ACCC issues decision on collective negotiations in NSW chicken meat industry

The Australian Competition and Consumer Commission has issued a final decision dismissing an application for authorisation to allow collective negotiations between chicken-meat growers and processors in NSW.

The ACCC found that due to recent changes to NSW legislation, the arrangements that were the subject of the authorisation application were unlikely to ever eventuate, and that accordingly, the claimed public benefits of the arrangements were unlikely to ever flow. For this reason, the ACCC dismissed the application.

This application for collective bargaining was distinguished by the high level of opposition from those who stood to benefit from it – namely, NSW chicken growers, who had indicated their preference for industry-wide regulation.

In its draft decision, the ACCC proposed to grant authorisation with conditions. However, following that decision, and with the support of NSW chicken growers, the NSW State Government passed legislation amending the Poultry Meat Industry Act 1986 which regulates the industry. The ACCC considered that this legislation would have the effect of precluding the implementation of the arrangements that are the subject of this authorisation application. Thus the public benefits that were claimed to flow from the proposed arrangements are not likely to occur.

NSW chicken-meat processors applied for authorisation to allow their contract growers to collectively negotiate with their respective processors and give effect to standard growing contracts in accordance with a Code of Practice and minimum contract guidelines.

Background

The ACCC has the function, through the authorisation process, of adjudicating on certain anti-competitive practices that would otherwise breach the Trade Practices Act 1974. Authorisation provides immunity from court action, and is granted where the ACCC is satisfied that the arrangements will result in a public benefit, and this benefit will outweigh any public detriment resulting from the arrangements. Applications for authorisation are considered on a case by case basis. The onus is on the applicant to demonstrate that there is public benefit arising from the conduct and that the public benefit outweighs any public detriment.

Eight NSW poultry processors* sought authorisation for each individual processor and its contracted growers to engage in collective negotiations for the purpose of negotiating standard growing agreements (including the agreement of a common fee), in accordance with a Code of Practice and Minimum Contract Guidelines, for which authorisation was also sought.

The NSW poultry meat industry is regulated by the Poultry Meat Industry Act 1986 which provides for the Poultry Meat Industry Committee to determine prices paid to poultry growers.

However as noted in the ACCC's draft determination, there was agreement that the arrangements under the PMIA may have potentially been in breach of the Trade Practices Act.

To identify and measure the likely public benefits and detriments of the proposed arrangements, the ACCC ordinarily applies the "future with-and-without test" first established by the Australian Competition Tribunal. This requires a comparison of the public benefits and detriments resulting from the position which would, or would be likely to, exist in the future if the authorisation were granted, with the position if the authorisation were not granted. The situation without the authorisation is termed the counterfactual.

In its draft determination, after applying the "future with-and-without test", the ACCC found that compared to a deregulated environment the benefits to the public of the proposed arrangements were likely to outweigh the detriments. For instance, the proposed arrangements would facilitate the transition to a deregulated market, and transaction cost savings were likely to result from the arrangements. Thus the ACCC proposed to grant authorisation with conditions.

However, since the draft determination was issued the NSW Government has passed the Poultry Meat Industry Amendment (Price Determination) Act 2002 which amended the Poultry Meat Industry Act 1986 with respect to the price to be paid to growers for certain kinds of poultry and also authorised certain things for the purposes of the Commonwealth Trade Practices Act 1974 and the Competition Code of New South Wales.

The ACCC considers that the NSW Parliament has indicated its clear intention is that the industry will only operate under the arrangements contained in the PMIA. While there appears to be some scope for variations in the types of agreements approved by the PMIC, it is reasonable to assume that, in view of the Government’s expressed intention, the arrangements as proposed, with their Code of Practice and Guidelines are unlikely to ever eventuate.

Therefore the ACCC considers that the likely outcome from applying the "future with-and-without test" to this application is that the claimed public benefits previously expected to arise would no longer be likely to flow.

Therefore the ACCC considers that the likely outcome from applying the "future with-and-without test" to this application is that the claimed public benefits previously expected to arise would no longer be likely to flow.

For these reasons the ACCC dismissed the application for authorisation.

* The eight processors are Inghams Enterprises Pty Ltd, Bartter Enterprises Pty Ltd, Red Lea Chicken Pty Ltd, Cordina Chicken Farms Pty Ltd, Baiada Poultry Pty Ltd, Sunnybrand Chicken Pty Ltd, Narex Australia Pty Ltd (trading as Penrith Poultry) and Summertime Chicken Pty Ltd