'Effects test' key to competition

12 Oct, 2015 01:00 AM
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NFF president Brent Finlay.
Farmers need better protection from misuse of market power
NFF president Brent Finlay.

OPINION: AGRICULTURE in Australia is on the verge of a boom and is set to be one of the key economic pillars for Australia over the next 50 years.

Our industry’s expertise in livestock and crop production means Australia is in a position to take advantage of the needs of an increasingly hungry Asia-Pacific region.

However, our potential will be stymied if Australia’s competition policy disrupts the vital market signals that our farmers rely on to spark investment in their enterprises.

The government’s response to the Harper Review, which is looking at Australia’s competition laws, is fundamental to delivering policy that will allow our farming businesses to realise the prospects offered by the growing demand in overseas markets.

This is illustrated most clearly in the current debate over the China Free Trade Agreement.

The benefits of this vital agreement will be diluted if competition policy is not reformed.

Free trade and competition policy are really two sides of the same coin.

Reforms will assist the creation of market conditions where small to medium farm businesses are able to directly compete with larger players for access to international market premiums.

This principle applies across all sectors of Australia’s economy, not just agriculture.

Competition reform will benefit every industry, and should be welcomed as a vital piece of economic reform that will deliver the competitive tension our economy needs to thrive and grow.

The farming sector is fragmented, composed primarily of small businesses in remote areas with limited access to market information and opportunities for collective organisation.

In contrast to this, increasing concentration up and down the supply chain is creating structural disadvantages when negotiating terms and conditions of farm inputs and marketing of produce.

This is not to discount fluctuations in input costs, the impact of climatic variations, limitations in infrastructure and the perishable nature of produce which can accentuate the vulnerability of farmers when selling their produce.

But competition law settings further erode the limited premiums available to farmers as price takers on the world market with the market power of global agribusinesses that dominate supply chains impeding the distribution of value through these markets to farm gate.

The fragmented farming structure and the consolidation in processing and retail sectors further up the supply chain means that farmers are regularly forced into accepting standard form contracts on a "take it or leave it" basis.

Often they are forced to operate under arrangements without the benefit of contractual security.

Reform is therefore essential to ensure the sector can operate with confidence and certainty.

Farmers need better protection from misuse of market power and must have access to effective and accessible regulatory recourse if they are subjected to anti-competitive behaviour.

It is not surprising some sections of the economy are calling for the status quo in relation to Australia’s current laws on misuse of market power.

International law on abuse of market power has long recognised that companies with privileged positions in the marketplace fully understand the impact of their actions on the competitive landscape.

Their concerns should be merely construed as the fear of losing the cover provided by the ineffectiveness of the current law and the imposition of meaningful regulation.

The Australian Competition and Consumer Commission’s poor record when pursuing prosecution under current misuse of market power provisions contained in section 46 is not because there is a lack of concern in the market place - nor is it because the commission is reluctant to act.

It simply does not have the right tools for the job.

The government has taken a step in the right direction by giving the ACCC expertise in agricultural markets.

This step should not be compromised by persisting with the ineffectual drafting of section 46.

An appropriate ‘effects test’ that does not stifle competition is necessary to police those with significant market power and help bring about the competitive tension essential to fair farm gate returns.

Reform in this space should empower the ACCC with the tools it requires.

Instead of boxing at shadows, it will be able to land some deserved punches on those that flirt with the law.

Introduction of an ‘effects test’ will enliven competition and ensure that the Act can fulfil the promise it was designed to achieve – preventing those with significant market power from substantially lessening competition in the supply chain.

The implementation of a suitable ‘effects test’ is paramount to building strong competition policy that will promote the prosperity of the farming sector in Australia.

It should be seen for what it is - a welcome enhancement to help ensure vibrant competition in the Australian economy.

Brent Finlay is president of the National Farmers Federation. This opinion article was originally published in The Australian newspaper.

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READER COMMENTS

Chick Olsson
12/10/2015 4:41:39 AM

Good article Brent… I think we need to go a little further in protecting smaller producers...

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