Australia: Agricultural competitiveness in Australia – a new focus of the regulator

Introduction

The Australian Government's commitment to strengthen the agriculture sector in Australia, through ensuring it remains as competitive as possible, was articulated in its Agricultural Competitiveness White Paper in July 2015. The package allocated A$11.4 million to boost the Australian Regulator's – the Australian Competition and Consumer Commission (ACCC) engagement with the industry, with the regulator establishing a dedicated unit which is devoted to encouraging fair-trade, taking enforcement actions and strengthening competition in agricultural supply chains. This development seeks to address the ACCC's concerns about "increasing consolidation beyond the farm gate and unfair trading practices through the agricultural supply chain".

Agribusiness mergers or acquisitions

The ACCC's new focus on agriculture will put acquisitions in this sector in the spotlight. Consolidation beyond the farm gate has always been subject to review under the merger and acquisition provisions of Australian anti-trust law. However, the impact of a merger on farmers' options for selling their produce and the extent to which it has the potential to reduce farm gate prices below the competitive level will be subject to additional scrutiny.

Australia does not operate a mandatory merger clearance regime.¹ However, the ACCC requests that it is notified of a merger or acquisition in advance of completion where it triggers market share thresholds (greater than 20 per cent of the relevant market), or are in industries of particular interest. The ACCC's mandate to ensure that the agriculture industry remains competitive is likely to elevate it to an industry of "particular interest". Accordingly, agribusiness should be mindful that transactions are likely to be exposed to increased scrutiny and the effects of any consolidation will be assessed at all levels of the supply chain.

Enforcement action

A commitment to ensure competitive and fair trading at each level of the supply chain will highlight any inefficiencies or divergence of power in the industry. Complaints emanating from the sector will be closely examined, and the dedicated agriculture unit will be "on the ground" and in a better position to discover breaches of competition laws. The extra funding received from the Government has seen the ACCC make a commitment to bring more cases involving agriculture before the courts.

The package does not give the ACCC any new powers. It will continue to utilise its powers under the Competition and Consumer Act 2010 (CCA) to tackle cartel conduct, arrangements that have the purpose or effect of substantially lessening competition, and as highlighted in the White Paper, prioritise truth in labelling (in particular origin labelling to let consumers know where food is grown and processed). The ACCC will continue to closely watch the market for any misuse of market power. Amendments to Australia's market power legislation which addresses an abuse of dominant position are proposed for later this year. The disparity between negotiating positions at each level of the agricultural supply chain will undoubtedly be assessed against the new laws.

Promoting economic efficiency, investment and innovation

Bottlenecks in rail and ports have the potential to hinder competition and efficient investment in the supply chain, while unregulated access to monopoly infrastructure can increase the costs associated with the supply of products to the end consumer. The ACCC supports some form of regulation with respect to ports and rail to address monopolistic pricing and rent transfers which contribute to inefficient economic outcomes. Further, and in line with the Government's focus on innovation, the ACCC will seek to ensure the market dynamics support an environment that allows for innovation and promotes pro-competitive market structures to incentivise investment.

Agribusiness in the spotlight

It is inevitable that agribusinesses and operators of infrastructure that service the industry from farm gate through to the end consumers will be the subject of increased examination by the ACCC. Market studies² to understand the operation of the industry will shine a spotlight on inefficiencies in the supply chain, and consequently, investigation into the causes of the failure to achieve a competitive marketplace will ensue.

Abuse of a dominant position will be investigated rigorously and action taken, where possible, to deter any misuse of the inequality in bargaining position. Assessment of any mergers or acquisitions will focus on ensuring that the amalgamation of businesses, whether they be competitors or operating at different levels of the supply chain, will not substantially lessen competition at any level of the market. The way forward is a nose to tail approach, with no level of the agricultural supply chain likely to be immune from the eyes of the ACCC.

Footnotes

¹ Notwithstanding that a formal requirement for notification does not exist in Australia, the ACCC can initiate its own review into mergers or acquisitions irrespective of the parties view that informal clearance is not required, if it is an area of interest to the Commission.

² The ACCC announced on 5 April 2016 that it will commence a study into the beef and cattle industry, examining competition, efficiency, transparency and trading issues in the beef and cattle supply chain.