Determining your prices, you and your suppliers and information to consider before making a claim - transcript

In this section we’re going to look at your responsibilities and obligations when determining prices, and dealing with your suppliers. We’ll also run through the types of information you should consider before making a claim.

As you try to work out the impact of the carbon price on your business, you might be tempted to compare your own experiences with those of your competitors. Sometimes, industry associations can also provide information about likely price rises to you and your competitors.

While guidance may help you in your calculations, it’s still important that you set your own prices independently. This includes any decisions you make about your cost increases related to the carbon price.

The Competition and Consumer Act contains a number of rules relating to anti-competitive conduct - and it’s important to remember these when setting your own prices.

Under the Act, businesses are not generally allowed to enter into any contract, arrangement or understanding with your competitors about the price of goods or services, or any price adjustments. This includes cost increases linked to the carbon price.

For this reason, you need to take care when you have any discussions with your competitors about carbon price costs.

So, when setting your prices remember:

• First of all, determine your carbon price costs independently, considering the circumstances of your own particular business;
• Secondly, avoid discussions and, more importantly, agreements with competitors; and
• Finally, ensure that your estimates of the impact of the carbon price really do reflect your own business’ costs and needs.

Your suppliers may pass on the increased costs they incur because of the carbon price. Remember - as a business - you have rights. And there are steps you can take to make sure you’re not misled by other businesses:

• Firstly, look at what other suppliers are charging, and see if they’re saying different things about the impact of the carbon price; and
• Secondly, think twice before taking up an offer from a supplier that indicates prices have gone up due to the carbon price.

If you’re considering making a claim about the impact of the carbon price, you need to have a reasonable basis for doing so - otherwise you might find yourself in hot water.

You need to be confident that a price increase really does apply to your own business. This includes when you’re considering making a claim about percentage price increases, increases within a price range, and about a specific dollar figure.

Now, it may not be practical or - indeed - possible in all cases to calculate an exact increase in cost due to a particular factor, such as the carbon price. In these circumstances, you need to consider whether or not to make a claim at all.

So, what do you need to think about before making a claim?

Well, there’s a range of information you should consider - including information from your suppliers.

Ask yourself:

• Has my supplier given me information about the impact of the carbon price on their costs? Or has anything else - unrelated to the carbon price scheme - caused the cost increase?
• Are price increases consistent with predictions made by other sources - such as the government or my industry association?
• What do contracts with my suppliers say about price increases? and
• Finally, what impact have any related rebates or assistance available had?

Also have a look at:

• Invoices showing the impact of the carbon price on your supply chain or business input costs - such as raw materials and packaging;
• Notices from your gas, electricity and waste disposal suppliers;
• Data from an appropriate business calculator that considers increased costs relevant to your particular business; and
• Finally, information from professional advisers or consultants;

Remember, information that deals with your specific business model is more likely to be accurate. Bear in mind that general information from other sources and third parties - such as newspaper reports, websites or magazines - may not be sufficient to support your claim.

If you intend to rely on information from a third party you need to assess whether it’s reasonable to do so. And if you choose to make a claim relying on this information, you need to have confidence that the information is relevant to your own business - as costs will differ from business to business.

Now, let’s have a look at a situation where a business has decided to pass on carbon price increases to its customers.

A manufacturer states ‘some of the cost increases on our product range are in part due to the carbon price’.

The manufacturer makes this claim on the basis of information from its suppliers that identify specific cost increases due to the carbon price. The manufacturer assesses and relies on some key sources of information like -

• Modelling by an auditor that considers various sources of carbon costs, as well as predictions about future carbon costs;
• Invoices from suppliers showing the impact on transport costs;
• Notices from gas and electricity suppliers explaining a ‘percentage increase within a range’ which is due to the carbon price; and
• Information from its industry association and the government.

So, the business has looked at a range of information specific to its own circumstances. This is an acceptable claim to make, and won’t create problems. Why? Because it’s developed a reasonable basis for stating that its cost increases are in part due to the carbon price.

For more about information about supporting your claims, see the Business Snapshots available on the ACCC website.