Chapter 3 Competition and Consumer Amendment (Horticulture Code of Conduct)
This chapter has five main sections:
n an overview of the
n key provisions of the
n background to the
n issues raised during
the inquiry; and
n committee comment.
The Competition and Consumer Amendment (Horticulture Code of Conduct)
Bill 2011 (‘the Bill’) seeks to amend the Competition and Consumer Act 2010
(‘the principal Act’) by adding provisions for a new Horticulture Code of
Conduct. The new Code would apply to the trade of horticulture produce and
sets parameters within which terms of trade must be made, designed to provide
greater protection for growers.
There is an existing Horticulture Code of Conduct operating in the form
of regulations (‘the 2006 HCOC’). Modifications have since
been proposed to the 2006 HCOC; the Bill is the most recent attempt at change.
The Committee received submissions that acknowledged the positive intent
of the Bill, but viewed it as faulty. Numerous and varied remedies were
suggested, which are detailed within this chapter.
Key provisions of the Competition and Consumer Amendment (Horticulture Code
of Conduct) Bill 2011
Objectives of the Bill
Clause 51AEB of the Bill states that the Horticulture Code of Conduct
(HCOC) is declared to be a mandatory industry code. The purpose of the Code is
defined as being:
...to regulate the conduct of Agents/Merchants and Sellers of
Horticultural Produce to ensure contractual clarity and transparency of all
transactions and provide a cost-effective mechanism for fair and equitable
In a practical sense, the Bill is designed to offer greater protection
to sellers (produce growers), who engage the services of intermediaries to find
end-users for their produce without having direct knowledge of the obtainable
sale price. These intermediaries may include ‘agents’ or ‘merchants’, for
example. Whilst such third parties make payment to growers based on the
obtainable price for the produce, growers are unable to necessarily trace this price
and compare it against the payment received.
The Bill seeks to clarify this problem by requiring agents and merchants
to disclose eventual sale prices to sellers (the growers), who could then make
a comparison between prices paid and the payment received. The Bill also sets
out a dispute resolution and oversight framework (both of which are already
contained within the 2006 HCOC).
Clause 51AED explicitly states that ‘this Code replaces the existing
[HCOC] and has effect notwithstanding existing individual agreements’. From a
technical perspective, the amendment Bill would have the effect of prescribing
an industry code from within the principal Act instead of via regulation. As
such, any future changes to the proposed Code would need to be made by changes
to legislation, rather than by changes to regulation.
Terms of trade and ‘intent to dispatch produce’ notification
In clause 51AEE, a merchant or agent must provide their terms and
conditions of trade in written form to sellers (these form their ongoing trade
relationship). These trade relationships, by mutual agreement between traders
and growers, may be modified ‘provided that the Agreed Terms of Trade are
consistent with the requirements of this Code.’
Prior to dispatching a consignment of horticultural produce, clause 51AEF
requires that a seller must notify the merchant/agent by sending an ‘Intent to
Dispatch Produce Form’. Upon receiving this form, a merchant/agent must
respond within 12 hours ‘indicating whether or not they will receive the
consignment’ (clause 51AEH). No response is deemed to mean that the
merchant/agent has accepted the consignment. Under clause 51AEG, if the seller
fails to provide notification, the merchant/agent has the discretion to accept
or return the consignment.
If the merchant/agent, after receiving notification, decides not to
accept the produce, the seller must not dispatch it (clause 51AEI).
Where notification has been given and the merchant/agent has agreed to
(or has been ‘deemed’ to) accept the consignment, ‘they must accept the
consignment of Horticultural Produce when delivered’ (clause 51 AEJ). However,
a merchant/agent reserves the right to reject the consignment if it is of the
incorrect quality or quantity or if earlier advice was given to the seller
indicating rejection. Sellers may appeal to the Producer Fairness Tribunal if
they believe their consignment was ‘arbitrarily rejected.’
The rules diverge at this point depending on whether there is an agency
relationship or a merchant relationship with the seller. In the Bill, an agent
means ‘any person or entity that acts, or offers to act, for a Seller in an
Agency Relationship’; a merchant means ‘any person or entity that is, or offers
to be, in a Merchant Relationship with a Seller this includes but is not
limited to Wholesalers Exporters, Processors and Retailers [sic]’
(clause 51AEC – definitions).
Clause 51AEM states that ownership of the produce ‘remains with the
seller until sold by the Agent to a third party,’ after which point ‘ownership
passes immediately to the third party purchaser.’
Under clause 51AEN, proceeds of the sale are required to be deposited
into a trust account – at an unspecified point in time after the sale – and the
agent may only deduct a commission according to the agreed terms of trade. The
manger of the trust account, which the Bill envisages will likely be the Perth
Metropolitan Markets, Brisbane Markets (Brismark), Sydney Markets Ltd and the
Melbourne Market Authority, is permitted to deduct a 2.5% service commission.
Distribution of the funds to the seller ‘should’ occur within seven days of the
funds being deposited into the trust account (clause 51 AEO). Clause 51AES
details the rules for the trust account.
Clause 51AEQ states that the agent must provide the seller with a copy
of the invoice. This must be done within 28 days from the date of sale of the
consignment or as negotiated (whichever is earlier) and must include details of
prices, quality and grades.
Where a merchant relationship exists, the Bill states that ownership transfers
at the time of delivery if an agreed price exists, or if there is no agreed
price the merchant may hold the produce for 24 hours. In the latter case, ‘if
an agreement has not been made... then the Merchant is deemed to be an Agent,’
and a default 12.5% commission would apply. Payment from the merchant to the
seller must be as agreed and not later than 28 days from the date that the
produce is received, or as negotiated, whichever is earlier (clauses 51AEU and
The merchant must provide a statement to the seller within 28 days with
details of prices paid, quality and grades, ‘for each consignment’. The Bill
specifies that ‘average prices are not acceptable’, although growers may agree
to be in a pooled arrangement with other growers (clause 51AEW).
The Bill also contains a dispute resolution process in the event
agreements are not honoured. This begins with a report from an horticultural
inspector (clause 51AEY) and escalates to the Producer Fairness Tribunal, which
would be empowered to facilitate a mediation process (clauses 51AEX(2) and
51AEZ(1)). The outcome of mediation is binding on the parties, unless,
following application by one or more of the parties ‘a court of competent
jurisdiction... makes a different decision’ (clause 51AEZ).
Clause 51AEZA establishes a Horticultural Code Management Committee, responsible for educating stakeholders, accrediting inspectors
and advising the Minister on the accreditation of a Produce Fairness Tribunal.
Background to the Bill
Origins of the 2006 HCOC
As noted above, there is an existing Horticultural Code of Conduct (2006
HCOC). According to the explanatory statement that accompanied the regulations
establishing the 2006 HCOC, the need for an industry code arose due to a ‘need
to improve commercial transparency’ and because ‘growers and wholesalers could
not agree on a voluntary code.’
The process leading to the 2006 HCOC began with stakeholder
consultation, undertaken by a consultant on behalf of the Australian
Government. This was followed by the development of ‘options’ generated in the
consultation process, including a ‘recommended option’. These options were
detailed in a draft regulatory impact statement (RIS).
The RIS stated that:
Due to intense competition to keep transaction costs low, it
becomes difficult for traders who wish to provide clear and transparent trading
terms to compete against those who have the cost advantage of not providing
The RIS categorised growers into two groups: ‘outsiders’ (comprising
the smaller and newest growers) and ‘insiders’ (the larger and well-organised
groups). According to this analysis, the outsiders:
n have less access to
n pay more for
n face payment delays;
n have difficulty
finding the better wholesalers.
Whereas the insiders:
n experience few
problems and have privileged access to information through established
According to the draft RIS, the original public consultation process
attracted diverse responses from growers generally depending on status. Smaller
growers described problems as ‘very serious’ whereas larger growers argued ‘there
were no problems’ and that the market worked ‘very efficiently.’
The consultant then went back to the stakeholders, and tested the
various options from the draft RIS. Following this secondary consultation, the
‘recommended option’ was still seen as the best option, based on analysis
showing it would offer the most benefit with the lowest cost.
The other options were ruled out for being too costly.
Stakeholders, nonetheless, viewed the ‘recommended option’ with
The compromise offered by the consultants in the draft RIS
was strongly rejected by the HAC/NFF [Horticulture Australia Council/National
Farmers’ Federation] and some other growers who viewed it as offering too much
flexibility. Wholesalers were concerned that the arrangements to conduct
business in writing and provide additional transparency would still add
significant costs as well as constrain necessary flexibility.
In the event, the basic elements of the ‘recommended option’ were
enacted in the 2006 HCOC. Submissions to this inquiry contained differences of
opinion similar to those that were raised during the development of the 2006
HCOC. These are outlined later
in this chapter.
New proposals since 2006
Numerous proposals have suggested revisions to the 2006 HCOC. These include:
1. the ACCC’s
recommendations (July 2008) arising from its inquiry into grocery prices;
2. the Horticulture
Code of Conduct Committee’s response to the ACCC (August 2009), supported by
the markets; and
3. the Horticulture
Taskforce’s response to the ACCC (August 2011), developed by a collective of
peak horticulture industry bodies.
Additionally, there is now a new version of the Code as proposed within
the Bill (September 2011).
As noted in the previous chapter, in 2008 the ACCC conducted an inquiry into
the competitiveness of retail prices for standard groceries. The
then-Assistant Treasurer and Minister for Competition Policy and Consumer
Affairs requested the ACCC review the 2006 HCOC as part of the inquiry. The
ACCC found that the Code could function more effectively with some changes:
...the diversity and complexity of the horticulture industry
cause it to be a difficult industry to regulate effectively without causing
unintended side effects and incurring compliance costs. Nevertheless, the ACCC
believes the Horticulture Code has merit and, if amended in accordance with the
recommendations outlined [in this report], the code has the potential to
provide a framework which ensures transparency in transactions and fairness in dispute
The ACCC also suggested the Horticulture Code of Conduct Committee
(a body convened by the then-Minister for Agriculture, Fisheries and Forestry) conduct
a review of the Code in more detail, two or three years into the future.
The ACCC made recommendations in ten areas, as well as a range of more specific
The HCOC Committee conducted the review recommended by the ACCC and reported
in August 2009. It gave qualified support for most, but not all, of the ACCC’s
The Horticulture Taskforce developed a paper in response to the ACCC’s
recommendations. The Taskforce supported
one ACCC recommendation, gave qualified support for two others, and did not
support the remainder.
The 2006 HCOC and the Bill
In broad comparison to the 2006 HCOC, the Bill:
n contains an
alternative and broader definition of horticultural produce, defines agents and
merchants differently and uses the term ‘seller’ in place of ‘grower’;
n directs parties to
follow particular timelines and utilise recognised trust accounts. The timing
and method of payments in the 2006 HCOC is left in the hands of growers, agents
and merchants to determine by agreement;
n mandates certain
procedures that must be followed as a minimum standard, such as the ‘intent to
dispatch produce’ notification. The conditions of delivery, acceptance or
rejection of produce are largely determined by agreement between growers,
agents and merchants in the 2006 HCOC;
n provides that growers
are entitled to receive information from agents and merchants pertaining to
prices, quantities, grades and dates of purchases, as does the 2006 HCOC.
However, whereas the 2006 HCOC required that a range of specific information
must be contained in agreements made between growers, agents and merchants,
equivalent requirements are not found in the Bill;
n contains similar provisions
relating to dispute resolution, although there are procedural and
administrative differences; and
n applies to any
existing agreements. The 2006 HCOC contained a ‘grandfather clause’ whereby
existing agreements could continue unaffected.
Issues raised during the inquiry
Dissatisfaction with the 2006 HCOC was a central theme in many
submissions. The Australian Chamber of Fruit and Vegetable Industries
described the 2006 HCOC as ‘unworkable’ and described the version in the Bill as
a proposal that ‘falls far short’. Fresh State Ltd, the
representative organisation for wholesalers located within the Melbourne
Markets, also gave a similar view. The Horticulture
Taskforce, while offering qualified support for the Bill, indicated that a code
should be simple to draft provided ‘all the anti-farmer interests’ could be
Some submissions to the inquiry held a position based upon support or
rejection of past proposals to amend the 2006 HCOC. As discussed above, these
1. the ACCC’s
recommendations (July 2008);
2. the HCOC
Committee’s response to the ACCC (August 2009); and
3. the Horticulture
Taskforce’s response to the ACCC (August 2011).
The Australian Chamber of Fruit and Vegetable Industries (representing
the six central markets in Australia) advised that the Committee should support
the HCOC Committee’s proposals:
The Australian Chamber requests that this Standing Committee
makes recommendation to the House that the Minister for Agriculture, Fisheries
and Forestry implements the Code Committee’s recommendations from 2009
Growers and farmers, by contrast, gave support to the Horticulture
Taskforce’s proposals. According to the National Farmers’ Federation (NFF),
these were formulated to state ‘what amendments industry is seeking to the
[HCOC] legislation.’ However, according to the NFF, the contents of the Bill ‘do
not closely reflect’ the Horticulture Taskforce’s position:
for this reason, the NFF encourages [the Committee] to
engage with horticulture industry on this reform agenda... as a means of
delivering transparency in the horticulture supply chain price setting process.
In addition to the positions above, submissions from Sydney Markets Ltd
and the Central Markets Association of Australia each conveyed an objection to
this Bill ‘in [its] entirety.’ Both submissions also closed by commenting that
the Bill lacks ‘an understanding of the horticulture industry [it seeks] to
Some submissions disputed the appropriateness of the definitions used in
the Bill. For example, the Horticulture Taskforce submitted that the term ‘grower’
should be used in preference to ‘seller’, ‘because growers do not “sell” to an
More specific issues were also raised:
n transparency and
n complexity and costs;
n status of existing agreements
and contracts; and
n administration and
These issues are each discussed in the following
Transparency and accountability
Submissions provided a range of perspectives in relation to the
transparency of horticulture produce transactions. On one side were those who
argued that transparency is already provided for through ordinary business
practice, and on the other were those who pointed to systemic flaws. For
example, the Mareeba District Fruit and Vegetable Growers Association (MDFVGA)
challenged the degree of transparency that the 2006 HCOC provides due to a
loophole whereby agents morph into merchants:
The system... allows the wholesaler to operate as a merchant
whilst working under the definition of an agent (known as the hybrid system).
This allows the wholesaler to sit on a grower’s produce until he finds a buyer
and within a nanosecond of finding that buyer and getting a guaranteed price
changes hats, becomes a merchant and purchases the produce from the grower at a
sum considerably less than what he was offered by his customer.
Whilst the Horticulture Taskforce submitted that ‘if a hybrid model is
permitted then there is no point in having a code’,
it is not evident that the Bill would prevent this practice. In any case, the
2006 HCOC states:
A trader cannot act as both an agent and a merchant under the
one horticulture produce agreement.
The MDFVGA also argued that, unlike the 2006 HCOC, the Bill would
provide for ‘full transparency’ because it requires ‘a detailed paper trail
from producer to the final retailer or processor.’
The 2006 HCOC, however, already requires agents and merchants to report prices
received to growers.
When introducing the Bill, Mr Katter stated that in practice, retailers
will deny having agreed to purchase produce if market prices change after the
The game is as follows. Every farmer, for reasons we do not
fully understand, will get a turn at being the first farmer off, so he will get
spectacular prices—he will get $45 a box or whatever it is—for mangoes, which
they will be pulling next month. But then, as all the other farmers start to
come on, the price will tumble back down to $12 or $15 a box.
He continued, saying that when a supermarket manager has:
... bought mangoes at $45 [he] thinks: ‘Heavens! I’m going
to lose my job here.’ So he has a look at those mangoes and finds out that
they are speckled and says, ‘Jeez—we took these on consignment.’ The truth is
that he did not take them on consignment; he bought them. But there is no
The NSW Chamber of Fruit and Vegetable Industries Inc (Freshmark) argued
in its submission that most wholesalers and growers have
long-term relationships ‘built on trust and reliability’.
Being a free trade market, growers are able to choose their
wholesaler not only from one market but from any market. As a result good
growers end up with good wholesalers, who in turn have good retailers... Those
that continually chase price and not focus on building long-term relationships
usually end up disappointed with their outcomes.
According to Freshmark, the Bill has been based on a South African model
aimed at an industry with different workings to Australia. Freshmark argued
that keeping growers viable is in wholesalers’ interests, as ‘when a grower
suffers a wholesaler suffers and retailers have to cope with the flow-on
Further, the Bill’s trust account regime was criticised as being
pointless. OneHarvest submitted:
We can only assume that the trust account mechanism is
intended to “quarantine” grower’s funds from the Agent’s operations to ensure
that those funds are not used to pay the Agent’s other creditors.
However, as the same submission pointed out, in practice the funds would
initially be received from a third party into the agent’s account, ‘mixed with’
other money and would probably be ‘utilised to pay the agent’s other creditors’
prior to reaching the trust account. Moreover, ‘there is a risk that funds
could ultimately be incorrectly disbursed from the trust account’.
The NSW Farmers’ Association (NSWFA) doubted whether any additional
transparency achieved would outweigh the costs.
Further, the Horticulture Taskforce pointed out that ‘it appears that merchants
will not be required to use the trust account.’
On the other hand, Mr Katter explained that trust accounts feature in
In the real estate industry there is a trust fund. In the
legal industry there is a trust fund. In the insurance industry there is a
trust fund. In every industry there is a trust fund to protect the person
selling. But there is no trust fund in this industry.
The submission from the MDFVGA supported the inclusion of the trust
account in the Bill and asserted that ‘growers lose millions every year by
wholesalers declaring bankruptcy.’
Complexity and costs
Submissions warned that, were the Bill to be enacted, transaction
complexity and costs would increase. Examples of increased complexity include
the ‘intent to dispatch produce’ notification, operation of the trust account
and application of the Bill to retailers (distinct from the 2006 HCOC where
retailers are exempt). OneHarvest, a produce processer and wholesaler,
submitted that the Bill’s provisions relating to dispatch, delivery and
acceptance of produce would duplicate other routine processes, such as the
generation of purchase orders, ‘which already provide a sufficient paper trail
to establish who ordered what, in what quantity and from whom.’
The ‘intent to dispatch produce’ notification, for example, could lead
to situations where rejection or acceptance of produce and other instructions
have to be promptly communicated between sunset and sunrise.
The fact that the existing Code [the 2006 HCOC] does not
specify defined periods for response is reflective of the diverse nature of
arrangements that might be in place and the fact that timelines may need to
change based on the particular arrangements at hand. ... The consequences of
missing a deadline can be significant.
The NSWFA and the Horticulture Taskforce viewed the notification procedure
envisaged in the Bill as potentially problematic. Clause 51AEJ(1)(b), on one
hand, provides the merchant/agent with an 8-hour window to reject produce
post-notification and acceptance, but clause 51AEU(1)(b) gives merchants the
ability to refuse purchase if a price cannot be agreed within a 24-hour
window. In the latter case, the merchant would be deemed to be an agent under clause
51AEU(2). NSWFA described this as ‘confusing’ and also ‘effectively providing
two opportunities for produce to be rejected.’ The NSWFA contended that the
price ought to be agreed ‘before or at delivery in a merchant transaction.’
The Horticulture Taskforce advised that in a merchant transaction ‘it is normal
and fair for the price to be agreed at or before physical delivery’.
The Horticulture Taskforce also observed:
...produce is often in and out of the market within 24
hours. An allowance of up to 24 hours to agree on a price will allow the
merchant to manipulate the price based on what they receive, all at the
The trust account regime outlined in clause 51AES would, according to
the submission from OneHarvest, create a ‘significant compliance burden’ for
the trustee due to the high number of transactions, each with multiple parties
involved. The NSWFA submitted
that ‘many growers will have concerns’ in relation to paying the non-negotiable
2.5% service commission. The NSWFA also questioned ‘whether growers would see
the additional cost as providing sufficient benefit in terms of enhanced
Retailers expressed concern that they would be unduly captured by the
Bill due to the broad definition of merchant contained in the Bill (the 2006
HCOC specifies that retailers and exporters are excluded).
Woolworths argued that including retailers in the HCOC would ‘duplicate’ and ‘undermine’
the Produce and Grocery Industry Code of Conduct. Woolworths also argued that
it ‘already has open and transparent supplier relationships in place.’
Woolworths warned that if the HCOC included retailers:
...this would still leave large parts of the produce and
grocery sector not covered by a code. This would also create different regimes
for different parts of the farming and broader grocery sector, including
manufacturers. For instance, the dairy industry is not caught by the [HCOC].
ANRA submitted that the Produce and Grocery Industry Code of Conduct is ‘a
more appropriate means of promoting clarity and transparency in commercial
relationships.’ ANRA added:
In addition, the operational evidence of the Produce and
Grocery Industry Code of Conduct [PICOC] highlights that there is little
evidence to suggest that retailers and growers are not currently managing their
commercial relationships in a fair and transparent manner. The Ombudsman
component of the PICOC has rarely been used in relation to supermarket-grower
Status of existing agreements and contracts
The Bill’s retrospective application to existing agreements and
contracts would cause ‘significant uncertainty’, according to OneHarvest group,
as there is ‘no clarity’ in clause 51AED regarding the status of these
Would those agreements become void? Or would they continue
to operate to the extent they are not inconsistent with the proposed new code?
... [OneHarvest] may find itself in a position where it has to choose between
(on the one hand) a contractual breach (or on the other hand) a breach of the
OneHarvest emphasised that requiring existing contracts to be updated to
comply with the Bill would be an ‘undesirable’ outcome.
The NSWFA noted the absence of a transition period within the Bill to allow for
current agreements and contracts to be updated.
In relation to the 2006 HCOC, the NSWFA was of the view that ‘all
transactions should be subject to a code including those transactions made
under agreements prior to 15 December 2006.’ The ACCC’s 2008 inquiry
recommended that the HCOC apply to agreements regardless of when they were
agreed. The ACCC based this recommendation on evidence that these exempt
agreements were now highly prized, as traders had become reluctant to enter
into Code-compliant agreements due to the added risks and complexity.
In order to bring old agreements under the code, transition periods are
generally recommended: the Horticulture Taskforce recommended a six-month
transition period, for example.
Administration and oversight
Additionally, the Committee wishes to draw attention to the level of
administration that would be associated with the dispute resolution and
oversight provisions in the Bill. In particular, the Bill would establish the
Horticultural Code Producer Fairness Tribunal to mediate disputes and the
Horticultural Code Management Committee. The Management Committee would have responsibility
for educating stakeholders, accrediting inspectors and advising the Minister on
the accreditation of a Produce Fairness Tribunal.
The Committee notes that an unknown cost will be associated with administering
and supporting the work of the Tribunal and the Management Committee.
The Bill seeks to enshrine, in legislation, a new Horticulture Code of
Conduct in place of the one that has existed since 2006 under regulations.
As the comparison of the 2006 HCOC and the Bill showed, both contain the
same minimal requirements; that is, written agreements, access to information
on prices and a dispute resolution process. The Bill would add two new major requirements:
the ‘intent to dispatch produce’ notification and the trust account.
Submissions pointed out that these processes could either be circumvented or were
inadequate for the intended purpose.
The comparison also showed that, whereas the 2006 HCOC is more specific
in relation to the information growers must receive, the Bill is less
prescriptive. The application of the Bill to existing agreements is different from
the 2006 HCOC. The absence of transitional provisions would likely surround
existing contracts and agreements with an uncertain status.
This has led the Committee to conclude that the Bill would be unlikely
to achieve its objectives and risks considerable unintended or undesired
Further, the Committee is concerned that changing the Code in ways
unpalatable to growers, suppliers and end-users risks creating secondary
flow-on effects. These include:
n entrenching the
existing power relationships amongst the largest groups of growers and
wholesalers, who may respond to the uncertainty of new rules by excluding new participants
or those without perceived credentials; or
n partial or total
ignorance of the Code, by agreement, such as disregarding the proposed trust account.
Many submissions provided possible amendments to the Bill; however, these
were generally of a highly technical nature and tended to be incompatible with
For the above reasons, the Committee does not support the Bill.
||The Committee recommends that the Competition and Consumer
Amendment (Horticulture Code of Conduct) Bill 2011 not be passed.
Hon Dick Adams MP
14 March 2012