New and emerging issues in the grocery sector

Speakers: 
Mr Rod Sims, Chairman
Conference: 
Australian Food and Grocery Council Industry Leaders Forum, Canberra
21 October 2015

Addressing an industry forum hosted by the Australian Food and Grocery Council in Canberra, Chairman Rod Sims discusses the Food and Grocery Code of Conduct, the ACCC's increased focus on the agricultural sector, proposed changes to country of origin labelling and truth in advertising.

Transcript: 

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Introduction

Thank you for the invitation to speak today. Indeed, you have invited me back on several occasions, which shows that competition and consumer issues are important to your sector.

The power of the profit motive very often works for the good of society, but only if it works within the boundaries set by our competition and consumer laws.

The ACCC’s role is to explain where those boundaries are, both to act as a form of deterrence but also so that the wider community can have faith that a market economy works for them.

Our work includes preventing agreements or mergers that substantially lessen competition, detecting and deterring cartel conduct and preventing a misuse of market power for the purposes of damaging competition.

When it comes to supplier relationships, there is often a misunderstanding about our misuse of market power and unconscionable conduct laws. The two are not related.

Misuse of market power is a competition law and has little relevance to dealings between sellers and buyers. It is about firms with substantial market power who unlawfully seek to exclude a competitor from a market.

As shown in the Coles case, unconscionable conduct laws are more relevant in protecting sellers from harsh or unjust terms imposed by larger buyers. Unconscionable conduct sits within the Australia Consumer Law (ACL). Parliament designed these laws to provide protection in both a business-to-business and a business-to-consumers relationship.

The ACCC is also the national consumer regulator, which in essence means making sure that consumers and small businesses aren’t misled.

We are also the product safety regulator for consumer products (FSANZ is the food safety regulator). This sees us getting involved in recalling faulty consumer products and enforcing mandatory safety standards.

The final string to our bow involves regulating communications, transport and aspects of the rural water market.

Today, I will talk about some new and emerging issues. I will cover:

  • our increased focus on the agriculture sector
  • the Food and Grocery Code of Conduct and how we want to ensure that it succeeds
  • Recent developments in country of origin labelling, and
  • Our approach to truth in advertising, including free range claims.

Our increased focus on the agriculture sector

As you have a stake in the supply chain, this is my first opportunity to talk about our increased focus on agriculture.

In July this year, the government released the Agricultural Competitiveness White Paper[1] setting out priorities and investment plans for the farm sector.

The measures include giving the ACCC an additional $11.4 million over the next four years to establish an Agricultural Enforcement and Engagement Unit.

This funding is part of the government’s response to concerns in the White Paper about ‘increasing consolidation beyond the farm gate and unfair trading practices through the agricultural supply chain.’

The government is not providing us with any new roles or powers. We already have powers under the Competition and Consumer Act 2010 (the Act) which allow us to investigate anti-competitive activities.

We will use the funding to focus on engagement, and we will strengthen our analysis and investigation of competition and unfair trading issues in the agricultural sector.

  • First, we are planning to enhance our understanding of the competitiveness of agricultural supply chains and how this impacts on farm gate outcomes in general and via a number of specific market studies. This will strengthen our ability to make informed decisions on key issues that affect the sector, and will also ‘shine a light’ on problems that may require broader responses beyond the Act.
  • Second, we want to assist the agriculture sector deal with market concentration and fair trading issues through the Act. This involves increasing awareness about codes of conduct, collective bargaining and our consultation processes. It also involves better explaining our decisions.
  • Third, we aim to identify key agricultural supply chain issues across the agricultural sector for enforcement focus, investigation and prosecution.

The government will shortly appoint a new Commissioner to the ACCC with responsibility for, and deep knowledge of, agriculture issues.

We have started putting structures in place. We have established a dedicated Unit which will eventually have around ten staff both from within the ACCC and externally to bring expertise from the agricultural sector into the Unit.

The ACCC will also be calling for expressions of interest from individuals and organisations as we establish an Agriculture Consultative Committee.

Similar to the role played by our other consultative committees, the new committee will provide a forum for discussion and advice on relevant agriculture issues.

The Food and Grocery Code of Conduct

As the agency responsible for enforcement and compliance, the ACCC will do what it can to ensure the Food and Grocery Code of Conduct succeeds.

As you all know the Code came into force in March 2015, and Coles, Woolworths, Aldi and About Life (a small Sydney based retailer) have signed up. [2]

The Code provides a framework, in addition to the Act and the ACL, for dealings between retailers or wholesalers and suppliers.

It requires retailers and wholesalers to deal with suppliers in good faith at all times, including during the bargaining stages of establishing Grocery Supply Agreements, during the term of the agreement, and in dealing with any disputes.

The Code also sets out rules about grocery supply agreements, when retailers and wholesalers can require payments from suppliers, and the termination of agreements.

It also sets out a comprehensive dispute resolution process that allows suppliers to complain directly to a retailer’s Code compliance manager, or go straight to mediation or arbitration.

We are confident the Code can succeed in achieving its objectives. It can redress the imbalance in bargaining power that often exists between suppliers and larger grocery retailers by prohibiting certain types of unfair conduct, and by requiring retailers to deal with suppliers in good faith at all times.

I am delighted by the positive approach of the AFGC to the Code. I understand that they have had more than 1000 people from over 80 suppliers though AFGC training sessions about the Code. The AFGC has also produced informative and accessible fact sheets for suppliers to refer to.

Given this, it is unfortunate that the major retailers haven’t got off to a great start in implementing the Code.

The ACCC had concerns that some retailers, particularly Aldi and Woolworths, were presenting new supply agreements in a way that might give the impression that suppliers are not able to negotiate the terms of the agreement.

We have also had concerns about the low level of detail provided in some supply agreements about the circumstances in which retailers can require certain payments.

We have written to these retailers expressing our concerns. This action, which we made public, as some suppliers urged us to do, was not a signal that the Code faces great difficulties; it was, instead, a signal that we will do what we can to ensure the Code succeeds.

Ensuring suppliers are aware of their rights is crucial to the success of the Code. Our public action was designed to help with this.

The AFGC has also provided us with valuable feedback on our guidance material. We will continue to work closely with the AFGC and others to ensure that you are aware of your rights under the Code.

Developments in country of origin labelling

Country of origin labelling is another important issue for your sector.

As you know, the Australian government is seeking the agreement of state and territory governments to change Australia’s country of origin labelling laws, with a view to a new system being in place by mid-2016.

‘The purpose of improved country of origin information is to enable consumers to make informed choices about the food they buy’[1].

The ACCC supports this premise. From our point of view, accurate representations are an important part of a well-functioning market.

In order to give effect to this purpose any country of origin claim will need to provide consumers with clear, accurate and truthful information about what they are buying.

The proposed new system represents major change; it would reshape the obligations of traders, requiring most food to display the percentage of local content in addition to stating a country of origin.

The government’s proposal also transfers roles traditionally undertaken by food regulators to the ACCC and state and territory Australian Consumer Law (ACL) regulators.

The government proposes that the labelling regime will sit within a new national Information Standard under the ACL.

This regime would replace all current country of origin labelling requirements contained in the Australia New Zealand Food Standards Code.

Following an initial information campaign devised by the Department of Industry and Science and the Department of Agriculture, the ACCC will play a complimentary role in educating consumers and providing guidance to businesses.

Much like our approach in shepherding in new business obligations around unfair contract terms, we would look to build awareness and compliance through outreach early on. Naturally, if we see businesses doing the wrong thing, and we can’t bring about a change through our engagement, it will be crucial to the success of the new regime that we also have an enforcement role.

The credibility of the new regime depends, of course, on the regulator playing its role, and being seen to do so.

We will all take a keen interest in developments in relation to country of origin labelling as they continue to unfold.

Our approach to truth in advertising

Ensuring truth in advertising is one of the ACCC’s priorities.

We have been very busy in the food sector, focusing on the powerful promotional claims that go to the premium nature of a product or a particular production process.

We have in particular focused on ‘free range’ claims particularly those of egg producers but also addressing representations made in the pork industry.

When businesses misuse claims such as ‘free range’ damage can occur in three ways:

  1. Consumers are misled into paying more for a premium feature that doesn’t exist
  2. Competitors who can legitimately make the free range claim unfairly lose their competitive advantage, and
  3. Innovation suffers when consumers and businesses lose trust in the integrity of claims.

Free range eggs

In the latest developments, the Treasury is consulting on whether Australia should adopt a national standard on free range egg labelling.[3]

With the Treasury process under way, we have issued guidance on how we enforce the misleading conduct provisions of the ACL in the context of free-range egg claims.[4]

Common sense is a pervading theme in our guidance.

If it is not normal for most of the hens to leave the barn and to move about freely on an open range on most days, making a free range claim is likely to be misleading.

We acknowledge that laying hens may spend periods indoors and we do not expect to always see hens on the range or expect every hen to be outside every day.

Indeed, the ACCC does not expect farmers to use a precise approach of tracking hens or head counts. A common sense approach of simply observing that the range is in regular use by a significant proportion of hens on most days is likely to be sufficient.

On the other hand, we reject claims that it is acceptable to tell consumers that eggs are from free range hens when the outdoor range is not regularly used by the hens – whether this is the result of farming practices or for any other reason.

We plan to revisit our guidance following the conclusion of the Treasury process.

‘Baked today Sold Today’

A couple of years ago, I spoke to you about our par baked bread action against Coles Supermarkets Australia Pty Ltd.

The case has now concluded. Earlier this year, the Federal Court ordered Coles to pay penalties of $2.5 million for making false or misleading representations and engaging in misleading conduct.

The products were promoted as “Baked Today, Sold Today” and in some cases “Freshly Baked In-Store”, when they were in fact partially baked and frozen off site by a supplier, transported and ‘finished’ at in-store bakeries within Coles supermarkets.

In imposing the penalties, Chief Justice Allsop said:

The contravening conduct in this case is substantial and serious. Notwithstanding the absence of any specific evidence as to loss or damage by a consumer or a competitor, it is clear that the significant potential to mislead or deceive and thus to damage competitors, the duration of the conduct, and the fact that the goods in relation to which the impugned phrases were used were “consumer staples” indicate that the objective seriousness of the offending conduct was considerable.[5]

We think the penalty sends a strong message to companies that they should not use broad phrases that are deliberately chosen to sell products but which are likely to mislead consumers.

Thank you for your time today and I look forward to continuing our close engagement with the AFGC.

[1] http://agwhitepaper.agriculture.gov.au/white-paper

[2] Sign up dates:
•           About Life Pty Ltd (signed up on 19 May 2015)
•           Aldi (signed up on 15 June 2015)
•           Coles (signed up on 1 July 2015)
•           Woolworths (signed up on 1 July 2015)

[1] http://www.industry.gov.au/industry/IndustrySectors/FoodManufacturingIndustry/Pages/Proposed-reforms-to-country-of-origin-food-labels-overview.aspx

[3] http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2015/Free-range-egg-labelling

[4] http://www.accc.gov.au/media-release/accc-releases-guide-to-provide-clarity-on-%E2%80%98free-range%E2%80%99-egg-claims

[5] http://www.austlii.edu.au/au/cases/cth/FCA/2015/330.html