Chicken meat processors address potential unfair contract terms

25 May 2022

Some of Australia’s largest chicken meat processors have agreed to change certain terms in their current contracts with chicken growers, following an investigation by the ACCC into the use of unfair contract terms in the industry.

The ACCC’s investigation identified a number of potentially unfair contract terms, including terms that allowed processors to vary growers’ supply arrangements or impose additional costs on growers. Some of the terms also required growers to make significant capital investments or contained imbalanced termination clauses.

“We were concerned that broad terms, such as allowing processors to vary supply arrangements during the term of the agreement, could potentially lead to significant financial harm to growers,” ACCC Deputy Chair Mick Keogh said.

“Several processors have agreed to amend certain contract terms to address some of the ACCC’s concerns.”

The changes that these processors have agreed to will provide some additional certainty and transparency for growers, including by clarifying the circumstances in which a processor may require growers to upgrade their farm facilities and when processors can make changes to their grower manuals.

Additional changes have been agreed to provide clarity about the circumstances in which processors can impose additional costs on growers, and to balance notice periods for termination clauses.

The ACCC’s investigation focused on the types of potentially unfair contract terms that were identified in its Perishable Agriculture Goods Inquiry final report.

“The thresholds and the lack of penalties in the current unfair contract term laws create challenges for investigations involving agricultural contracts. The proposed changes to these laws tabled during the last federal parliamentary sitting will, if enacted, better protect Australian small businesses against unfair contract terms, and will enable the ACCC to seek pecuniary penalties for breaches,” Mr Keogh said.

“We expect all chicken meat processors to continue working with growers and grower groups until the contracts they have in place are clear and balanced. We’ll be monitoring the industry to see that it happens and will re-examine these and other contracts if unfair contract term laws are reformed.”

Processors will engage with growers and grower representative groups directly about amendments to their agreements.

Note to editors

Generally, the chicken meat industry differs from most other livestock industries as the processor supplies the chicks, feed and medications to the grower, and retains ownership of the birds at all times. Growers generally provide land, sheds, shed fit out equipment, labour, water, utilities and insurance, and the contract specifies the methods the grower must use to care for the birds.

Background

In 2020 the ACCC was directed by the Australian Government to conduct an inquiry into bargaining power imbalances in supply chains for perishable agricultural goods in Australia.

The inquiry examined trading practices throughout supply chains, including the relationships between farmers, processors, and retailers, and the extent to which any potential bargaining power imbalances in these relationships adversely impacted the efficient operation of these markets. The inquiry also examined the ability of current laws and regulations to address the harmful effects of bargaining power imbalances.

On 10 December 2020, the ACCC’s report on this inquiry was published.

A court can declare a contractual term to be unfair and therefore void and unenforceable, but currently the law does not provide for penalties to be imposed on companies that use and rely on unfair contract terms in agreements with small businesses or consumers.

On 9 February 2022, the Australian Government introduced a bill to enhance protections against unfair contract terms in the Australian Consumer Law.

Release number: 
64/22
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