In a keynote address to the VFF Annual Conference in Melbourne, Enforcement and Compliance, Executive General Manager, Marcus Bezzi discusses the ACCC's investigation into major supermarkets. Mr Bezzi also explains how the ACCC sets priorities and outlines recent activities of interest to the farm sector.
CHECK AGAINST DELIVERY
I am pleased to have the opportunity to talk to you today about the ACCC’s ongoing investigation into major supermarkets.
Before doing this I would like to explain to you how we go about setting priorities for compliance and enforcement and outline some of the work we have done in priority areas that may be of interest to you.
Setting priorities for compliance and enforcement
The key to maximising our contribution as an enforcement agency is to identify the most important problems for consumers and competition, including issues for farmers and small businesses, decide whether we are best placed to fix them and, if we are, to then focus our resources on delivering outcomes in those areas.
We cannot pursue every matter that comes to our attention. Indeed, one of our key roles is to make choices and pick the right interventions. While it varies from year to year, as an illustration:
- We start with over 160,000 complaints about traders and queries and information about market issues in the year
- We have a deeper look at over 3,000 of those
- We commence about 550 investigations
- Around 140 of these progress to in-depth investigations
- This results in 30-plus court proceedings, 30-plus court enforceable undertakings, and the payment of numerous infringement notices.
Since 2011 we have conducted an annual strategic review aimed at identifying priorities for the year ahead.
Importantly, we publish a revised Compliance and Enforcement Policy in February each year which sets out our areas of focus and explains the factors we take into account when deciding whether or not to pursue particular cases.
The first stock take of this approach late last year revealed that well over 50 per cent of our work sat within our main priority areas and almost all matters we pursued were aligned with the priority factors we set out publicly that support ACCC intervention.
In February this year ACCC Chairman Rod Sims announced the results of the ACCC’s latest strategic review of its enforcement and compliance work.
The review each year involves a thorough assessment of information about consumer and competition issues gathered by the ACCC from a wide range of sources. These include:
- state and territory consumer and fair trading agencies,
- the various industry ombudsman services including the energy ombudsman services in many states and the Telecommunications Industry Ombudsman,
- surveys of international agencies,
- information from consumer, small business, trade and industry representative bodies,
- analysis of our own trader complaints information, and
- analysis of media reports on consumer or competition issues.
While the most recent review confirmed many of our previously identified priorities it added some new areas. We named these priorities in the 2013 edition of the ACCC’s Compliance and Enforcement Policy.
Our Compliance and Enforcement policy now emphasises that some forms of conduct are so detrimental to consumer welfare and the competitive process that the ACCC will always assess them as a priority, irrespective of the sector of the economy in which the activity occurs. These are:
- cartel conduct, that it, price fixing, market sharing, bid rigging and agreements on output between competitors,
- anti-competitive agreements, and
- misuse of market power.
As a specific area of focus, the ACCC has maintained reference to placing priority on competition and consumer issues arising in highly concentrated sectors, and in particular the supermarkets and fuel sectors.
Our consumer protection priorities as set out in our new Compliance and Enforcement Policy are a mix of those from 2012 that require further work and new and emerging concerns. They are:
- online consumer issues
- telecommunications and energy
- consumer guarantees
- consumer protection issues impacting on Indigenous communities
- credence claims, particularly in the food industry
- unfair contract terms, and of course
- our carbon price claims role continues.
For each of the priority areas we have projects in place which will deliver outcomes over the course of the year.
For example in the energy area we have been tackling door to door selling and some unscrupulous practices that have been the subject of substantial numbers of consumer complaints to both the ACCC, state Fair Trading agencies and energy ombudsman services
In dealing with credence claims in the food industry we have a project that has delivered a number of court outcomes. Credence claims, particularly in the food industry, have potential to have significantly impact consumers or the competitive process, and continues to be one of the ACCC’s enforcement priorities. Consumers are increasingly placing weight on premium claims and are likely to value the types of claims that directly affect the integrity of the product, such as where something was made, grown or produced and how it was made, grown or produced, claims made by producers that a consumer cannot test or validate.
We have already been working on these matters with actions in relation to a number of ‘free range’ claims, and we have tackled alleged misrepresentations in the labelling of extra virgin olive oil and taken on country (or region) of origin claims from sheepskins to meat.
Broader compliance activities have sought to tackle the same problems by providing information to consumers on olive oil and country of origin through the shopper app.
Earlier this month we commenced civil proceedings in the Federal Court against Coles in which we are alleging false, misleading and deceptive conduct in the supply of bread that was partially baked and frozen off site, transported to Coles stores and ‘finished’ in-store. The products were then promoted as ‘Baked Today, Sold Today’ and/or ‘Freshly Baked In-Store’ at Coles stores with in-house bakeries.
The legal action covers various ‘Cuisine Royale’ and ‘Coles Bakery’ branded bread products. The ACCC alleges that labels on these par baked products stating ‘Baked Today, Sold Today’ and in some cases ‘Freshly Baked In-Store’, and nearby prominent signs stating ‘Freshly Baked’ or ‘Baked Fresh’, were likely to mislead consumers into thinking that the bread was prepared from scratch in Coles’ in-house bakeries on the day it was offered for sale and that it was entirely baked on the day it was offered for sale.
This case is contested by Coles and will be determined in the Federal Court.
The ACCC is a national law enforcement agency. We take action to enforce the Competition and Consumer Act including the Australian Consumer Law in the Courts – generally the Federal Court.
The ACCC has a number of guiding principles that are relevant to all investigations.
It is crucially important that the ACCC maintains its integrity by operating in an open and transparent manner. The Act is intended to protect the welfare of Australians, and that is not served by the ACCC entering private deals with companies or individuals. The ACCC has and will always stand by this position.
In undertaking its investigations, the ACCC also seeks to maintain confidentiality. The ACCC does not often comment publicly on the matters being investigated. This allows for a level of fairness to companies that may ultimately be found to have not contravened the law.
An exception to this approach may arise because the issues that are the subject of our investigations become public. This is usually because the matter is associated with some public controversy or a third party has revealed the fact of the investigation. In those circumstances we will provide information in an appropriate way about the scope and nature of the investigation – making it clear that our investigation does not mean that there has been any finding of contravention.
It is in the public interest – and the interests of the ACCC – to finalise investigations in a timely manner, and in doing so, the ACCC seeks to act in a predictable and consistent manner.
Information gathering tools
An investigation is obviously an opportunity for the ACCC to obtain information and evidence to determine whether or not there has been a contravention of the law.
Depending on the nature of the matter being investigated, it is not unusual for the ACCC to send a letter requesting information from a business. The purpose of this is to simply allow the ACCC to ascertain any important facts and where appropriate contextualise the conduct being investigated. It is in the interests of a business to be forthcoming and truthful with the ACCC and not to obstruct the ACCC’s enquiries.
Like other enforcement and regulatory agencies, the ACCC is also empowered with a number of formal information gathering tools. In an investigation into alleged anti-competitive conduct it is likely that the ACCC would issue section 155 notices to obtain information, documents and evidence. This includes the power to require that person appear before the ACCC to respond to questions.
The ACCC is also able to apply for a search warrant to enter premises or to access stored communications. These powers often involve significant impact on an individual’s rights and for this reason the ACCC undertakes a very careful consideration when determining whether or not to use them.
Given anti-competitive conduct often occurs in a covert manner, search warrants are an effective tool to secure evidence and avoid its destruction.
The investigative powers under the Act indicate the importance of investigating alleged anti-competitive conduct or which may harm consumers or their interests.
Supermarkets and suppliers
As I have said, competition and consumer issues in highly concentrated sectors, in particular in the supermarket and fuel sectors, are a priority area for the ACCC.
We continue to dedicate considerable resources to investigating claims made against the major supermarket chains in their dealings with suppliers.
We understand concerns about the power imbalance between suppliers and supermarkets. In some ways, that is at the heart of the issues we are considering.
This power imbalance has meant that suppliers have been reluctant to speak to the ACCC for fear of consequences. We also expect that there are a number of farmers who remain apprehensive about bringing their concerns to the ACCC.
The ACCC promised confidentiality to industry participants who came forward. We have seen those initial concerns ease and the ACCC has spoken to around 50 industry participants on a confidential basis. We will continue to maintain that confidence.
The ACCC has identified a range of allegations of conduct by the major supermarket chains that does not conform to acceptable business practice and may be unconscionable or a misuse of market power.
The concerns can be divided into two distinct issues for the purposes of the CCA:
- first, a concern that the major supermarkets may have engaged in unconscionable conduct in their dealings with their suppliers including, for example, by unilaterally deducting amounts due to suppliers, contrary to the relevant supply contracts; and
- secondly, a concern that the major supermarkets may be misusing their market power by discriminating in favour of their own home brand products to deter or prevent suppliers of proprietary brands from engaging in competitive conduct.
While such conduct is not necessarily identical across suppliers, product lines or even supermarkets, examples of conduct being further investigated, includes:
- persistent demands for additional payments from suppliers above and beyond that negotiated in their terms of trade
- the imposition on suppliers of penalties that did not form part of any negotiated terms of trade and which apparently do not relate to actual costs incurred by the supermarkets as a result of the conduct which has led to the penalty being imposed
- threats to remove products from supermarket shelves or otherwise disadvantage suppliers if claims for extra payments or penalties are not paid
- failure to pay prices agreed with suppliers
- conduct discriminating in favour of home-brand products.
The ACCC has, begun the resource intensive task of acquiring further information using our compulsory information powers from a range of suppliers and, importantly, in the main not from those suppliers that have approached the ACCC. With the information and documents we now have, the ACCC has identified a number of suppliers who are likely to have relevant information to assist our investigation. This approach of identifying a broad range of businesses of interest to our investigation avoids placing suppliers in the potentially difficult position of being seen to have reported their concerns to the ACCC. Our experience is that many businesses prefer this approach, and this is consistent with discussions with certain suppliers to date; and we will continue to be responsive to their situation.
Some work is still required before the picture is complete, but the information received so far appears to give some credibility to allegations. I am unable to estimate the time required as that will depend upon what we find during the process, but we are keen to finish these investigations as soon as we can.
Supermarket code of conduct
ACCC investigation and possible action may address some of the issues which are being identified, but will not be able to address broader issues resulting from market structure and market power.
The ACCC is on the record as saying that we see merit in the introduction of a legally enforceable supermarket and grocery industry code of conduct with clear, real obligations to allow the ACCC and industry to know when traders have crossed the line.
Such a code could, for example, enable more effective enforcement of contracts, better encourage supplier investment, see a more appropriate sharing of risk and allow more effective dispute resolution. Of course, any code will impose some transaction and compliance costs and cannot address all the issues that arise from market power. Our view is that if there is to be a code it should be effective, otherwise it would be better to have no code.
The Horticulture Code of Conduct is an example of a code that is in place. As many here may recognise, that mandatory code of conduct has significant limitations and we have suggested some changes to the Government that could improve it. If growers suffer harm from the actions of a trader they have a right to seek damages to compensate them for any loss that arose as a consequence of the trader’s breach of the code. This creates some incentive for the traders to ensure they comply with the grower protections in the code.
In a market economy there will always be parties with significant market power; collective bargaining can help offset this.
The collective bargaining notification regime was introduced to make it easier and faster for small businesses to collectively bargain with other businesses. In April 2013, the ACCC announced its decision to allow seven dairy farmers from the Manning Valley in NSW to collectively bargain with Woolworths and Milk2Market for 3 years. In this case, the ACCC consulted with several interested parties and made a decision about the matter in less than four weeks.
Our investigations are ongoing. I want to stress that at this stage there has been no finding of any contravention against any major supermarket operator. If we decide that there is a basis to take court proceedings it will be for a Court to make any findings of contravention. We expect to have finished the current phase of our assessment by the end of this year.
If you or anyone you know has concerns similar to those I’ve outlined above, I would encourage you to contact my colleague Alan Ducret who is in charge of our major supermarket investigation.
I would be delighted to answer any questions, though you will appreciate that there are some constraints on what I can say about the specific details of the ongoing investigation into major supermarkets.
Thank you for inviting me to speak to you today.