Minority Report by Nick Xenophon
Independent Senator for South Australia
food processing sector is vital to our economy and food security. It is
extremely concerning that successive governments have not seen fit to provide
the industry with the support it needs, especially in relation to ensuring that
Australia has world’s best competition and consumer laws that adequately
safeguard the competition and competitive diversity provided by food
processors, small businesses and farmers.
As a result,
food processors in Australia are now battling against a multitude of challenges,
including the Coles and Woolworths duopoly, excessive levels of regulation,
high production costs and the constant threat from imported products which can
be passed off as Australian because of weak and misleading labelling laws. The
Federal Government must act as a matter of urgency to ensure our food
processing sector has a sustainable future.
Committee’s majority report has identified many of the major challenges facing
the food processing sector, and with it the impacts on our primary producers.
The issues in this report raise the bigger question of whether the Government
and Opposition will adopt effective policies which will not only ensure the
survival of the industry, but will also promote its future growth.
It is also
important to acknowledge that the food processing sector – with its some
194,300 jobs across 10,000 businesses – is currently facing significant
‘unknowns’ in its future. Both the introduction of a carbon price and the
Murray Darling Basin Plan will affect the industry, but it is currently
impossible to quantify the extent of these effects.
I endorse the
Committee’s recommendation that the Government should monitor the
implementation of a carbon price, although this should also include the Basin
Plan. In particular the impact of the Basin Plan on South Australia given the
vulnerability of SA food processors and producers being at the ‘tail end’ of
the river system, combined with the early adoption of water efficiency measures
in SA and the distortion in the water market that will be created by the
overwhelming majority of $5.8 billion in water efficiency funds going to the
Federal Government monitor the effect of the Basin Plan on food production and
processing as a matter of priority, and in particular South Australia.
I note the
Federal Government’s intention to create a National Food Plan. I support this
intention, but any plan must be comprehensive, detailed and focus on action
rather than ongoing monitoring. The Plan should cover all aspects of the food
production and processing industries, and focus on consumer as well as industry
outcomes. I endorse the comments of the Public Health Association of Australia
in relation to this.
It is also
vital that the National Food Plan addresses the multi-jurisdictional and
complex regulations placed on the food processing industry. It is clear that
this piecemeal approach to regulation is placing undue burden on an already
Federal Government take into account all areas of the food production and
processing industries when forming the National Food Plan, and ensure that the
Plan focussed on action-based outcomes.
The lack of
higher education interest and opportunities in relation to the food processing
sector needs urgent attention. I note the important work of the Primary
Industry Centre for Science Education (PICSE) in these areas. It is a
significant failing of State and Federal governments that PICSE continues to
struggle for funding and, due to a lack of long-term funding guarantees, is
forced to exist from year to year. More secure funding would undoubtedly lead
to even better outcomes from this organisation, and in turn the food processing
unacceptable that processors are forced to access expert knowledge about new
technologies and procedures outside Australia, as stated by Mr Elder of
Simplot. This points to a serious failure
in both education and research and development in Australian agriculture and
the Committee’s recommendation in relation to higher education, and I encourage
State and Federal governments to address the funding problems for such
It is also
important to note the challenges facing the industry in relation to labour
costs, and I endorse the Committee’s comments in relation to this. Not only are
food processors – particularly small businesses with 20 full-time equivalent
employees or less – competing against higher wages in more lucrative
industries, such as mining, but the substantial increase in penalty rates under
the Fair Work awards has created additional pressure.
I note the
broad concerns raised by the industry in relation to transport infrastructure
and the associated high costs of transporting goods. Similar concerns were discussed
in the Rural and Regional Affairs and Transport References Committee inquiry
into operational issues in export grain networks. That inquiry received
evidence of extremely high costs and market concentration in rail networks, and
also of the difficulties caused by lack of infrastructure investment by State
and Federal governments.
Additional Comments to that report, I made several recommendations for further
reviews and assessments to be undertaken into freight and rail transport costs
in Australia. The evidence received by this
committee shows the problems extend far further than the grain industry, and as
such these recommendations should be acted on as a matter of urgency.
Federal Government, as a matter of urgency, appoint
an appropriate body to review the
condition of lines for rail freight transport in Australia, with particular
attention to a cost/benefit analysis of rail versus road transport and the
benefits of implementing an auction-based system similar to the one currently
operating in the US.
support the majority recommendation of the Committee regarding an independent
review of the Competition and Consumer Act 2010, particularly the need
for closer monitoring and effective action in relation to creeping
acquisitions, especially by Coles and Woolworths. The fact that Coles and
Woolworths have been able to expand their market share from 40 percent to over
80 percent in thirty years without triggering any regulatory interference or
action shows significant gaps in both government policy and the current
regulatory system. Creeping acquisitions can substantially lessen competition
over time and it is essential that the anti-competitive effect of such
acquisitions are acknowledged and that the Competition and Consumer Act 2010
adequately prohibits anti-competitive creeping acquisitions.
A review of
the provisions within the Competition and Consumer Act 2010 insofar as
they relate to collective bargaining is also warranted. Growers groups provided
evidence to the Committee that the major retailers are either reluctant to
negotiate with collectives or refuse to do so. The imbalance of power between
suppliers and retailers could lead to circumstances where, due to their market
share, major retailers may smply refuse to collective bargain or enter into
discussions in good faith with smaller suppliers about prices, terms and
conditions. There is a danger that such practices can lead to the closure of
smaller suppliers. Persistently low orange prices
were behind the decision of orange grower Bill Rudiger to bulldoze part of his
orchard in March 2012. If we truly values Australia’s
food industries we must act now.
the Federal Government still needs convincing of the devastating impact of
persistently low farm gate prices then I refer them to the evidence of dairy
farmers in the Inquiry into the impacts of supermarket prices on the dairy
abovementioned inquiry was started due to the private label price war on milk,
I believe particular attention needs to be paid to the growing dominance of
private labels in our major retailers. Suppliers are being put in a difficult
position when they are asked to manufacture a private label product which will
be in direct competition with their own branded product. Furthermore, as
evidence before the Committee suggests, “retailers can capitalise on the
leading brands’ innovation without the risk and expense of developing the
intellectual property”. Together with the lack of
funding for the industry for research and development, I believe the growth of
the private label poses one of the most significant threats to Australia’s food
processing industry as it seriously jeopardises new product innovation and over
time reduces product choices to the detriment of consumers.
concerned by the Department of Treasury’s belief that “ultimately the market
will decide” the extent of private label market domination. This position seems dangerously
naïve and fundamentally flawed as it ignores the evidence of producers and
manufacturers that private labels dampen competition and will lead to a
reduction in product innovation and diversity. Given Treasury also identified a
number of other factors that impact the relationship between suppliers and
retailers, I am concerned about that
Department’s lack of sense of urgency and policy foresight to address this
major power imbalance to date.
The loss of
product choice and innovation over time represents a serious and growing market
failure and it would be expected that, at the very least, the Department of
Treasury would undertake meaningful independent research regarding how
consumers could be worse off with less product choice and innovation. Such
independent research should be undertaken as soon as possible as a failure to
recognise and respond in an adequate and timely manner to a market failure
seriously distorts market competition to the considerable detriment of
greatest example of the growing disparity of bargaining power that exists
between suppliers and retailers is in the trading terms. Woolworths believes
its negotiations to be ‘tough but fair’. However where the market is
dominated by two main retailers it is unrealistic to take the view that
retailers are not receiving a disproportionately greater benefit from the
trading terms than the suppliers. In a country where suppliers have relatively
few buyers domestically, and are faced with prohibitive export costs, the major
supermarket chains can impose ‘take it or leave it’ position during trading
heard disturbing evidence in camera of what appeared to be unfair and
unconscionable practices by major retailers to particular food processors. The
fact that these food processors were not prepared to give evidence in public is
in itself disturbing (indeed it merely confirms the experience of the producers
of ABC’s ‘Lateline’ program of 21 March 2012, where it was revealed that over
100 calls were made to producers and processors and only one was prepared to
speak, as long as their identity and product were not revealed). This climate
of fear seems to be a function of the growing market power of Coles and
Woolworths, combined with inadequate competition and consumer laws.
to be an urgent review of laws against unfair contract terms. Such laws are
currently limited to traditional consumer contracts and do not cover contracts
involving small business and farmers. This is a significant gap in laws against
unfair contract terms. In relation to the food processing sector potentially
unfair contract terms include the imposition of additional fees and charges
above what was originally agreed to by the supplier, as well as the refusal of
retailers to accept legitimate price increases. Suppliers need better
protection from unfair contract terms such as these in order for them to
continue operating in the market.
industry the unconscionable conduct provisions within the Australian Consumer
Law also need strengthening as currently it is almost impossible to prove a
retailer has acted unconscionably.  Associate Professor Frank Zumbo,
a leading commentator on competition and consumer law issues, has also proposed
that a statutory definition of unconscionable conduct be included in Australian
Consumer Law and that Australia needs effective laws to deal with unfair terms
in contracts involving small businesses.
the Australian Consumer Law to deal effectively with unfair contract terms in
contracts involving small businesses and farmers, with further consideration be
given to including a broad statutory definition of unconscionable conduct in
the Australian Consumer Law.
could be benefit from a mandatory code of conduct which applied to grocery
retailers. A mandatory code would set standards on acceptable approaches to
negotiation, which together with a Supermarket Ombudsman or the proposed
Federal Small Business Commissioner, could provide the platform from which to
assist small businesses to resolve disputes.
 I am concerned by Treasury’s
belief that it is better to leave an industry to self regulate.
 In a trading environment
dominated by two major retailers and increasingly characterised by potentially
anti-competitive pricing strategies, suppliers need more empowerment than ever
if they are to continue to trade profitably.
presented to the Committee demonstrates voluntary codes are not taken seriously
and that a mandatory code would be “an efficient mechanism by which there is
the transparency...that gives food manufacturers a fair go”. A mandatory code of conduct
needs to be backed by financial penalties in the same way that the South
Australian Government has recently provided a legal framework in the Small
Business Commissioner Act 2011 for the imposition of financial penalties
for breaches of mandatory codes of conduct under the South Australian Fair
Trading Act 1987.
Federal Government implement a mandatory Supermarket Fair Trading Code of
Conduct, to be overseen by a Supermarket Ombudsman or the proposed Federal
Small Business Commissioner and backed by financial penalties under the
Competition and Consumer Act for breaches of the Code.
acknowledge the Committee’s comments in relation to the reluctance of suppliers
to come forward with complaints about the market power of the major retailers,
particularly in regards to negotiating terms of trade, I believe more can be
done to encourage and facilitate the complaint making process. The difficulty
for suppliers lies in the fact that their concerns must be communicated to the
retailers by the ACCC during the process of the ACCC investigation. The ACCC
must improve their complaint handling processes can be maintained and
guaranteed. Furthermore, if a supplier that comes forward subsequently
faces detriment there ought to be a reverse onus of proof provision which would
impose penalties on a retailer unless it can be shown that the adverse action
was not in any way related to the complaint.
the Australian Consumer Law to provide greater protection for suppliers who
have suffered detriment after making a complaint to the ACCC and by placing the
onus on the party complained of to prove that the adverse action was not in any
way related to the complaint.
also issues of the effectiveness of existing laws. It is interesting to note
that the predatory pricing provisions in the ‘Birdsville Amendment’ (section
46(1AA) of the Trade Practices Legislation Amendment Act (No 1) 2007)
have yet to be tested by a prosecution even though it has been in force for
some five years. At the very least, the ACCC should issue guidelines as to its
approach to the Birdsville Amendment.
improvements to the ACCC’s processes should not be limited to their handling of
complaints. As evidenced by their inaction in terms of the duopoly’s market
power which was largely obtained through creeping acquisitions, I believe the
ACCC needs to take a more proactive approach to market supervision and
legislative framework does not give adequate powers to the ACCC to deal with
abuses of market power. The risk of such abuse seems inevitable with an
increase in market share unless there is an effective regulatory approach. The
United Kingdom and the United States have general divestiture powers which deal
with market power by forcing businesses to ‘break up’ once they become so large
they become anti-competitive.
major retailers of some of their market power would help to create a level
playing field for suppliers and encourage more effective competition. Associate
Professor Frank Zumbo has proposed that Australian competition laws be amended
to introduce a general divestiture power. Having such a power in the Competition
and Consumer Act would bring our laws into line with the United States and
the United Kingdom.
the Competition and Consumer Act 2010 to provide for a general
divestiture power whereby the ACCC and other affected parties could, in
appropriate cases, apply to the Courts for the breakup of monopolies or
dominant companies that engage in conduct that undermines competition.
entirely appropriate that the Australian Consumer Law now heavily favours the
interests of consumers by encouraging competition in the market place. However
if urgent action is not taken to address the imbalance of power of major
retailers over suppliers, consumers could eventually be paying more for their
groceries if suppliers hit the wall and go out of business. Ultimately that
will lead to less choice and less competition.
support the Committee's recommendations regarding future regulatory options,
especially those that relate to the structural separation of supermarkets’
private label businesses and the capping the level of market share achievable
by retailers. This requires legislative reform to implement the Committee’s
I support the
Committee’s recommendations regarding changes to Australia’s food labelling
laws, particularly the Committee’s recommendation that the Federal Government
implement recommendations 40 and 41 of the Blewett Review (even though the
reforms should go further, both in terms of transparency and clarity).
I believe the
Federal Government’s response to the Blewett Review was a win for
multinational, foreign owned companies who can export their products to
Australia where unsuspecting consumers purchase them, believing they are
supporting Australian producers. The Australian Food and Grocery Council bears
considerable responsibility for this given the number of multinational food
processing companies it represents. Given the evidence presented to the
Committee about the impact of our inadequate labelling laws, the Federal
Government has more than sufficient reasons to implement the Blewett Review’s
recommendation as a matter of urgency.
serious concerns about our current labelling regime and the extent to which it
allows foreign imports to be classified as ‘Made in Australia’. Currently the
test for a product to achieve this classification it must either be
‘substantially transformed’ in Australia or 50 percent of the total cost of
producing or manufacturing the good is attributable to processes that took
place in Australia.
Australia-New Zealand Closer Economic Relations Agreement is also failing
Australian producers. One of the most poignant examples of the extent of this
failure came from Mr David McKinna, who pointed out that seafood caught in the
Atlantic by a Korean vessel can be processed in China, imported into New
Zealand to be repacked and labelled at ‘Product of New Zealand’. It can then
imported into Australia where the seafood is crumbed and frozen can be sold as
a ‘Product of Australia’.
has recommended that claims of misleading or deceptive conduct arising from
imports under Australia’s free trade agreements should be investigated, however
I believe specific attention should be paid to imports under the Australian-New
Zealand Closer Economic Relations Agreement.
the Committee’s discussion about education campaigns to help further public
understanding of Australia’s labelling laws, however I believe such campaigns
would be ineffectual due to the difficulty involved with clearly explaining our
current labelling laws. The Federal Government’s attention should be focused on
reform of the laws as this will be the most effective way to protect and
promote Australian producers.
Government must also look at reforming current labelling regulations pertaining
to health-related claims, such as ‘fresh’ and ‘light’. It was recently revealed
that Coles were advertising their ‘CuisineRoyale’ bread as ‘Australian’ and ‘baked
today, sold today’, when in actual fact the bread was made from dough that had
been imported from Ireland.
submission by the Australian Olive Association highlighted how imported
chemically refined olive oils can be labelled as ‘light’ and ‘extra light’ and
are sold in direct competition with Australian made ‘extra virgin’ olive oil. Consumers believe they are
purchasing a healthier option by choosing a ‘light’ olive oil, however ‘light’
does not mean ‘low fat’. Thus Australian olive oil producers are forced to
compete with cheap and misleading imports.
Australian Olive Association’s evidence that tests performed on olive oils
available in Australia revealed some imported olive oils are in fact ‘lamp oil’
and therefore not fit for human consumption, it is imperative that the
Federal Government move to strengthen are food labelling and biosecurity laws.
The Federal Government should act on the Blewett Review’s recommendation to
establish definitions for nutrition and health related terms such as ‘light’
and ‘fresh’. In the absence of any such action I intend to introduce
legislation to address the current ambiguity of our labelling laws.
Federal Government establish definitions for health related terms such as ‘light’
and ‘fresh’ be established.
1.50 There needs to be an urgent overhaul of Australia's country of
origin food labelling laws to provide truthful and useful information to
by the Committee, a review of the new biosecurity legislation is necessary to
determine whether it adequately addresses the different standards that apply to
imported goods versus domestic products. Our current legislation has failed
Australian producers and consumers, evidenced by the inconsistencies surrounding
the import and use of the pesticide carbendazim. Australian citrus growers were
banned from using the pesticide carbendazim over two years ago, but the Federal
Government is still allowing Brazilian orange juice concentrate containing
carbendazim to be imported following a backflip on its previous commitment to
halt its importation.
previously raised concerns about the difficulties Australian producers face
from imported New Zealand goods, and in particular New Zealand apples that
carried the risk of fire blight. Australia was opening our doors
to imports that could jeopordise an entire Australian industry because many
apple growers felt trade agreements took precedence over appropriate
deserving Federal Government attention is the current costs associated with
biosecurity arrangements, particularly the impact of cost recovery arrangements
for AQIS certification charges. The removal of the 40 percent rebate on
certification charges will have a significant financial impact across the food
processing sector, including in the meat and horticultural industries.
Summerfruit Australia expressed concerns that now the full cost of recovery is
being charged which is not reflective of the actual service being provided.
previously raised concerns about the removal of this rebate and the impact it
could have on small to medium sized enterprises. As Australian producers may need
to more aggressively pursue export markets in order to minimise their trade exposure
to the major retailers, it is important that the Federal Government does not
impose additional barriers to export. I support the Committee’s recommendation
in relation to developing an affordable cost environment for Australian
producers and exporters, and believe consideration should be given to
reinstating the rebate on AQIS certification charges.
historical lack of innovation in Australia’s food processing sector has
resulted in it becoming one of Australia’s least profitable sectors. I agree with the Committee’s
view that the Federal Government must examine the current taxation and
regulatory settings and ensure it encourages innovation in the food processing
sector. More needs to be done to improve the accessibility of opportunities to
engage in innovation for those involved in the food industry.
to in paragraph previously, South Australian producers may be at an even
greater disadvantage due to their inability to obtain funding through the
Federal Government’s ‘Water for the Future’ program. Irrigators are already
too efficient to access funds through the ‘Sustainable Rural Water Use and
Infrastructure Program’, which is in place to enable irrigators to increase
their productivity. Worthwhile research and development opportunities, such as
trialling new irrigation techniques by improving infrastructure, have been denied funding as the
Program does not fund research and development projects.
Government must act to ensure the continuation of funding for research and
development for industries involved in Australia’s food supply chain. It must
look beyond the current funding arrangements and programs delivered by the
Cooperative Research Centres and ensure that Government money being directed
through other programs, such as the Sustainable Rural Water Use and
Infrastructure Program can be made available for research and development
before the Committee suggests that the current economic climate is presenting a
barrier to companies investing in their own research and development. Low
consumer confidence, increasing input costs and the high Australian dollar are
making it more and more difficult for businesses to stay afloat and leaving
little opportunity for funds to be directed towards research and development. I believe that these issues need
to be addressed and I propose that an inquiry be established to investigate the
impact of the high Australian dollar on the Australian economy, particularly
the manufacturing sector.
concerned by the potentially contradictory views of the Committee in respect of
intellectual property and the growth of private labels. The majority report
characterised the growth of private labels as an opportunity for food
processors, yet when private labels are put in the context of intellectual
property the Committee viewed them as a threat to investment in innovation. I
am inclined to view private labels in the latter sense and believe more needs
to be done to protect existing intellectual property rights of processors and foster
future innovation in Australian products.
More must be
done to protect the intellectual property rights of Australian producers who
export overseas. Unfortunately some Australian producers are all too familiar
with the integrity and quality of their brand being jeopardised in overseas
markets. Australia’s wine industry has persistently been targeted by
counterfeiters in China, with well known brands such as Penfolds and Jacobs
Creek being promoted in Chinese wine fairs, sold in Chinese liquor stores and
exported to other markets overseas. As China is Australia’s fastest
growing export market for wine, the Australian Government must ensure our
brands are not irreparably damaged by poor quality and potentially hazardous
export capabilities are also being hampered by the high Australian dollar which
is making imports cheaper and our exports more expensive. The Committee heard
that processors in Western Australia who were highly exposed to changes in the
export market have been forced to close recently. Our market is also being exposed
to higher levels of cheap imports, often from overseas industries whose food
processors are supported by higher levels of government subsidies or protected
by tariffs imposed on imports. I support the Committee’s recommendation that
the Federal Government lobbies for the reduction in tariff and non-tariff
barriers to trade in Australian export destinations.
also pose a significant threat to our producers due to Australia’s lax anti-dumping
laws. Currently Australian producers and processors must prove that the
products have been dumped and that they have suffered a material injury as a
result. The Committee heard how pork products were dumped in Australia in 2006
but that proving the dumped products caused a ‘material injury’ to the pork
industry was too complex and expensive for Australian producers. As a result no
action was taken. This demonstrates a significant
failure on the part of the Government to protect Australian producers.
that the Federal Government’s proposed anti-dumping reforms go some of the way
to protecting Australian producers and processors, however I believe these
reforms need to go much further. I agree with Australian Pork Limited who
believes reversing the onus of proof “would make a huge difference in being
able to technically determine whether dumping was taking place” and I will continue to push for
the onus of proof to be reversed in Australia’s anti-dumping legislation.
the Customs Act 1901 to reverse the onus of proof so as to require an
importer to prove the imported goods have not been dumped or subsidized for
For Coles to
challenge Australian producers to be more proactive in their approach to accessing
export markets is blatantly disrespectful and offensive to producers whose
profit margins are already being squeezed by the major retailers. If our producers really are able
to take advantage of the opportunities presented by the growing middle class in
Asia then we must act now to ensure our producers and processors are able to
compete in our domestic market.
industry views indicate that DFAT and AQIS are not doing enough to assist
Australian producers access overseas markets. Reducing the regulatory
compliance costs for exporters will go some of the way to assisting exporters,
however I believe Government departments must be more proactive in their
approach in establishing and improving relationships with export partners.
Australia needs to reconsider its approach to free trade agreements (FTAs) by
ensuring that we enter into agreements that serve our own best interests. In
fact, the Australian Food and Grocery Council described our current approach to
FTAs as “dumb” and believes the Federal Government must refocus the purpose of
FTAs to achieve greater benefits to smaller producers.
encouraged by the discussions that took place during this inquiry and by the
Committee’s recommendations. However this is not the time for complacency. The
Federal Government must move to make a fairer operating environment for
Australian food processors and priority consideration needs to be given to the
divestiture of the grocery retail market. Australia’s current regulatory regime
has made it too easy for the Coles and Woolworths duopoly to profit at the
expense of producers and consumers. To that extent producers must be protected
by effective laws against unfair contract terms and unconscionable conduct.
Similarly, the Competition and Consumer Act needs to be strengthened to
effectively deal with anti-competitive conduct and to ensure that a general
divestiture power is available to break up monopolies and dominant companies
that act to the detriment of competition and consumers. Australia’s future food
security should not be put at risk by inadequate biosecurity laws and
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