ACCC: farmers lack market power

26 Jul, 2001 07:12 AM
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THE farm sector's lack of market power in negotiating with buyers has been recognised by the Australian Competition and Consumer Commission (ACCC), which has granted three applications to allow collective bargaining so far this year.

Victorian chicken growers and processors, a group of Qld milk producers and a number of sugar cane suppliers have all been granted authorisation to proceed with collective bargaining with their processor buyers after the ACCC ruled the benefits from collective bargaining outweighed a reduction in competition.

Its biggest case though, an application by the Australian Dairy Farmers Federation (ADFF) for wide scale collective bargaining among milk producers, is still under consideration.

ACCC commissioner Dr David Cousins said the increased number of applications this year was a product of deregulation in a number of agricultural sectors, and a change in the Trade Practices Act (TPA) in 1995 which compelled states to incorporate the Act as part of their own legislation, which broadened its coverage to include small business and individuals.

As businesses came to terms with the new arrangements, they were beginning to seek ACCC approval for new bargaining processes within their industry, he said.

Under the TPA, the ACCC can grant authorisation to certain anti-competitive practices that would otherwise breach the Act, provided the applicant can demonstrate a net public benefit.

In assessing the application for authorisation, the ACCC must determine whether the public benefits are more compelling than an increase in competition.

Examples of public benefits include greater efficiencies, regional benefits, smooth transition from regulation, countervailing power and savings in transaction costs.

The ACCC was also mindful of farmers' lack of market power, Dr Cousins said.

"We clearly are accepting the notion in a lot of cases that farmers, where there are many of them, are dealing with a limited number of processors, and in that situation may well be at a bargaining disadvantage," he said.

"But it will always depend on the factors in each individual case and we must weigh up competitive detriment versus public benefits".

The price paid by the consumer is paramount to the Commission when it considers applications for collective bargaining. But in many cases such as the chicken industry ‹ where the processors applied for authorisation ‹ the actual cost of the chicken at the farm gate represented only 8pc of the retail price, so collective bargaining would have "insignificant affect on the price to the final customer", Dr Cousins said, therefore authorisation could be granted.

But so far the ACCC has limited the granting of authorisation for collective bargaining to particular groups of growers and their processors rather than across an entire industry, a fact the ADFF is mindful of.

One of the biggest hurdles the ADFF faces is the breadth of its application, however its executive director John McQueen said he remains hopeful of success.

"We are quite confident the Act itself does allow this type of authorisation," he said. "But because it is something different, we have got to expect the Commission will look long and hard at it".

The ADFF is currently collating a number of questions raised by the ACCC after its public consultation period.

"We were quite heartened by the number of comments (from the public) supporting our application," Mr McQueen said.

To help industries, such as the dairy industry with its widespread coverage, the ACCC was looking at a streamlined application process, so individual groups could join in on the one application, Dr Cousins said.

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