy” and investment in infrastructure, particularly water. The Productivity Commission has supported Agriculture Minister Barnaby Joyce’s concerns about the farming sector.

However, supermarkets and retailers have raised concerns about the inclusion of competition policy issues in the Green Paper given the comprehensive Harper Review. So much so that Small Business Minister Bruce Billson subsequently stated in response that the Harper review is the key competition policy tool.

Submissions to the Green Paper are due by 5pm on 12 December 2014. The White Paper is due to be completed in 2015.

It will be interesting to see whether politically any of these proposals find traction within the Government, as it appears to highlight the divide in the Coalition between the economic hardliners and rural MPs.

By Tim Gargett and Melissa Monks

About The Author

Tim is a Senior Associate in the Melbourne Competition and Regulatory team who advises clients on all aspects of competition (including merger control), regulatory, consumer, advertising and general commercial and contractual law, with extensive experience engaging with the ACCC.

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