Sharman Stone (Murray, Liberal Party) Share this | Hansard source

I rise to speak on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. This bill fulfils one of the coalition's commitments of the 2013 election, particularly the commitment that was made to the huge and vital small business community of Australia. The coalition understands the importance of small businesses. They are the engine room of our economy and have been since 1788. This government is implementing changes to support the viability and continued growth of small businesses. The coalition is reducing the tax rate for small businesses and providing immediate tax deductions for assets purchased by small businesses.

This bill will amend part 2 of the Australian Securities and Investments Commission Act, adding a new class of contract—a small business contract. It will apply at the time a contract is entered into where at least one party to the contract is a business that employs fewer than 20 persons and either the up-front price payable under the contract does not exceed $100,000 or the contract has a duration of more than 12 months and the up-front price payable under the contract does not exceed $250,000.

This bill will provide small business with the same protection as consumer products—and so it should. Small business is the lifeblood of my electorate of Murray. We have retailers, dairy farmers, orchardists, tradespeople, insurance, real estate, doctors, allied health professionals and corner stores—just to name a few. We are an electorate of small business. There are over 15,305 small businesses in my electorate of Murray, of which one-third are related to agriculture.

Unfortunately, farmers are price takers, not price makers in the Australian economy. They face one of the most concentrated food retail sectors in the world. Some 80 per cent of food retailing in the domestic market in Australia is captured by two big enterprises: Coles and Woolworths. The market power of farmers in this situation is small. They need the protection of the law, and I am so pleased that this bill will give them some of the protection that is required. My farmers and other small businesses have little market power to stand up against the contractual arrangements of the large supermarkets. They often cannot afford legal advice to match that of the supermarkets, and they cannot by themselves interpret the pages and pages of terms and conditions in these contracts. They may either take the contract at face value or decline to enter into the contract and lose the business opportunity all together.

As a consideration of this bill, the court will be able to strike out a term of a small business contract that it considers unfair. An unfair term is one which would cause a significant imbalance in the parties' rights and obligations arising under the contract, is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term and would cause detriment, whether financial or otherwise, to a party if it were to be applied or relied upon.

In deciding whether a contract is unfair, a court must take into account the transparency of the term—that is, whether it is expressed in reasonably plain language, is legible, is presented clearly and is readily available to any party affected by the term. The exceptions to the unfair contract term provisions are terms that define the main subject of the contract, set up the up-front price payable under the contract or are required or expressly permitted by a law of the Commonwealth, a state or a territory. The up-front price payable is the amount that is provided for the supply or sale under the contract. It is disclosed as or before the contract is entered into. It does not include any other consideration that is contingent on the occurrence or nonoccurrence of a particular event—and I will come back to that when I discuss some of the recent outcomes of Coles and Woolworths seeking to exercise their market power with their suppliers.

Before I get to that point, there are some very real issues related to unfair and obscure contracts currently being forced on my electorate's small businesses, in particular farmers in the electorate of Murray. In my electorate irrigators have been forced to sign contracts for the so-called $1 billion Goulburn-Murray Water Connections Project. This $1 billion has been provided by the Commonwealth and follows $1 billion supplied by the state government with the idea of shutting down half of the irrigation system in order to take their water and put it into the Commonwealth Environmental Water Holder's bucket. The farmers within the area of the Goulburn-Murray Water irrigation project—which is bigger than Tasmania—are required to accept all the terms, often in a cluster with their neighbours who, for example, share contiguity on a spur or supply channel. They are then often bound by strict confidentiality agreements. They often have very little opportunity to consult a knowledgeable lawyer on these matters and often have to negotiate over four, five, six and up to eight years to settle these contracts. There is very little opportunity or willingness on the part of Goulburn-Murray Water to negotiate changes to the initial contract with an unfortunate irrigator if they happen to have their farm on the spur which has been targeted for shutdown.

The irrigator may appeal to a review committee that has been set up by Goulburn-Murray Water, a fully state owned water authority in Victoria, but they must put up $490 for this appeal to be considered. Even if the independent review committee recommends in their favour, Goulburn-Murray Water does not have to take any notice of the committee's decision. It can be taken simply as advice only. Surprisingly, there have been next to no appeals made despite the scores of desperate and deeply troubled irrigators who make their complaints to my office.

If the irrigator does not accept the terms of the state Goulburn-Murray Water authority's agreement within a 12-month time frame, they can be subject to the compulsory powers of the Victorian Water Act and become compulsory reconnection to a part of the system which no longer serves their needs—for example, an intensive dairy operation. Often they will experience a loss of water access and a higher cost of water application. For example, in the future they may be required to use intensive energy, either diesel or electricity, to deliver their water, when before they could use a system with a highly efficient gravity bed set-up which did not cost them any energy bills at all.

Goulburn-Murray Water is a monopoly supplier of water. It is no longer possible to sue this water authority due to the change to the Victorian Water Act, even though it is widely regarded to be unconscionable behaviour on their part. We do not have to go far back to find examples, therefore, of the misuse of market power in contractual arrangements, including where these involved state agencies. The impacts on small businesses—in this case, farms—can be extraordinarily detrimental not only to the individual farms but to the region depending on their supply of milk to keep local milk manufacturing at an appropriate economy of scale.

In June this year Coles was instructed to refund over $12 million to over 200 suppliers and to also allow suppliers to exit Coles's Active Retail Collaboration program without penalty or have their ARC contribution rebates reviewed. This not only provided a refund to suppliers but also resulted in further substantial ongoing savings for Coles's suppliers. I commend very much the vigour that was brought to this case by the ACCC.

In 2012, the Senate Select Committee on Australia's Food Processing Sector highlighted some of the concerns of small businesses and larger business suppliers in relation to contract terms and conditions, particularly with the large grocery retailers. For example, winemakers had to accept the contracted price offered for their product. Paragraph 3.76 of the Senate committee's report stated:

When concerns about pressure to accept trading terms including additional fees, were raised with the retailers, Woolworths explained that negotiations although tough, were fair …

Mr Ian Dunn of Woolworths Ltd stated—

'I would say that we are tough negotiators… We negotiate fairly in the marketplace on behalf of our customers. If we agree to an increase or a change in trading terms with a supplier, it will be because they see a benefit in doing so.'

Paragraph 3.79 went on to say:

Mr Dunn told the committee that in those cases where a competitor announces a price promotion and Woolworths matches the price in the market, they will ask a supplier if they can contribute to the discount but they do not alter trading terms:

'That would generally involve a telephone call and a discussion with the supplier to say: "I am now selling at a lower margin in the marketplace on this particular product. Are you in a position to help me? I can do this, this and this if you are able to do that, that and that." If it happens, that is fine; if it does not happen, we match the price anyway and we trade as we are.'

I put to you that that is a nonsense statement given that, as I said earlier, Coles and Woolworths own 80 per cent of the retail sector in Australia. If, as a supplier, you find yourself at odds with either Coles or Woolworths and you lose your contract with them, you have nowhere else to go, pretty much. Although ALDI is coming to the marketplace and Costco has helped somewhat with this situation, it remains a fact that 80 per cent of the market power continues in the hands of those two big retailers.

In responding to the committee's concerns about trading terms, Coles explained that its trading terms are complex and involve a variety of terms:

… probably well over 100.

When asked about their top five trading terms, Mr Durkan said:

In as many instances as you could have we would prefer to have net cost prices, so no trading terms at all apply to our cost prices. If I take most of our fresh areas, they are net prices. Where we get into complex terms tends to be in our groceries and more on our branded side than on our private label side. Those terms are so varied and there would be no commonality around them, and in many cases designed by the food manufacturers …

Mr Durkan said that the shape of their trading terms are decided by the food manufacturers and explained that:

Our trading terms are built over many, many, many years. These are not trading terms that have just evolved in the last two, three, four, five years. If we could, Coles would have net trading terms. We would have a net price and we would be done with it. There are variable elements, depending on how much marketing spend the manufacturers wish to make in a year.

One of the saddest things that I have had to do was discuss with Heinz—before they exited the small town of Girgaree and took their tomato sauce factory to New Zealand—how they felt that it was impossible to negotiate with one of the two big supermarket retailers when it demanded that they produce a no-name product in direct competition with their own branded product, which their own research and development had spent years investing to make it a superb product. The market power of these two big supermarkets is extraordinary. This bill will help very much.

Mr Roger Lenne, of Fruit Growers Victoria Limited, detailed the reluctance of Coles to deal directly with the supermarkets despite being a collective. He said:

I have not personally approached them

… … …

Individuals like us would not even get through the door.

… … …

I have had it said to me before … 'We'll buy our food from overseas; from other countries.'

That is if they do not cooperate. We have a very important bill here. Mr John Wilson of Fruit Growers Victoria Ltd suggested that the majors have an aversion to talking to industry associations as it costs them money. He said that:

They have a preference for dealing with a preferred supplier chain so they can play one off against the other.

With this bill, we in Australia will be able to make sure that the huge retailers who have the market power in our domestic market, in particular, will not be able to play the small suppliers off one against another. We will perhaps be able to protect the employment base of our small suppliers and be able to bring our consumers genuine Australian produced home-grown product rather than imported home brand, which is disguised in a can to look like the Australian product, and which has with labelling that can be made to mean anything. So I am so pleased that this bill is coming into force. The same Mr John Wilson, in talking to the Senate inquiry, explained the difficulty of negotiating as a collective:

They will resist and go straight to the Trade Practices Act, which says that it is anticompetitive to deal only with collectives. We make approaches to and work with major packers on the fresh fruit side to try and maintain some sense in the marketplace. But it is very difficult, because all you need is one player who, under financial pressure, succumbs and then you will have a cave-in effect. That has happened recently with the Coles campaign for cheaper permanent prices for produce.

So we have to have a bill like this, which will give our smaller businesses some capacity to fight back and to act collectively, where that is allowed within the law.

Too many of our small businesses—our great employers, the engine of our economy and our nation—have been taken to the wall by the very big players in this country. I commend this bill to the House. It will go some way to increasing the capacity of small businesses to achieve a fair deal when contracting to supply the larger big businesses in town. I commend the bill to the House.

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