Potential divestiture threat to Supermarket majors in Australian government Green Paper

Posted by AFN Staff Writers on 22nd October 2014
Potential divestiture threat to Supermarket majors in Australian government Green Paper
Potential divestiture threat to Supermarket majors in Australian government Green Paper

The Australian Federal Government is considering a range of reforms that would strengthen competition laws and regulation, and may include divestiture of major retailers, as well as measures to make it easier to prove misuse of market power.

The Agricultural Competitiveness Green Paper, which was released late on Monday 20 October 2014, is a draft document that puts forward a range of new proposals and policy suggestions. It outlines the Government’s ideas on a range of important issues for the agriculture industry in Australia including infrastructure, drought support, trade and finance.

Stakeholders consulted as part of the development of the Agricultural Competitiveness Paper suggested improvements to competition laws, such as making it easier to prove that market participants had misused market power by strengthening section 46. They also raised other issues including divestiture, exclusive dealing (section 47), powers to obtain information, documents and evidence (section 155), the unconscionable conduct provisions of the Competition and Consumer Act (CCA), and whether there are barriers to the emergence of major Australian agribusiness companies (‘national champions’) of global scale for exporting to international markets.

The Green Paper was announced by Federal Agriculture Minister Barnaby Joyce MP at the National Farmer’s Federation (NFF) biennial Congress in Canberra.

“The Green Paper is a reflection of the Coalition Government’s commitment to maintaining family farming as the cornerstone of Australian agriculture and to support those on the land who engage in food and fibre production, an inherently noble and good occupation,” Minister Joyce said.

“I said I wanted to hear the big ideas, to shake things up—I was looking for new policies to truly support our farmers and our strong agricultural sector into the future,” Minister Joyce said. “The Green Paper certainly delivers with options to consider 25 diverse policy themes,” he said.

“Now it’s about whittling these ideas down and deciding what’s really important to take into the future, particularly given the tight fiscal environment we are working in,” Minister Joyce said. “As a nation, we need a competitive and innovative agricultural sector—a sector that increases farmgate profitability, has expanded export and trade opportunities, and strengthens our rural and regional communities,” he said.

Minister Joyce said the Paper suggested ways to reduce Commonwealth, State and Territory regulatory burden and to improve market competition by strengthening domestic competition laws.

Feedback submissions for the Green Paper are open online until 12 December 2014.

Competition and regulation

The Government said that with commodity prices affected by international prices, farmers had limited influence over the price they received for their produce and were also often at a negotiating disadvantage when compared to processors, wholesalers and retailers. Farmers can have stronger negotiating positions when they have alternative channels to market, according to the government.

Australian farmers are also estimated to spend more than 20 days of their working year consumed with complying with government regulation—red and green tape. The Government said regulation was important for both economic and social reasons, but that “it must be effective and efficient”.

Strengthening competition laws

Current competition laws generally seek to prevent the misuse of market power and allow for collective bargaining (including by farmers) in certain circumstances, to negotiate better deals. The Government’s Competition Policy Review is examining these issues and the Review Panel released its draft report on 22 September 2014.

Specific changes suggested by stakeholders included:

  • revisions to the CCA to make it easier to prove breaches of market power provisions; introduce a flexible anti-competitive ‘effects test’ in the misuse of power provisions; and increase penalties for breach of the CCA including a general divestiture power enabling courts to break up a business that repeatedly breaches the CCA;
  • reviewing competition laws to consider whether there are any barriers to greater consolidation among agribusiness firms;
  • increasing the resources of the ACCC, including specialist agribusiness knowledge, and requiring the ACCC to publish more information on investigations and their outcomes; and
  • creation of a supermarket ombudsman with penalty powers and a mandatory code of conduct for supermarkets (across all commodities) backed by direct financial penalties.

Australian Food News reported earlier this week that the Australian Competition and Consumer Commission (ACCC) had initiated further proceedings in the Federal Court against supermarket Coles for alleged unconscionable conduct.

Improving market competition

The Government said it aimed to facilitate and support a regulatory environment that allows agricultural markets to operate efficiently and transparently to support competition. Many stakeholders argued that there was a lack of transparency and certainty in the price of agricultural products and that this had led to difficulties in planning or investing.

Stakeholders also argued that producers had been unfairly dealt with by other players in the supply chain. Stakeholders suggested that the Government:

  • introduce options to increase price transparency throughout the domestic supply chain;
  • introduce new marketing mechanisms that might restore balance of power to the producer; and
  • facilitate greater use of cooperative structures.

Improved regulation

The Government said it was committed to ensuring that “unnecessary red and green tape is removed, and that necessary regulation is effective but imposes the least possible costs for business and individuals”.

Stakeholder suggestions included:

  • changes to the regulation of AgVet chemicals, such as through relying on the advice of trusted foreign regulators and allowing the Minister to issue temporary permits for chemicals; and
  • improvements to Country of Origin Labelling to ensure that consumers clearly understand the origin of their food.

What the Government is already doing

The Government said it was already undertaking a number of measures to improve competition law and regulation. Current measures include:

  • Introducing the Competition and Consumer Amendment (Industry Code Penalties) Act 2014, to provide a framework for penalties under industry codes of conduct, proposed to be applied to the new Franchising Code from 1 January 2015.
  • Commissioning an independent ‘root and branch’ review of the Competition and Consumer Act 2010 (CCA) (the Competition Policy Review).
  • Providing additional funding for the Australian Competition and Consumer Commission (ACCC).
  • Transforming the Australian Small Business Commissioner into the Small Business and Family Enterprise Ombudsman.
  • Extending unfair contract term protections to small businesses.
  • Through ACCC action, reviewing aspects of certain supermarket behaviour.
  • Considering whether to prescribe the Food and Grocery Code as a regulation under the Competition and Consumer Act 2010 further to public consultations.
  • Boosting the competitiveness of Australia’s economy through the Industry Innovation and Competitiveness Agenda.
  • Reducing the regulatory burden across Australia, including for the rural sector, by $1 billion a year.
  • Removing cost imposts on Australian farmers by abolishing the carbon tax.
  • Improving the efficiency of agriculture and veterinary chemicals regulation.

Green Paper welcomed by farmers

The release of the Green Paper was welcomed by farmers, with National Farmers’ Federation President Brent Finlay saying the announcement from Minister Joyce about the paper “inspired a day full of energy and interesting ideas” at the NFF’s Congress about Australian agriculture “looking at where we are now and where we are headed”.

“Key messages emerging from the day centred on access to capital, open dialogue and the lifestyle that makes agriculture an attractive choice,” Mr Finlay said.

The Green Paper has also been welcomed by AusVeg, representative body for Australia’s vegetable and potato growers. AusVeg said the paper “touches on a number of key issues” AusVeg has previously raised with the Federal Government.

AusVeg spokesperson, Andrew MacDonald said infrastructure, competition and regulation, and finance, business structures and taxation, which were among the areas of policy development canvassed by the paper, were each “important to the ongoing security and prosperity of the Australian vegetable and potato industries” and that it was “promising” to see that they had been included in the Green Paper.

While AusVeg welcomed the release of the Agricultural Competitiveness Green Paper, Mr MacDonald said it was important also to note that the document only contains proposals for the future direction of Australian agriculture, and that it was important the right policies were achieved.

“To that end AUSVEG, in the weeks ahead, will work closely with the Federal Government for the duration of this process to ensure the needs of the Australian vegetable and potato industries are adequately addressed in the White Paper that is ultimately developed,” Mr MacDonald said.