Cattle buyers who signal to competitors what they plan to pay for cattle or how many cattle they plan to buy, without actually entering into an agreement or making a commitment to act a certain way, could fall foul of new competition laws passed this week.
On Wednesday the Federal Parliament passed several new amendments to the Competition and Consumer Act 2010, including one which prohibits ‘concerted practices’ that substantially lessen competition.
This amendment has implications for the cattle market because it gives the Australian Competition and Consumer Commission greater scope and more power to prosecute potentially anti-competitive behaviour.
A concerted practice involves the private or public disclosure of information to a competitor or competitors, such as through ‘price signaling’, where the purpose of the disclosure is to substantially lessen competition in a market.
A key test of whether an act constitutes a concerted practice is the “substantial lessening of competition”, and whether it can be demonstrated that the lessening of competition occurred as result of the disclosure of information.
Had these amendments been in place at the time of the so-called Barnawatha boycott in early 2015, there is a strong likelihood some buyers involved may have been found to have been in breach of the Competition and Consumer Act 2010 (the Act), ACCC chairman Rod Sims told Beef Central this week.
The Barnawatha boycott refers to a February 2015 cattle sale at Barnawatha near Wodonga, Victoria, when nine processors did not send buyers to the same sale. The alleged boycott was seen to be a protest against the saleyard’s recently introduced pre-sale-weighing policy, which was strongly opposed by some processors. Prices dropped substantially at the sale in the wake of the buyer absence, causing widespread anger among cattle producers.
The ACCC investigated the incident. Under competition law at the time, the competition regulator had to establish that there had been cartel-like behaviour and prove that some processors had entered into an agreement or made a commitment with other processors not to attend the sale.
The ACCC said it could find no firm evidence of such a commitment not to attend.
However, Mr Sims noted at the time, it was clear that processors had communicated with each other about the sale prior to the event.
While this fell short of amounting to a breach of the Act in its form at that time, Mr Sims said there was a “fine line” between social discussions about industry issues on the one hand, and exchanging information in circumstances that may constitute an understanding between competitors on the other.
In subsequent comments to a senate inquiry hearing in February 2016, Mr Sims and the ACCC’s Marcus Bezzi indicated that had European-style Concerted Practices laws, as recommended in the Harper Review, been in place in Australia at the time of the Barnawatha boycott, the actions of buyers at the time may have been found to breached those rules.
Concerted Practices laws are now set to be introduced in Australia following the passing of legislation this week.
A ‘new lens’ to look at market conduct
Mr Sims told Beef Central the amended law will give the ACCC “a new lens” with which to look at specific market conduct.
“The difference between concerted practices and cartels is that with a cartel the courts need to be convinced that there is some form of commitment been given, whereas with concerted practices that doesn’t need to be the case,” Mr Sims said.
“So for a cartel, there needs to be contract, arrangement or understanding.
“Concerted practices just could mean exchanging information. The Barnawatha case was an example where they (buyers) were chatting amongst themselves about whether they would turn up to the saleyard to buy cattle, and they did exchange views that they wouldn’t turn up.
“We had no evidence though that one of them said, if you don’t turn up, I wont. So that is the difference (between a cartel and concerted practice). Just that level of commitment.”
‘Strong likelihood’ Barnawatha boycott would have failed Concerted Practices test
Asked if what happened at Barnawatha last year may have breached Concerted Practices laws, had they been in place at the time, Mr Sims told Beef Central he believed there was “a strong likelihood” it would have.
“Now you have to be careful because you have to go back and look at the behaviour through a different lens that we didn’t have at that time,” he said.
“I think there is a strong likelihood that it would have fallen foul of concerted practices, with the rider that you would need to have another good look at the facts.”
Buyers discussing pricing pre-sale would be problematic
While the competition regulator no longer has to find evidence that a commitment to act a certain way between buyers has been made, it does have to demonstrate that the exchange of information could lead to, or has led to, a substantial lessening of competition.
“If you do have cattle buyers getting together the night before a sale, and we have evidence they are discussing pricing, that would be problematic under these new laws.
“Certainly the game has changed in the sense that we don’t have to show they made a commitment as to who did what when, the fact is they were lessening the competitive intensity, by telling each other their intentions in terms of what price they are going to bid.”
Can competing buyers still travel together to a sale in the same car, for example? Would that represent breach of Concerted Practices law?
Not on its own, Mr Sims replied.
“Obviously people might have their suspicions, but on its own it is not enough
“They (the buyers) would have to be careful about what they are talking about, there is no doubt about that, but on its own it is not a problem.”
As a general rule buyers should avoid discussing their bidding intentions with other people who are also going to bidding at the same sale, he said.
“They need to be careful that they are not talking price with their competitors who are also bidding for cattle, that is the key take away.
“From our point of view there are a range of things they should never have been doing, and the list of the things that they shouldn’t be doing hasn’t changed.
“We don’t want competitors getting together and talking about price and volume.
“What people in agriculture need to be aware of is that the law makes you more susceptible to prosecution if you do that than it did before.”
Though, I am long retired in the industry, I muse at the lack of protection to purchaser’s by vendors breaking non-disclosure details within clauses of written contracts between the two parties.
Excellent news … Signalling and Framing has been going on in live-stock auctions, for as long as I can remember …
This is great news for Australian cattle farmers, in Australia the only industry sector who has had concerted practice laws in place is the banking sector, while in other countries like Europe, the UK and the United States competition agencies have all been able to take action on competitors who share sensitive information which has an impact on competition. Thank you to members of the Harper Review, Government and the ACCC for seeking, supporting and implementing amendments to the Competition and Consumer Act which will assist in protecting our farming and commodity sectors.