Helen Kroger (Victoria, Liberal Party) Share this | Link to this | Hansard source

On behalf of Senator Bushby, I present the final report of the Economics References Committee on the impacts of supermarket price decisions on the dairy industry, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

I move:

That the Senate take note of the report.

Question agreed to.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I rise to make a few remarks on the impacts of supermarket price decisions on the dairy industry. I joined the Economics References Committee in the final stages of this inquiry. There were, however, government senators involved in committee hearings and deliberations earlier in the year and I had been closely observing its progress. Government senators on the committee agree with a number of findings and recommendations in the report, and this is outlined in our additional comments. However, we disagree with two other recommendations.

I want to make one or two observations about the nature of this inquiry. As the report notes, some elements of the inquiry appear unusual in many respects. It is obvious that consumers who purchase milk will be better off because of the price discounts. Government senators concur that the benefits gained by the silent majority of consumers due to the lower price of a staple good have not received enough attention in this debate. In recent years, discussions about the grocery sector have focused on grocery prices being far too high. There have also been questions about the competitiveness of the sector. It seems unusual that a company cutting the price of a staple good with the purpose of challenging its major competitor in a way that benefits consumers should lead to calls for Australia's competition laws to be amended. The ACCC investigated Coles's pricing decisions and concluded that it was unlikely to breach the Competition and Consumer Act. This inquiry has provided a forum for some vested interests to run predictable arguments about the need to change competition law. Competition policy is not designed to protect particular players, companies or institutions; it is principally concerned with protecting the competitive process. If attempts to move away from this approach are successful, there is of course a predictable outcome: consumers will be forced to pay more. Accordingly, government senators do not support the recommendation that an independent review of the Competition and Consumer Act be initiated.

A number of key amendments were made in 2007-08 to section 46 of that act. This is the section that deals with the misuse of market power. These amendments are yet to be considered by the courts. As the amendments are relatively recent, it is possible it may be some time before a court comes to make a judgment upon them. Investigations under these sections are time consuming and the cases are hard fought, as the penalties are substantial. However, these amended provisions do need to be tested. At this time it is difficult to see how a meaningful review of the Competition and Consumer Act could be undertaken without this having occurred.

There appears to be merit in the recommendation that the ACCC be more up-front about some of its enforcement activities. It could also better communicate them, where it is appropriate to do so. The ACCC is an independent statutory authority, and I will leave it to them to determine how they respond to this aspect of the report.

Ongoing scrutiny of the major supermarkets is also needed to ensure they do not engage in predatory or other anticompetitive behaviour. Movements in farm-gate prices and the outcomes of negotiations between processors and farmers also need close attention so that we have a clear picture of what is going on in this industry. However, government senators do not believe that price cuts warrant wide-ranging government action and intervention in the marketplace. A lot of the concern with the price cuts came from some milk processors. Other stakeholders were also quick to put forward processors' arguments. These concerns were centred on the effects price cuts of the home-brand product would have on the profitability and value of the processors' brands. Evidence to the inquiry made it clear there is no substantive difference in the products themselves—in either quality or other specifications of home-brand regular milk and their private-label equivalents. Changes to the sales patterns of these brands should not be a matter for governments. The purchasing decisions of consumers will indicate whether or not they still value the brands, and the market will adjust accordingly.

As the ACCC found in its 2008 grocery inquiry, it is the processors who have become worse off from the increasing market share of private-label milk. This growth has not resulted in a reduced farm-gate price. I can understand the sentiments behind the arguments from individual farmers and I am sympathetic to their concerns; it is a tough and demanding industry. There are a number of recommendations in this report that are very worthy of consideration; however, certain proposals are of much greater benefit to other vocal interests and are unlikely to help those farmers. Others go far beyond the dairy industry itself. The case has not been made for those recommendations to be pursued.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise today to make comment on the economics committee report on to milk pricing. I want to note that the Australian Greens have signed on to the additional comments that Senator Nick Xenophon put a great deal of work into preparing and have followed the inquiry very closely.

I am one of those senators who is very concerned about the impact of the milk price war on dairy farmers over the longer term. We have had several inquiries in this Senate into what is going on in the dairy industry. There is no doubt whatsoever in my mind that the duopoly of Coles and Woolworths and their behaviour towards producers in Australia is bad for the Australian economy in the longer term. It will make sure that the margin—the farm-gate return—for producers of all kinds will be such that eventually people will not be able to stay in the market. So we will see here what has happened in other parts of the world, where farmers are eventually driven off the land. Yes, we have just heard from Senator Bishop that you can still access milk if you like—long-life milk, or whatever else. You can import it; you can do any number of things. But I think most people want to see fresh milk in Australia produced on Australian farms, with Australian farmers getting a decent farm-gate price.

As to the behaviour of Coles and this argument it is being looked in to—that it is a good thing for consumers that they are getting cheaper milk—that has been the conclusion that has been drawn previously. The fact of the matter is, as Woolworths said in its submission to the inquiry, these prices set a new benchmark and can be expected to flow back to processors and farmers as new supply and pricing agreements are negotiated over the coming months and years. And that is the point: they will recoup this money by taking it from the processors and then of course the primary producers. We know that Coles has already gone back to producers of all kinds of primary products in their supermarkets and told them they have come up with a new efficiency dividend that they have worked out and that they are now compulsorily applying it to all primary producers. What that means is that Coles is going and recouping the so-called losses that it has made as a result of its price war and taken it out of the pockets of every other primary producer. I find it interesting that Senator Bishop made his remarks this morning, given that Senator Carr, as the minister, was standing up here yesterday saying that the government was going to refer this matter of Coles and Woolworths to the ACCC to have a decent look at, because of their now-announced decision for a massive expansion in home-brand product. It was one of the first times I felt quite enthusiastic good about a response that Senator Carr has given. The idea is to get rid of branded products off the shelf, whether it is milk as a branded product or anything else as a branded product, and it will mean that they can import cheap food from overseas, repackage it in Australia and put it out to consumers and the Australian consumer is not going to know where that has come from. It is one of the reasons why the Australian Greens want to see a very close scrutiny of what is going on with the Trans-Pacific Partnership Agreement, particularly as it pertains to primary products.

In July 2011, in his response to the milk price war, the then Chairman of the ACCC, Mr Graeme Samuel, said:

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

Frankly, that is an incredibly naive statement about what is going on in Australia in this absolute battle between the primary producers, the processors and the supermarkets. What we have not been able to get for milk in particular is a whole look at the supply chain—what the farmer gets at the farm gate, what the processor gets, what the cost of transport is and what is the mark-up by the supermarkets. Let us have a good look here so the consumer can see when they purchase a litre of milk what percentage goes to the farmer at the farm gate. It is absolutely warranted that we get to the point in Australia where we have a really good look at this. Associate Professor Frank Zumbo from the School of Business Law and Taxation at the University of New South Wales said that Australia is out of step with international practice when it comes to competition legislation. He said:

There are two areas that need to be remedied in our competition laws. The first is we need an effective prohibition against anti-competitive price discrimination. Australia is out of line, out of step, with international practice in this area. Other jurisdictions have express prohibitions against anti-competitive price discrimination. We do not. Any hope that section 46 would deal with that issue, I have to say, with all due respect, is somewhat misplaced if not delusional. We therefore do need an express prohibition against anti-competitive price discrimination.

I could not agree more. It is one of the recommendations of these additional comments. I note that I moved for this in the Senate and it was voted down by both the coalition and Labor. But that does not mean that it is not the right way to go. It absolutely is the right way to go. I agree with this recommendation—and I am pleased that Senator Heffernan of the Liberal Party has agreed to sign on to this:

Amend section 46 of the Competition and Consumer Act to effectively prohibit anti-competitive price discrimination. Consideration should be given to relevant legislation in place in the United States and United Kingdom, and the reintroduction of an 'effects test' as per section 49 of the Trade Practices Act 1974.

I totally support that recommendation. It is what I tried to do and will continue to try to do.

The second recommendation is:

Amend the Competition and Consumer Act 2010 to provide for a general divestiture power whereby the ACCC could, in appropriate cases, apply to the Courts for the breakup of monopolies or dominant companies that engage in conduct that undermines competition.

We need that in our suite of laws so that there is an opportunity to take this on. We have got to a situation now where primary producers and processors in Australia are afraid to speak out because of the absolute market power that is now being brought to bear on those primary producers by this supermarket duopoly. I absolutely think it is time we did that.

If anyone is in any doubt as to the kind of power they exert, why is it that we have not read on the front pages of the paper the decision of Coles to go out with this so-called efficiency dividend and tell people that they are going to get less for their primary product imported to Coles supermarkets? It is because they are afraid. They are afraid that if they come out and expose what Coles is doing they will be cut off the list and they will lose their ability to sell into those supermarkets. What a tragedy that we have got in this country companies such as the Coles and Woolworths chains having that sort of power over primary producers in this country.

The other recommendation that is incredibly important is:

That the ACCC undertake a full investigation into whether Coles has engaged in misleading or deceptive conduct as a result of an advertising campaign that may have created the impression that prices are coming down across the supermarket when only a percentage of products have in fact been reduced.

As to this issue that Senator Bishop raised that consumers are getting cheaper milk, they do not know what else in the supermarket they are paying more for so the overall cost is evened out as far as the supermarket is concerned. They are now using the opportunity to come back to primary producers to take more. What is more, there is the long-term issue that when contracts have to be renegotiated between processors and dairy producers we are going to see downward pressure on market prices.

These additional comments strengthened the report. I commend Senator Xenophon for the work he has done in putting this together and the other senators who have signed on to the additional comments. I look forward to continuing to work for that anti-price discrimination provision being restored.

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

The Senate Economic References Committee inquiry into the impacts of supermarket price decisions on the dairy industry was initiated as a result of serious concern in the dairy industry about the potential impacts on the industry of the decision of Coles decision on Australia Day this year to reduce the price of its home brand milk to $1 a litre. Parts of the dairy industry were already under stress at the time following significant challenges such as the Queensland floods and the price cuts were seen by many as an additional and unsustainable burden.

After a nine-month inquiry, the committee has produced a report which represents a considered and constructive approach to issues facing the drinking milk industry. I take this opportunity to thank the current and former members of this committee who participated in this inquiry, particularly Senator Eggleston who chaired the inquiry during the first hearings and for the interim reports. I also take this opportunity to thank the secretariat, particularly Richard Grant and Colby Hannan, for their hard work. I also thank Morana Kavgic for her assistance. Since deregulation, the dairy industry has become increasingly efficient and competitive. However, a reality that producers in the sector have to deal with on a day-to-day basis is that some large companies dominate the processing and retail aspects of the supply chain. This report particularly focuses on the impacts the price discounts were likely to have on the two smaller players affected by this structure, namely, consumers and dairy farmers.

It is important to keep in mind that the price cuts are good news for many consumers who are facing ever-growing cost-of-living pressures. In most cases, price discounting will be pro-competitive and of benefit to consumers. Provided it does not constitute predatory pricing, a retail price cut should not be discouraged. The committee was concerned, however, about the possible impact the price cuts would have on dairy farmers. Farmers in most states will be insulated from retail price cuts because their milk goes into manufacturing and export, and international prices play a key role. However, farmers in Queensland, New South Wales and Western Australia largely produce drinking milk for consumption within their states and are much more exposed to retail prices. The fact that changes to retail prices will affect some dairy farmers but are likely to leave the majority largely unaffected makes the search for appropriate solutions challenging.

There are also complex issues at play in the industry. The report observes that one of the key issues for the industry is the imbalances of bargaining power in the supply chain. Dairy farmers have to deal with very large processors. Companies which are involved in drinking-milk processing in turn have to deal with the two major supermarkets. While collective bargaining arrangements have been used by dairy farmers, evidence taken by the committee from government officials and the ACCC suggested that they could be used more effectively. The report calls for the government to facilitate a review of the effectiveness of the current laws and the use of collective bargaining by agricultural industries. The review should aim to increase farmers' awareness of these provisions and ensure that the current laws strike the appropriate balance.

The committee was also concerned about certain contract arrangements. There is a group of farmers in Queensland whose monthly incomes under their contracts fluctuate depending on whether a consumer chooses to buy a bottle of processor-brand milk or the supermarket's brand. Dairy farmers deal with processors and do not have a direct contractual relationship with the major supermarkets. The committee believes that these retail outcomes at the end of the supply chain should not impact farmers so directly. The management of the processors' brands should be a matter for them. The committee has accordingly called for changes to be made to these contract arrangements.

The committee also heard calls for various voluntary and mandatory codes of conduct and other suggestions for ways to facilitate engagements between farmers and those up the supply chain. The current dispute resolution arrangements in the grocery sector do not appear to be often used, and questions were raised about their effectiveness and relevance for some industries. The committee was acutely aware that it was tasked with examining developments in one part of the broader grocery sector. The issues that matter to dairy farmers may not apply to other supply chains. The report calls for the current voluntary dispute mechanism arrangements in the grocery industry to be reviewed. Such a review will allow all suppliers to be engaged and for other approaches that are being pursued overseas, such as in the United Kingdom, to be thoroughly examined.

The inquiry also heard calls from a number of stakeholders for amendments to Australia's competition laws. The ACCC undertook an investigation and found that Coles's conduct did not constitute anticompetitive behaviour under the current law. It did not appear that Coles' conduct was fundamentally anticompetitive, although some smaller competitors will find matching these prices on an ongoing basis challenging. The report does not call for specific amendments to be made to the Competition and Consumer Act as a result of the price discounts. The act applies to the entire economy. Changes to this law need to be carefully scrutinised, with the impact on all sectors assessed. However, the economics committee has heard over a number of years concerns from many stakeholders about Australia's competition laws. It has been some time since the last independent review of the competition provisions of the Competition and Consumer Act, and the report calls for the government to institute just such a review. This will allow a much needed assessment of the current law to be undertaken, with views from throughout the economy gauged and considered.

I again thank the senators who have participated in this inquiry. We hope that this report brings light to some of the challenges being faced by dairy farmers and suppliers in the grocery sector and, more generally, informs future debates and the development of policy in this area.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

This inquiry of the Senate Standing Committee on Economics has been a significant inquiry over a long period of time. As Senator Milne said, it comes on the back of another inquiry that was conducted by this committee into relationships in the dairy industry, particularly between the processors and the dairy farmers. It has been quite instructive to work our way through this particular inquiry to get an understanding of how the particular relationships work and also get a sense of what the impacts might be. The reason the report has been delayed is that the committee wanted to give the market a period of time to go through a cycle for contracts to be renewed with dairy farmers so we could generally assess whether or not the actions of Coles in discounting their own brand milk were going to have an impact on dairy farmers. Although it is not directly having an impact on dairy farmers through Coles and their supply chains, there is absolutely no question at all that the concept of generic milk is having an impact on the price that is paid to dairy farmers. That particularly comes through the relationship that Senator Bushby talked about in contracts that Parmalat has with its dairy farmers in Queensland and northern New South Wales. They pay a cheaper price for milk that goes into a generic product than for milk that is supplied into one of Parmalat's branded products. So there is a direct link between the pricing of a generic product in the supermarket and the price that is paid to dairy farmers.

At the outset of this process we expressed concern that the places where these impacts were going to be felt were in Queensland, New South Wales and Western Australia—and that is effectively where the impact has been felt. In the more efficient states, in Victoria and Tasmania, there is capacity to supply milk into the market at a cheap price, and it is more sustainable. But it is not sustainable in the states where the cost of producing milk is higher, particularly Queensland and northern New South Wales. One of the real concerns that we had through this process was whether the supply of milk through the supply chain was going to be sustainable. We did hear a lot of evidence. We heard from pretty much everybody in the supply chain. I do acknowledge the fact that the supermarkets were prepared to give us some information in confidence around the supply of the product and the prices that they were paying, which did assist the inquiry.

I am really quite bemused by the comments of the government senators on this committee, particularly given the statements made by Minister Carr yesterday. Again it demonstrates the mixed messages that this government sends to the community and its suppliers. Minister Carr, in addressing the Food and Grocery Council yesterday, was quite bullish about his concern around generic products generally. We have government senators here today saying that this is all good, that it is not something to be concerned about and that the majority committee report went too far in is recommendations, much more so than the recommendations in the additional comments made by other senators.

I am not sure that industry can actually understand where the government is coming from. Did Minister Carr make the comments he made yesterday just because he was in front of the Food and Grocery Council and had to have something to say or is he genuine in what he was wanting to talk about? As Senator Milne said, there was an inquiry into the supermarket industry by the ACCC in 2008. I think government senators have made mention of that as well. So there has been a process. The ACCC did have a very good, close look at Coles and their operations as a result of the work of this committee. I think it is quite fair to say that, as a result of evidence we received, the ACCC did go back and have another look at what was happening in this process and then came out with a report a little while ago, saying that it was not in breach of the Competition and Consumer Act.

That brings me to some recent comments by the new Chairman of the Australian Competition and Consumer Commission, Mr Sims. I, along with other members of the committee, am encouraged by the new attitude that he has brought to the role since being appointed, in looking at issues around the way collective bargaining for dairy farmers works, issues in the supply chain and concerns about the relationships between supermarkets and the use of their power. I think it is good that that attitude change has come with the new chair. I look forward to engaging into the future with Mr Sims and testing those relationships. I do make comment, as Senator Milne did, about the market prediction service that Coles are providing to all of their suppliers, not just their primary producers, but then saying that those suppliers have to pay for that new system. I have some problems with that.

One of the other difficulties that I had with that whole process was the denial by Coles that this was a marketing campaign. There is absolutely no question that this is effectively just a marketing campaign to get people into their supermarkets—and I have not found anybody except Coles that believes this. There is nothing wrong with that, but I had great difficulty with their denial of that. The other thing I had, and have, difficulty with is the advertising that they instituted as a part of this campaign.

I have with me a copy of a full-page advertisement in the Advocate on 26 January, so this campaign started on Australia Day. The advertisement talks of full cream milk going from $2.47 down to $2 a litre and Coles lite milk going from $2.49 down to $2 a litre. During the hearings, the CEO of Coles, Mr Ian McLeod, told us that the majority of milk supplied into the market was in fact coming from another product, which was priced at about $2.09. So most of the milk that they were discounting was being sold at $2, coming down from $2.09. The impression that the advertisement gave was that there was a significant discount being given across the board for the milk that Coles was selling into the market. There is absolutely no mention in this advertisement of the product that was priced at about $2.09 being reduced to $2 and that that was the majority of the product being sold into the market. In my mind this is deceptive advertising and it is one of the elements of the Coles campaign that I really do have some concern about. I would like the ACCC to investigate it, because I believe it is deceptive advertising. I do not have a problem with Coles telling the market what is going on, but if the majority of product being supplied into the market was actually being sold at a cheaper price in the first place, they are giving the impression to consumers that they are getting a much, much bigger discount than they generally are. I think the ACCC should look very closely at that.

I look forward to continuing to work with the ACCC, certainly the dairy farmers and the processors. I think it is a bit churlish for government members to suggest that vested interests came out in this. Part of our job is to actually look through the process, and certainly perspectives came across. We need to look very closely at the process. I do look forward to the continuing activity of the ACCC in this space and, if there is opportunity for us to improve the law, to making sure that there is a fair balance of market power down the supply chain. I think that is a very important goal for us all to strive for, whichever political persuasion we come from. I remember writing that in my diary very early in my discussions with dairy farmers: how, in a market economy—and we must remember that is what we are operating in—we ensure a fair distribution of power through the supply chain so that farmers across the board, particularly dairy farmers, get a fair price for their product without undue use of market power.

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern and Remote Australia) Share this | Link to this | Hansard source

The report of the Senate Economics References Committee is a very significant report and I want to congratulate those, principally led by Senator Colbeck, who were part of it. Clearly, as this whole issue shows, there are some real difficulties with competition policy within Australia. As this report clearly indicates, something needs to be looked at very carefully. I hear the words of Senator Colbeck, and I agree with them: we really do need to look more broadly at issues of competition policy rather than look at a particular industry.

Notwithstanding that, I am very concerned at the future of the dairying industry. On the Atherton Tableland in North Queensland there was once a very thriving and very intense dairying industry. I remember, growing up in the north, that we were often very proud to know that milk from the Malanda dairy factory on the Atherton Tableland was transported by road some of the longest distances in the world, as the advertising in those days used to indicate. Milk from the Atherton Tableland would come from Malanda through the Malanda dairy factory and down the range to the coastal road, the Bruce Highway, to Townsville and then go on the 9,000-kilometre journey from Townsville out to Mount Isa. It was a very significant industry in those days. What happened with the dairying industry a decade or so ago effectively shut down the dairying industry in Queensland, and there were many reasons for that. Some dairying still continues on the Atherton Tableland and there are other pockets of dairying activity throughout Queensland, but it is nowhere near the very significant industry it was in the old days.

The actions of certain of the major supermarket chains in using milk for price competition with their competitors was unfortunate for the industry, and my colleagues have mentioned that. It was certainly very much to the forefront in the evidence given to the committee and I know that this issue exercised the minds of the members of the committee and those issuing the report, particularly those signing on to the report, whom Senator Colbeck was the leader of. We all like lower prices; there is no doubt about that. But when lower prices come at the cost of real competition and when those lower prices can well result in a real problem for the industry involved, then clearly something needs to be done. That is why I am very interested in the recommendation that there be a further look into the laws relating to competition in Australia.

It distresses me to see the way the dairy industry has moved on over many years. As I have said, it was only a decade or so ago that the Atherton Tableland was very significantly based on the dairying industry. A lot of people were employed in dairying. A lot of people were involved in the transport of milk and cream from the farms to the factory, in the factory and then in the transport of milk elsewhere. A lot of subsidiary support and maintenance industries grew up around the dairying industry, and the winding down of many parts of the dairy industry in Australia has really had an impact on those support industries and on the jobs that were associated with it.

I am pleased to say that there is still some dairying in the Atherton Tableland area. Also, it is a very great tourist destination. Mungalli Falls is an enterprise that tourists go to, and there they can get the best scones and cream that you will get anywhere in the world. Of course the cream comes from the very contented cows of the Atherton Tableland area. Madam Acting Deputy President, if I can digress just a little: what a fabulous tourist enterprise this is. It gives some history, by way of photos and explanations, of the dairying industry in that part of the world. It is also a major destination for those interested in tropical rain forest river activities. It is a fabulous area, and I would urge senators who happen to be up in that area to go and have a look at this institution and partake of some of the magnificent scones and Atherton Tableland cream that is available there. Coming back to this report before the chamber: it is a very significant report. This inquiry really demonstrates the worth of the committee system in the Senate and indicates the worth of the work that this Senate does.

I was rather distressed this morning to see that the work this Senate was going to do in very closely examining all of the detail of the carbon tax legislation has been curtailed so that the Senate will not be able to look into that legislation in the way that it normally would. The Senate has been prevented from establishing a committee, as is the normal case—a committee that would usually go into every aspect of the carbon tax legislation in some detail. We have been prevented from seeing that. The fact that there was no Senate committee allowed to look into it means that we are going to, in many instances, be flying blind. When we look at all the particular parts of the carbon tax legislation, we see that there will be many unintended consequences from that legislation, consequences unintended even by the government. It is no secret that we oppose it, but even consequences unintended by the government could be highlighted. I only mention that to say that the worth of committees and committees such as this one— (Time expired)

Trish Crossin (NT, Australian Labor Party) Share this | Link to this | Hansard source

Senator Macdonald, are you going to seek leave to continue your remarks?

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern and Remote Australia) Share this | Link to this | Hansard source

I seek leave to continue my remarks.

Leave granted; debate adjourned.