Government Senators' Additional Comments
It is clear that the price reductions in private label milk announced by
Coles on 26 January 2011, and followed by other supermarkets, have caused
significant concern and anxiety within elements of the dairy industry in
Australia—particularly in the regions which are more focused on drinking milk
production, such as Queensland, New South Wales and Western Australia.
Government Senators on the committee broadly support the approach and a
number of the recommendations of the majority report. We believe recommendations
1–3 of the report are sensible initiatives for both industry and government to
adopt in a complex, deregulated industry. We also support recommendation 4 of
the majority report which encourages the Australian Competition and Consumer
Commission (ACCC) to publicly release greater information about its
investigations and current enforcement activities.
Government Senators also agree with the majority report's observation that
the benefits gained by consumers due to the lower price of a staple good have
not received enough attention, particularly as in recent years concern about
food prices has been focused on them being too high, rather than too low. As
the Parliamentary Secretary to the Treasurer, the Hon. David Bradbury MP,
stated in April this year:
In my living memory, the debate around competition in the
supermarket sector has always been characterised by concerns about prices being
too high. It is, in my view, ironic that we are now having a public debate
about prices being too low.
While I understand that people are concerned about
significant market concentration in the sector, it should be noted that recent
developments in the supermarket sector demonstrate that aggressive competition
can occur and is occurring.
In this context, however, Government Senators are concerned with
recommendations 5 and 6 of the majority report. In 2008, the ACCC conducted a
broad-ranging public inquiry into the competitiveness of retail prices for
standard groceries. This included an examination of the drinking milk industry.
The report found that the grocery sector was 'workably competitive', although
one of the findings was that the level of price competition was restricted by
the limited incentives for Coles and Woolworths to compete.
The more frenzied price competition that has been occurring recently between
the two major supermarket chains, such as the price discounts for private label
milk, appears to be an improvement on the situation in 2008 in this regard, and
of clear benefit to consumers.
With specific reference to the drinking milk industry, ultimately Coles
cannot put the sustainability of the supply chain at risk. With strong consumer
preferences for fresh drinking milk throughout Australia, Coles has to ensure
that it is able to be supplied with that product. In other words, those down
the supply chain also have power in the sense that retailers depend on the
supply of fresh drinking milk to satisfy consumer demands. As noted by the
Chairman of the ACCC:
... [it] works both ways: the processor has the need for
the milk, just as the people who produce the milk have the need to sell it.
Additionally, dairy farmers do not appear worse off from the growth in
private label milk that has occurred over time. While there may be some
short-term uncertainty due to changes in private label milk contractual
arrangements between the major supermarkets and the processors, this appears to
be a separate issue. The ACCC's 2008 report concluded that the lower price of
private label milk over time has appeared to shift margin away from processors
(with benefits for both the major supermarkets and consumers), while not
resulting in a reduced farm gate price.
The processors have provided evidence to the committee about the slim or
negative margin they receive on private label milk. In a free market, it is up
processors—who after all supply both the private label and branded products to
the supermarkets—to decide on what terms they are willing to continue to do
this. Provided they do not contravene competition laws in doing so, or are not
being subjected to clear anti-competitive conduct themselves, it is not
apparent why their concerns should be anything else then a matter for them to
address in the marketplace.
As noted earlier, Government Senators are particularly concerned about recommendation
5 of the majority report regarding a review the Competition and Consumer Act
2010 (CCA), formerly the Trade Practices Act 1974. The object of
Australia's competition law is to enhance the welfare of Australians through
the promotion of competition and fair trading and provision for consumer
The ACCC, the independent statutory authority charged with enforcing the CCA,
undertook an investigation of Coles' actions and concluded that there 'is no
evidence' that Coles has acted in breach of the CCA.
The ACCC issued a statement outlining its findings:
"It is important to note that anti-competitive purpose
is the key factor here. Price cutting, or underselling competitors, does not
necessarily constitute predatory pricing. Businesses often legitimately reduce
their prices, and this is good for consumers and for competition in
markets", Mr Samuel said.
ACCC enquiries have revealed evidence that Coles’ purpose in
reducing the price of its house brand milk was to increase its market share by
taking sales from its supermarket competitors including Woolworths. This is
consistent with what the ACCC would expect to find in a competitive market.
After Coles price reductions, Woolworths and other
supermarket retailers have also reduced prices for house brand milk.
The ACCC’s enquiries show that there is a significant
variation between respective costs of supply and operating margins among
"As to the relationship between dairy farmers and milk
processors, it is the case that some processors pay some farmers a lower farm
gate price for milk sold as supermarket house brand milk. However on the
evidence we've gathered over the last 6 months it seems most milk processors
pay the same farm gate price to dairy farmers irrespective of whether it is
intended to be sold as branded or house brand milk" ... Mr Samuel said.
Government Senators are concerned that this proposed review is based on
arguments from stakeholders who seem to support undoing certain competition law
reforms. Further, undertaking a review of a law which applies economy-wide
based on perceived issues in one sector (dairy) is far from an ideal approach. Indeed,
an attempt to amend Australia's competition laws based on alleged anti-competitive
conduct in one industry could significantly harm the Australian economy.
It is also not clear how the amendments to the competition law that were
suggested during this inquiry could meaningfully assist participants in the
dairy industry. Key witnesses put compelling arguments against reinstating an
anti‑competitive price discrimination provision in the CCA. Other
suggestions were also countered. At the 6 October 2011 hearing the ACCC
chairman, Mr Rod Sims, remarked with respect to the Coles discounts that, even
under a section 46 test which allowed for the anti‑competitive 'effects'
of an action to be used to prove a misuse of market power (generally considered
to be a lower threshold than the current test which requires one of three
prescribed anti-competitive purposes to be proven), he was still 'not
sure it would have got up'.
As acknowledged by the majority report, in 2007 and 2008 a number of
amendments were made to section 46 of the CCA which are yet to be tested in the
courts. Mr Sims has indicated that he is 'very keen' to find cases that would
test these amendments.
Government Senators are of the view that it would be premature to review the
competition provisions of the CCA and consider amendments to them until they
are tested, or it is otherwise clear that they are not functioning as intended.
The majority report recommended that the Government review the
effectiveness of collective bargaining laws and arrangements for agricultural
There does not appear to be clear evidence which leads to this
recommendation. Government Senators note the evidence from officials of the Department
of Agriculture, Fisheries and Forestry and the ACCC on collective bargaining in
the dairy industry—while recognising the current provisions have been used,
they acknowledged that more use of the provisions could be made.
Government Senators also note the following comments from the ACCC:
It is a bit hard to get a terribly accurate read on just how
well dairy farmers overall are informed about collective bargaining and think
of it as a viable option for them; there is conflicting evidence, if you like. But
certainly from our point of view ... we see that as one of the answers to the
situation that dairy farmers perhaps find themselves in dealing with
processors, particularly when they have only got one to deal with.
Rather than indicating that the collective bargaining laws need review,
it may be the case that the dairy industry needs to become more aware on how to
utilise the current law to its full potential.
1.16 Government Senators recommend that the government takes steps to promote
awareness of options for agricultural industries to develop more effective
collective bargaining arrangements.
It is apparent that much of the evidence put forward in the inquiry was
influenced by so-called 'processor arguments', which contend that because
processors offset low returns or losses from private label milk with higher
returns from their branded products, shifts in sales from branded to private
label would affect the profitability of the processors and, therefore,
ultimately the incomes farmers would receive (as well as other outcomes, such
as lower levels of product innovation).
As acknowledged in the majority report, it should not be a matter for
public policy to protect brands that consumers no longer value. Processors are
the best placed to adapt to changing market circumstances and in any event will
still need a supply of milk from farmers. Farmers' incomes are dictated by
separate market forces to those that determine retail prices; in most areas
(although not all) they are largely influenced by international prices. In the dairying
areas where the costs of production are higher, such as in Queensland, a premium
is paid above international prices to reflect the cost of freighting milk from
other states that would otherwise need to be paid if milk could not be sourced
While developments in the dairy industry and the grocery sector more
generally need to be closely monitored, it is not clear that the market has
failed and government action is warranted, particularly when there are such
clear benefits to a large number of consumers.
|Senator Mark Bishop
|Senator Doug Cameron
Senator for New South Wales
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