News

Barnawatha case shows tougher competition law required: ACCC

James Nason, 05/04/2016

Senators probing competition issues in the red meat processing sector have put the Australian Competition and Consumer Commission under the microscope this morning, focusing particularly on its recent investigation into the so-called “Barnawatha boycott” last year.

The boycott refers to the decision by nine meat processors not to send buyers to the first Barnawatha cattle sale in February last year, where the lack of competition was blamed for a 20-30c/kg drop in prices at the sale.

It was alleged that the nine buyers did not attend to protest against the new centre’s decision to sell only under pre-sale weighing conditions.

The buyer absence triggered a groundswell of producer anger which ultimately led to both the Senate Inquiry into competition issues in the red meat processing sector and an ACCC investigation into the alleged buyer boycott.

In it is investigation the ACCC interrogated representatives of all nine processors and analysed their phone records.

It concluded that while the processors had clearly commun­icated about the sale, there was no evidence they had mutually colluded or agreed not to attend.

However, in statements to the Senate inquiry this morning, ACCC representatives suggested the outcome of the ACCC investigation may have been different if ‘concerted practice’ laws as recommended by the Harper Review in March last year, and which are enforced in other countries such as the United Kingdom, had been in place in Australia.

Concerted practice or ‘price signaling’ involves the private or public disclosure of information to a competitor or competitors, where the purpose of the disclosure is to substantially lessen competition in a market.

As touched on above, the key test of concerted practice is that “a substantial lessening of competition” can be demonstrated to have occurred as result of the disclosure of information.

ACCC Executive General Manager, Enforcement and Compliance, Marcus Bezzi told Senators this morning that the circumstances at the first Barnawatha sale were “much closer” to a concerted practice than collusion.

“A concerted practice is essentially where competitors share confidential information with each other without any expectation that the other party will do anything reciprocal.”

ACCC chair Rod Simms added: “It clearly isn’t collusion, which is what our laws cover, but it clearly is something else overseas laws cover and ours don’t.”

Mr Bezzi said collusion required proof that competing parties had come to an arrangement or an understanding to take a certain course of action. Concerted practice involved disclosing information to lessen competition, but without coming to an actual understanding or agreement with another party.

“If there is no understanding, just a sharing of highly-sensitive, confidential information which then has an impact on competition, in the UK, Europe and the US. the competition agencies can take action. Here we can’t.”

So did that type of behaviour occur between processors at Barnawatha, Senator Bridget McKenzie asked the ACCC representatives?

There had “certainly been a sharing of information about sensitive matters”, Mr Bezzi said.

“What is really clear is that there was no mutuality, there was no expectation generated that there would be (an agreed action).

Rod Simms said: “It is certainly fair to say that were the Harper (Review) concerted practices laws in place, we would have had a very close look under that heading, and we could have quickly switched, not quickly, but once we understood the situation, switched from looking for collusion to looking under that heading now.

“It is an interesting issue of not turning up because of when you weigh the cattle

“…The classic one is in any market where people are just exchanging information about how they are going to price.

“They are not asking you what you are going to do, they are just equally letting each other know how they are going to price.

“Now, most people I think going back to the pub test would say that should be against the law. In Australia it is not, let’s hope in the future it is.”

The following exchange further highlighted the difference between collusion and concerted practice:

Marcus Bezzi: “In this context if buyers have a cup of coffee in the morning before (a sale) and say well, these are the lots I am going to bid on today..

Senator McKenzie – “So you take pen two, four and six and I will take…

Marcus Bezzi: “No, that is collusion. It (concerted practice) would be: I am going to take pen two, four and six.

Rod Simms: “And then the other one might say: well I am going to do this, but there is no further (understanding or agreement to act in a certain way). I mean it is a subtle difference.”

The ACCC representatives compulsorily acquired phone records and said they had been surprised by the amount of communication that occurred between the nine processors leading up to the sale, However, they said the buyers had plausible explanations for the communications.

Some had common buyers, which gave them a legitimate reason for discussions, while others were long-term acquaintances and friends, Mr Bezzi said.

Senator Barry O’Sullivan said Australia’s existing competition laws were “completely and absolutely inadequate”.

“Nine buyers, independently of each other, some with specific excuses, others with general excuses, don’t turn up precisely on the same day to the same event.

“Absolute prima facie, any ordinary citizen would think that was done in some organised fashion. Is that correct?”

Marcus Bezzi: “Senator, that is why we put the resources into the matter. Prima facie, it did look like it was potentially a significant problem.”

Responding to the Senator’s comments about the inadequacy of Australia’s competition laws, Mr Simms said it was “as straight forward as saying that the missing law is on concerted practices”.

“Collusion is the main thing people are concerned about, where the sellers in the market are colluding, and buyers for that matter in this case, and that is a cornerstone of Trade Practices Law.

“But overseas they have recognised for a long time that there are circumstances close to that where you are giving information, particularly privately, but also potentially publicly, where that has the purpose or effect of substantially lessening competition.

“As Senator McKenzie has observed, that looks like it could have the beginnings of the case.

“We would agree with your statement Senator – we wouldn’t say that Trade Practices law is no good, we would say we are missing this key element of law which would have dealt with this issue.

“I can only urge again I am hopeful the Parliament will endorse the Government’s recommendation.”

Senator O’Sullivan said all political parties had to work hard to strengthen the ACCC’s capacity “to do something in this space”.

Leave a Reply to Ron Shaw Cancel Reply

Your email address will not be published.

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. Ron Shaw, 05/04/2016

    Anyone that has attended the Charters Towers fats sales could attest that collusion is common practice. Essentially, it is the mechanism that sets the base price for cattle (in North Queensland). The cattle industry is rife with anti-competitive practice. It is extreme in north Queensland, primarily due to lack of meat processor completion. A classic (example of this) is JBS Townsville closing down for a couple of months this year, due to the so called “lack of cattle”. More like an attempt to alter the supply/demand (i.e. reduce demand), in an attempt to ease prices.

Get Beef Central's news headlines emailed to you -
FREE!