A five year growing agreement in South Australia between national chicken processor Inghams Enterprises Pty Ltd and its chicken growers has not been opposed by the Australian Competition and Consumer Commission in a draft determination issued today.
The ACCCs decision is a significant one for the agricultural sector as it moves towards a deregulated environment.
ACCC Commissioner Rhonda Smith said: "The ACCC proposes to grant authorisation to the agreement for four years. The decision to allow the agreement will assist the chicken meat industry through its transition phase to a deregulated market".
Inghams applied for authorisation in anticipation of deregulation of the South Australian chicken meat industry and submitted that any anti-competitive detriment would be outweighed by the benefit to the public.
After examining the agreement the Commission agreed.
These public benefits include:
- assisting a smooth transition from regulation to deregulation, which will ensure lower adjustment costs for the South Australian chicken meat industry;
- providing chicken growers with a degree of countervailing market power in the negotiating process; and
- a decrease in transaction costs resulting from the collective negotiation process that should result in lower retail prices.
Ms Smith said: "All States are examining their anti-competitive regulations as part of the Competition Principles Agreement. Currently, under regulation, chicken grower contracts, terms and conditions (including fees) and matters arising therefrom are negotiated on an industry wide basis".
The chicken meat industry is highly vertically integrated with two large processing companies, Inghams and Steggles, controlling 86% of the South Australian market. Chicken growers make significant capital investment in sheds and equipment that have virtually no alternative use. However, they never own the chickens or many other inputs in the chicken growing process.
The agreement provides for a standard fee payable to Inghams growers each growing cycle. The fee is based on a model farm concept, where the actual fee each grower receives depends on his or her efficiency compared to other Inghams growers.
Inghams proposes to meet representatives of the growers every six months to review the standard fee. Growers can negotiate individually with Inghams if they do not wish to be part of the collective negotiation process.
A code of practice will be attached to the growing agreement. The code is part of the collective negotiation process for which authorisation is sought.
The ACCC notes that Steggles has chosen a different approach to deregulation.
Interested parties may request a pre-decision conference before the final determination is released. The ACCC welcomes submissions concerning its draft determination.