The ACCC v Pirovic case in Australia illustrates the risk in adopting a food labelling and advertising campaign that does not pay sufficient regard to what is conveyed by the label to consumers.
'Free range' labelling credence claims
'Free range' labelling of eggs has a particularly strong impact on the mind of consumers. It is a credence claim that distinguishes, positively, the associated product from non-free range versions of the same product. A 'free range' product is often priced at a significant premium, and it is invariably marketed with a high degree of prominence given to the 'free range' claim (for example, eggs are sold as 'free range eggs' rather than as 'eggs that are produced by free range chickens'). Indeed, in Australia in 2013, free range eggs were priced at an average premium of 75 cents per dozen over barn-laid eggs. And, since 2009, eggs labelled as 'free range' have gone from a 25 per cent share of the retail market to nearly 40 per cent.
The two major supermarket chains in Australia have given public commitments to remove cage-laid eggs from sale, and two high profile hamburger fast-food chains are making similar commitments on their food offerings.
There are obvious advantages to the producer and retailer if they can sell a product with a powerful credence claim such as 'free range'. The chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims, sets out the risks attached: 'Credence claims such as free range claims are powerful tools for businesses to distinguish their products. However, if they are false or misleading, they serve to mislead consumers, who may pay a premium to purchase such products'.
The Pirovic case
The ACCC, the regulatory body charged with policing Australia's consumer law, has been conducting an industry-wide investigation into the free range egg industry. The investigation – which was prompted by consumer concerns – focused on the labelling practices of 'free range' egg producers in Australia, and whether their farming practices aligned with what consumers expect when buying eggs labelled as 'free range'.
The ACCC commenced court action against New South Wales egg producer Pirovic Enterprises Pty Ltd (one of the companies it had looked at during its investigation), in the Federal Court of Australia in December 2013, and at the same time commenced similar action against a Western Australian egg producer. The Pirovic case is the first of these cases to be determined by the Federal Court, which handed down its judgment on September 23, 2014.
The food labelling conduct
Pirovic, which is a family business, farmed laying hens at two farms and then sold the eggs produced by those hens using packaging and a website that claimed the eggs were 'free range', and that the hens roamed freely on green pastures during the day before returning to barns at night.
Some of the packaging used by Pirovic (see image) included a colourful photo of chickens outdoors in what looked like a relatively sparsely populated field.
In Australian Competition and Consumer Commission v Pirovic Enterprises Pty Ltd (No 2), the Federal Court of Australia ruled that Pirovic Enterprises had contravened various legislative prohibitions against misleading and deceptive conduct by marketing as 'free range' eggs produced by hens that were farmed in conditions that did not match consumer expectations.
The Federal Court found that Pirovic, in marketing its eggs as 'free range', had regard to what other industry participants did. In fact, Pirovic understood that its practices were broadly consistent with the practices of most other industry participants selling eggs as 'free range'.
Pirovic's labelling had also been reviewed by the industry body, the Australian Egg Corporation Limited (the AECL), and deemed to comply with its labelling guide. Pirovic was licensed by the AECL to use the Egg Corporation Assured Trademark. Indeed, each of Pirovic's farms had a 'level A' accreditation for free range egg production, and the New South Wales Food Authority deemed the AECL scheme to be compliant with the Primary Industries Standing Committee's Model Code of Practice for the Welfare of Animals – Domestic Poultry.
Despite possessing this list of industry and State Government 'stamps of approval' (which it deployed prominently in its marketing), Pirovic was nevertheless held to have marketed its eggs in circumstances that did not accord with consumer expectations. Simply obtaining industry and State stamps of approval did not negate the obligation to label and advertise food products accurately. If the means of production did not tally with the claims made on the label, then the label had to change.
Pirovic was fined A$300,000, ordered to pay legal costs to the ACCC and to implement an internal compliance programme to reduce the risk of future contraventions of the Australian Consumer Law.
It's not just about eggs
The Pirovic case obviously has ramifications for producers of other 'free range' foodstuffs such as broiler hens, pork, duck and other products. In Pirovic, the Federal Court accepted that the words 'free range' – both on their own (which is how they appeared on the website used by Pirovic) and together with illustrative packaging – conveyed to consumers that the product (in this case eggs) was produced by an animal (in this case a laying hen) which was able to go outside and did in fact go outside on most days. Mere access to the outdoors was insufficient to meet consumer expectations.
It is a timely reminder for industry participants that they cannot take comfort in industry accreditation, and that food labelling should never assert desirable qualities that the food simply does not possess. Just because 'everybody else is doing it' is not a defence to a charge of misleading food labelling.
Country-of-origin labelling falls in the same category. Country-of-origin labelling is the subject of a report of the Australian Commonwealth Parliament House of Representatives Standing Committee on Agriculture and Industry (released in October 2014). In a submission to that Committee, the ACCC noted that credence claims, a category which includes country-oforigin claims, have been a priority for the ACCC's enforcement programme for the last two years. The submission echoes one of the judicial principles in setting penalties for contraventions of the Australian Consumer Law: the need to deter other companies from offending. Food producers and retailers, at least in Australia, should be aware that any penalty for misleading food labelling could be increased to set an example for the rest of the industry.