Perspectives in horticulture and viticulture

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Perspectives in
horticulture and
viticulture
Industry views on competition
and fair trading issues
27 October 2016
0
Summary
The Australian Competition and Consumer Commission (ACCC) held six workshops in
regional Australia focusing on understanding competition and fair trading issues in the
horticulture and viticulture industries.
This report provides an account of the issues raised with the ACCC during the workshops
and its broader engagement with the industries. While this report does not reflect a
comprehensive market study of each industry, it highlights the current views of industry
participants on key competition and fair trading issues, and the ACCC’s response to these
issues.
The horticulture and viticulture industries contain a range of diverse markets across many
different locations. Despite this diversity, a number of concerns were consistently raised,
many of which have existed for decades. A wine grape grower in Griffith remarked that many
of the issues being experienced were the same as those discussed 40 years ago. The key
issues raised in the ACCC’s engagement included:
1. the ineffectiveness of the Horticulture Code of Conduct – significant concerns were
raised about the current Code by a range of industry participants.
2. timing of payments to growers – alleged delayed payments in horticulture and payment
structures in viticulture were discussed with the ACCC.
3. imbalances in bargaining power – imbalances in bargaining power exist in both industries
and are exacerbated in viticulture by the oversupply of wine grapes.
4. contracting practices – the ACCC heard about varied and often informal contracting
practices.
5. the influence of major retailers – industry participants spoke about the growing influence
of major retailers in both industries.
6. the voluntary Australian Wine Industry Code of Conduct – concerns were raised about
the lack of uptake of the voluntary Code.
7. fears about raising complaints – many growers are hesitant to make complaints due to a
fear of being blacklisted or put on a trading holiday.
What will the ACCC do?
Based on this ACCC engagement, its key areas of focus in horticulture and viticulture in the
immediate future will be:
1. continuing to advocate strongly for significant changes to the Horticulture Code of
Conduct. Key changes include the inclusion of pre-December 2006 contracts and the
availability of penalties for Code breaches
2. working closely with industry to develop and implement an education and compliance
program to share information about the Horticulture Code, following any changes to the
Code
3. considering allegations of late payments by wholesalers in horticulture
4. promoting the potential benefits of collective bargaining. Collective bargaining appears to
be an underutilised tool to combat imbalances in bargaining power in both industries
5. assessing standard form contracts across horticulture and viticulture to promote
compliance with the upcoming unfair contract term law. The ACCC is currently reviewing
a number of contracts and is happy to speak with industry participants who have
concerns about any terms
1
6. assessing terms in wine supply contracts relating to exclusivity and timing of the release
of pricing information in the context of the new unfair contract terms law
7. based on learnings from our engagement, further considering competition issues in
viticulture
8. continuing to monitor grower, wholesaler and winemaker interactions with retailers,
including in terms of the obligations set out in the Food and Grocery Code
9. exploring the use of an app that will allow for the anonymous provision of information and
complaints to the ACCC. This app would enable participants in the horticulture and
viticulture industries to provide information to the ACCC in a secure manner.
The reasons for these areas of focus are discussed in detail below.
The ACCC’s engagement
Horticulture and viticulture are important agricultural industries that have a presence in many
areas in Australia. In the 2014–15 financial year, the horticulture and viticulture industries’
gross value of production was approximately $9.47 billion ($8.7 billion horticulture and $765
million viticulture).1 This constitutes approximately 18.5 per cent of Australia’s overall
agricultural production.2 It is therefore critical to Australian agriculture that horticulture and
viticulture markets operate efficiently.
The ACCC is the Commonwealth statutory authority responsible for enforcing laws that
promote competition, fair trading and consumer protection in Australia. The ACCC
administers the Competition and Consumer Act 2010 (CCA), which includes the Australian
Consumer Law (ACL). Part of this role includes enforcing compliance with the Horticulture
Code of Conduct. The Code applies to transactions between growers and wholesalers and
includes requirements for wholesalers to publish written terms of trade and for growers and
wholesalers to enter into written agreements.
The ACCC acknowledges that a number of reports about the horticulture and viticulture
industries have been released over the past decades. This report focuses on issues that fall
within the scope of the ACCC’s work.
The ACCC undertook widespread engagement with the horticulture and viticulture industries
in order to understand the competition and fair-trading issues the industries face.
This engagement included workshops held across Australia, led by ACCC Deputy Chair
Michael Schaper and Commissioner Mick Keogh. The workshops were open to all interested
parties. The purpose of the workshops was to speak with industry participants about the key
issues affecting them. The ACCC also provided information about its functions and the laws
it administers, including those relating to collective bargaining, unfair contract terms and
industry codes. Workshops were held in:

Shepparton, 6 June 2016

Toowoomba, 10 June 2016

Bunbury, 1 July 2016

Griffith, 4 July 2016

Murray Bridge, 18 July 2016

Devonport, 1 September 2016.
1
Australian Bureau of Statistics, 7503.0 - Value of Agricultural Commodities Produced, Australia, 2014-15
2
Australian Bureau of Statistics, 7503.0 - Value of Agricultural Commodities Produced, Australia, 2014-15
2
The ACCC also encouraged direct contacts with its Agriculture Unit for those who were
unable to attend a workshop or who wanted to raise an issue privately.
The workshops provided the ACCC with a wealth of information about market issues. In
order to widen the ACCC’s engagement, the ACCC also met with a range of people and
attended other events, including:

Brismark (The Queensland Chamber of Fruit and Vegetable Industries Co-operative Ltd),
Fresh State and the Melbourne Market Authority

horticulture growers in Bundaberg

the Winemakers’ Federation of Australia

wine grape, dried fruit and citrus growers in Mildura

speaking at the AUSVEG National Horticulture Convention

speaking at the Tri-Nut Conference 2016

speaking at the Victorian Certified Seed Potato Authority (ViCSPA) Conference

the Fruit Growers Tasmania Annual Conference.
Due to the fear of raising complaints expressed by many industry participants, names of
individuals and businesses that provided the ACCC with information are not used in this
report.
While the ACCC’s formal program of workshops has concluded, its increased engagement
with the industries will continue. The ACCC thanks everybody who participated in this
process for their contributions.
Key issues
1. The Horticulture Code of Conduct is not operating effectively
What the ACCC heard
Growers, grower representatives and wholesaler representatives were very critical of the
current Horticulture Code of Conduct. As examples, a grower at Murray Bridge described the
Code as a ‘waste of space’ and a Tasmanian grower representative suggested there has
been no genuine change in industry practice since the Code’s introduction. The ACCC did
not encounter any stakeholders who were happy with the Code in its current form.
Feedback from growers and grower representatives across the country suggested noncompliance with the Code is so common that growers do not consider it worthwhile to report
a breach of the Code. Growers in many locations argued that penalties should be available
for breaches of the Code so that non-compliance can be dealt with effectively.
Under the Code, growers and wholesalers may only trade with each other if they have
entered into a written agreement known as a Horticulture Produce Agreement (HPA).
Despite this requirement, it was noted during the workshops that transactions regularly occur
without the existence of a HPA. One grower representative in NSW observed that he did not
know a grower that operated with a HPA. Growers in Bundaberg further stated that even
where a HPA was in place, it did not reflect the reality of the transactions that ultimately took
place. A number of representatives of wholesalers said growers can be particularly poor at
signing and returning HPAs. They strongly argued that both sides need to take responsibility
for ensuring HPAs are in place. Conversely, Bundaberg growers argued they rarely receive
a signed agreement back from wholesalers.
3
Of most importance, given the purpose of the Code, many growers claimed they do not
know whether they are dealing with an ‘agent’ or a ‘merchant’ in a given transaction. It is
widely recognised in the industry that many traders use a ‘hybrid’ model,3 not declaring
whether they are an agent or a merchant until a transaction has been finalised. This hybrid
model can reduce the transparency of transactions, as growers may not know when
ownership of produce transfers or when payment should occur. Grower representatives in
Griffith and Bunbury suggested that wholesalers may use the hybrid arrangement to avoid
GST obligations.
The Code currently applies to wholesale transactions, and does not apply to transactions
involving processors, exporters and retailers. Wholesaler representatives outlined their
frustrations that the Code imposes a regulatory burden on their members that is not imposed
on processors and, in particular, retailers. These representatives further argued that
penalties should not be available for breaches of the Code, as there is no evidence of
systemic failure in the market.
A number of industry representatives commented that there is a lack of education about the
Code across the entire industry.
Despite the significant negative commentary, many stakeholders expressed positive views
about the proposed changes put forward as part of the 2015 independent review of the Code
conducted by Mark Napper and Alan Wein.4 The general view was that these changes could
lead to substantial improvements in industry practice, if there is buy-in from both growers
and wholesalers. The industry is currently awaiting the Government’s response to the
independent review of the Code.
ACCC response
The ACCC considers that the Horticulture Code is necessary to address imbalances in
bargaining power between growers and wholesalers and to increase transparency in central
market transactions. The ACCC considers the Code has the potential to be effective, but
believes the original aims of the Code are not being achieved. The ACCC therefore supports
significant changes to the Code.
The effectiveness of the Code is limited by the fact that it does not cover the entire industry.
The grandfathering of pre-Code contracts (i.e. agreements entered into before 15 December
2006) has resulted in up to 80 per cent of horticulture produce sales contracts not being
covered by the Code. As long as these agreements are exempt from the Code, there will
continue to be reluctance by traders to enter into new Code-compliant supply arrangements.
Currently, the ACCC does not have the power to seek court ordered penalties or to issue
infringement notices for non-compliance with the Code. The absence of meaningful penalties
for Code breaches severely limits the ACCC’s ability to enforce the Code and deter future
non-compliance. The existence of infringement notices would allow the ACCC to take quick
and low cost enforcement action in appropriate circumstances.
The ACCC therefore strongly believe the Code must:

apply to pre-December 2006 contracts so that it has greater coverage, and meets its
original purpose

allow for penalties and infringement notices for breaches of the Code.
The ACCC also welcomes the proposal to introduce an obligation for parties to act in good
faith into the Code.
3
For example, see Napper and Wein, Independent Review of the Horticulture Code of Conduct: Final Report, p.18
4
See http://www.agriculture.gov.au/ag-farm-food/hort-policy/code-of-conduct
4
The lack of clarity around whether a wholesaler is operating as an agent or a merchant is an
issue that has been discussed in reports dating back to the 1960s.5 The ACCC believes the
merchant / agent distinction is an important component of ensuring transparency in
transactions with wholesalers and should be retained in the Code. This distinction provides
growers with critical information about factors such as transfer of ownership and timing of
payment.
While the ACCC’s enforcement options are currently limited, it has taken action on twelve
occasions since the Code was introduced. These consist of court proceedings in one matter
and eleven court enforceable undertakings.6
Case study: Young Sang court enforceable undertaking
In September 2016 the ACCC accepted a court enforceable undertaking from a Melbourne
based fruit and vegetable wholesaler, Young Sang & Co. (Aust.) Pty Ltd (Young Sang) for
breaches of the Horticulture Code of Conduct.7
Young Sang admitted that it breached the Code during 2015 when it traded in horticulture
produce with a number of Queensland based growers without:

HPAs, or

preparing or making publicly available a document that set out the general terms and
conditions under which it would trade with growers (Terms of Trade).
Young Sang undertook that it will not engage with growers without HPAs and Terms of
Trade. Additionally, the undertaking requires Young Sang to implement a Code compliance
program.
Should a new Code come into force, the ACCC will undertake widespread education and
compliance activities to provide industry with information about the new Code. The ACCC
will work closely with the industry, including the people it has met through the workshops, to
provide clear and concise guidance about how the Code will operate. During the workshops,
the ACCC heard that meaningful change would only occur if growers and wholesalers
embrace the Code. The ACCC’s compliance and education work will therefore be targeted at
building broad industry compliance with the Code.
Following this initial compliance and education phase, the ACCC will take enforcement
action in line with its Compliance and Enforcement Policy as required if breaches of the
Code are identified.8
2. Timing of payments is a significant problem for growers
What the ACCC heard
In the horticulture industry, an issue that was consistently raised by growers was late or nonpayment by wholesalers. Examples of allegations raised include:

a grower in Shepparton indicated he did not receive payment for his produce until
3-4 months after the wholesaler took delivery

in Bundaberg, a group of four growers were owed over $1 million by an agent that
subsequently went into administration. Several other growers also raised concerns about
very significant delays in payment, including periods up to 3-4 months
5
Royal Commission report, Victoria Market, June 1960, para 54-57
6
https://www.accc.gov.au/business/industry-codes/horticulture-code-of-conduct/horticulture-code-investigations
7
https://www.accc.gov.au/media-release/young-sang-admits-breaches-of-horticulture-code-of-conduct
8
http://www.accc.gov.au/publications/compliance-and-enforcement-policy
5

one account at the Griffith workshop relayed the story of a grower who sent fruit to a
wholesaler at the Sydney markets on three occasions but did not receive any payment.
Representatives of wholesalers argue these transactions are a very small proportion of the
total number of transactions that take place and that few complaints have been raised about
late payment issues through formal dispute resolution mechanisms. The growers the ACCC
spoke to indicated they were hesitant to raise complaints for fear of damaging their
relationship with the wholesaler or a reluctance to be seen as a troublemaker in the industry.
Representatives of wholesalers suggested some late payments by wholesalers are due to
delayed payments by retailers.
The timing of payment is also an issue in the viticulture industry, but in a substantially
different way. Under many wine grape supply agreements, growers only receive an initial
payment some months after their grapes are delivered and it can take up to twelve months
before full payment is received. Growers and grower representatives in the Riverina and
Sunraysia regions raised concerns that this practice imposes substantial financial pressure
on growers.
The ACCC understands that, where used, this payment structure is typically explicitly written
into supply agreements. Representatives of winemakers indicated this practice is based on
historical practices. The winemaking process can be lengthy, and this can place a significant
financial burden on winemakers. Representatives of winemakers also noted this payment
structure is set as a minimum standard in the South Australian Wine Grapes Industry Act
1991 and the voluntary Australian Wine Industry Code of Conduct.
ACCC response
Cash flow is critical for farmers, and small businesses in general, and delays in payment can
cause significant financial stress. The Australian Small Business and Family Enterprise
Ombudsman has recently outlined the harm that late payments can cause to small
businesses and is proposing to hold a formal inquiry into the issue.9 This inquiry would
involve consulting with stakeholders more broadly on the key issues surrounding payment
times. The ACCC will liaise with the Australian Small Business and Family Enterprise
Ombudsman in relation to any late payment issues relevant to the Ombudsman’s inquiry.
While the ACCC acknowledges the complaints about late payments in the horticulture
industry are only allegations, the regularity with which this issue was raised suggests it is a
wider problem. A failure to make payment within a specified timeframe can breach the CCA.
The Horticulture Code contains requirements that a HPA must set a timeframe within which
payment will occur and that payment must occur within this timeframe. The provisions of the
ACL that prohibit misleading or deceptive conduct or unconscionable conduct may also be
applicable.
The ACCC is assessing allegations of late payments to growers to determine whether the
alleged conduct raises concerns under the Horticulture Code or the broader provisions of the
ACL. The ACCC also plans to maintain a close watch on this issue, particularly in the
context of any updated Horticulture Code.
The issue of the timing of payment in viticulture is more complex. The delayed payment
structures in use for many contracts are ingrained within the industry.
9
http://www.asbfeo.gov.au/media-release-late-payments-vic-sb-festival
6
The South Australian Wine Grapes Industry Act 1991 sets out the below minimum
requirements for payment timing.10 This legislation is particularly significant as South
Australia accounts for over 50 per cent of national wine grape production.11
Grapes delivered:
First payment
Second payment
Third payment
Before 1 April
One third by the end
of the month
following delivery
One third by 30 June
One third by
30 September
1 April to 1 May
One third by 31 May
One third by 30 June
One third by
30 September
After 1 May
Two thirds by
30 June
One third by
30 September
Furthermore, the voluntary Australian Wine Industry Code of Conduct, which was agreed to
by Wine Grape Growers Australia and the Winemakers’ Federation of Australia, states that
unless otherwise agreed, payment should occur in instalments of:

one-third at the end of the month following the month of delivery

one-third at the end of June

the balance at the end of September.
The delayed payment structure used in many contracts in the wine industry unquestionably
spreads the financial burden of delays in the winemaking process on to the grower. This
continues to occur despite major winemakers being large corporations. However, as noted
above, this payment structure is entrenched in the industry and changes to South Australian
legislation and the voluntary Code would likely be required to bring about any change to this
practice.
3. Significant imbalances in bargaining power exist across supply
chains
What the ACCC heard
Imbalances in bargaining power underpin many of the concerns that were raised with the
ACCC in horticulture and viticulture. The ACCC heard about significant imbalances in
bargaining power between growers and wholesalers, growers and retailers, wholesalers and
retailers, growers and winemakers and winemakers and retailers. Many growers noted they
are price takers and have very little scope to negotiate with larger players in the supply
chain.
In viticulture, there is a well-documented oversupply of wine grapes.12 While this report does
not focus on the oversupply issue, it continues to underpin the market dynamics in the
industry. This further weakens the bargaining position of wine grape growers and may
provide scope for opportunistic behaviour which takes advantage of this power imbalance.
Throughout the workshops, growers argued they carry significant risk in many transactions,
with very little certainty in terms of returns. Growers suggest this lack of certainty comes
from both environmental factors, such as the weather, and market practices, such as
10
http://wgcsa.com.au/wp-content/uploads/Guide-to-negotiating-the-sale-of-wine-grapes_Nov2013_v4.pdf
11
Australian Bureau of Statistics, 7503.0 - Value of Agricultural Commodities Produced, Australia, 2014-15
12
See for example The Senate, Rural and Regional Affairs and Transport References Committee, Australian Grape and Wine
Industry, Final Report, February 2016
7
contracting arrangements. Growers pointed to a lack of notification about prices, delays in
payments and a lack of forward contracts as examples of this uncertainty.
ACCC response
The ACCC acknowledges that imbalances in bargaining power exist in horticulture and
viticulture supply chains. Given the variance in size of participants in both industries, these
imbalances will always exist to an extent; but more so in times of oversupply. Mechanisms
that can reduce these imbalances are therefore important.
From a grower perspective, one potential option is collective bargaining. Collective
bargaining is an arrangement where two or more producers can come together to negotiate
with a buyer over terms, conditions and prices. The ACCC can approve collective bargaining
when there are public benefits that would outweigh the detriments to competition. A group of
businesses may sometimes appoint a representative, such as an industry association, to act
on its behalf in negotiations.13 Collective bargaining allows growers to collectively negotiate
in circumstances where it may otherwise raise concerns under competition laws.
Collective bargaining could be a viable option for many growers in both horticulture and
viticulture, and the ACCC is happy to have discussions with grower groups that have an
interest. However, it should be noted that collective bargaining will only be effective where
both parties agree to participate in negotiations.
Authorisation can also be sought for collective boycotts. A collective boycott occurs when a
group of competitors agree not to acquire goods or services from, or not to supply goods or
services to, a business with whom the group is negotiating, unless the business accepts the
terms and conditions offered by the group.
Case study: Collective bargaining by vegetable growers in Tasmania
At the Devonport workshop, growers noted a collective bargaining arrangement through
which the Tasmanian Farmers and Graziers Association (TFGA) negotiates with vegetable
processor Simplot on behalf of growers is working well. While negotiations still present
challenges, this arrangement has offered benefit due to the willingness of Simplot to
negotiate with the group in good faith and the ability of the TFGA to effectively represent
vegetable growers.
The ACCC granted authorisation to the TFGA in 2015 to allow them to continue to
collectively negotiate the terms and conditions of growing contracts with vegetable
processors in Tasmania.14 The ACCC granted authorisation until March 2025 and TFGA
members have been authorised by the ACCC to collectively bargain since 2004.
Business to business unfair contract term protections
From 12 November 2016 a new law will protect growers and small businesses from unfair
terms in standard form contracts.15 The law aims to address some of the power imbalances
existing in business-to-business transactions where a small business has had limited or no
opportunity to negotiate the terms of the arrangement. A contract term may be unfair if it
causes significant imbalance, is not reasonably necessary to protect the legitimate interests
of the party advantaged by the term, and would cause harm to the other party if it were relied
on. For example, a term that enable a wholesale or retailer to unilaterally vary quality
requirements after an agreement has been made may be an unfair term.
13
See https://www.accc.gov.au/publications/the-benefits-of-working-with-other-small-businesses-collective-bargaining-andcollective-boycotts
14
http://registers.accc.gov.au/content/index.phtml/itemId/1182698/fromItemId/278039
15
https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms
8
The law applies to standard form contracts where at least one of the businesses involved
employs less than 20 people, and the price payable under the contract is no more than
$300 000, or $1 million if the contract is for more than 12 months.
The ACCC is considering standard form horticulture and viticulture contracts ahead of the
new law coming into force.
4. There is substantial contractual uncertainty across horticulture
and viticulture
What the ACCC heard
A key issue raised by wine grape growers, particularly in the Riverina and Sunraysia regions,
was the notification of prices to growers by winemakers. Based on the information provided
by growers and grower representatives, the ACCC understands the current process for
many growers in warm climate areas is as follows:

growers begin pruning in June and irrigating in August of each year

from approximately August to September, winemakers begin contacting growers seeking
to sign them up to supply agreements. These agreements generally do not contain any
information about the price paid to growers

winemakers provide growers with an indicative price no earlier than December each year

growers do not receive a final price until after the produce has been delivered, with
payment made over the subsequent year.
Growers state that 60-80 per cent of the growing process and expenditure takes place
before they receive an indicative price in December. In Griffith, Murray Bridge and Mildura,
growers and grower representatives raised concerns that this arrangement, where prices are
not known at the time of signing the agreement, requires growers to carry almost all of the
risk, without having any certainty on price. In Mildura, a grower argued that this practice
ensures there is no competition among winemakers. Growers argue that a base price should
be available in July-August to ensure they can accurately assess the profitability of their
operations for the coming year.
Representatives of wholesalers said setting an indicative price will not work, as any
indicative price will be inaccurate and will distort the market. They suggested there are too
many variables that factor into the ultimate price, including international prices.
Growers also raised the use of exclusive supply provisions in contracts. In some instances,
such contracts can prevent a grower from selling surplus grapes to other buyers, even after
the volume requirements in the contract have been met. In these situations, growers may be
forced to dispose of sellable grapes, reducing their potential income.
The ACCC heard the wine industry is trending towards the use of ‘spot contracts’, rather
than long term agreements. In these contracts, growers are offered a certain price for a
certain quantity in a one-off transaction. This largely mirrors the arrangements that
winemakers have with retailers. Representatives of winemakers stated there are no longterm contracts with retailers for wine. Retailers will provide singular requests for a particular
quantity and type of wine. While many of these relationships are ongoing, there is no
certainty in the form of a long-term contract.
Information the ACCC received suggests highly varied and often informal contracting
practices are used across horticulture. Growers indicated the use of oral contracts is still
commonplace and that many relationships continue to rely on trust, rather than written
agreements. Some growers appeared happy to continue with these historical approaches to
9
contracting, while others suggested this approach is outdated and provides no protection for
growers when things go wrong. As noted, feedback indicates wholesale markets
transactions are commonly taking place without a written agreement in the form of a HPA.
One industry participant argued there is a strong resistance to paperwork in the industry.
The diversity of agreements was demonstrated by the ACCC’s conversations with growers
that supply processors. One fruit grower that supplies a processor had no written agreement
for a particular year and relied on historical arrangements. The processor could therefore
decline to purchase the grower’s fruit at any time without any likely legal ramifications.
Alternatively, growers in Tasmania and dried fruit growers in the Sunraysia region had
detailed written contracts in place with processors.
Representatives of wholesalers stated that growers will often send unsolicited batches of
produce to a wholesaler without any prior agreement.
Growers indicated that major retailers do not offer forward contracts. Growers will have an
overarching agreement with the retailer and will then receive weekly or fortnightly
communications setting out price and volume information for a particular order. The ACCC
has spoken with growers who supply over 50 per cent of their produce to a single retailer
under these types of arrangements. These agreements worked well for a number of growers
the ACCC spoke with, but the lack of future certainty and heavy reliance on a single buyer
does seemingly pose a risk for the grower.
There also appears to be varying practices in terms of the price information sought and
received in transactions. For example, a grower at the Shepparton workshop stated that he
would commonly send fruit to a wholesaler without having any information about what price
he would receive for those goods. In contrast, a large grower in Toowoomba stated that
nothing would leave his farm unless he had clear information about price.
ACCC response
The ACCC acknowledges the historical arrangements in the wine industry and the market
dynamics caused by the oversupply of wine grapes. However, the reported instances of
growers being locked into contracts approximately three months before they receive any
indicative price information is concerning. This process ensures that growers are required to
commit to contracts, often for multiple years, without having critical information about likely
returns. Importantly, this also ensures that winemakers are not competing on price at the
time of signing growers, therefore potentially reducing competition between winemakers. If a
grower’s contract includes exclusivity clauses, they also have no opportunity to switch
between winemakers if they do not like the price they are offered. However, the ACCC
recognises that the voluntary Australian Wine Industry Code of Conduct provides that price
notification must only occur by 15 December each year.
This practice appears to require growers to assume significant risk, without any indication
about likely returns. Some growers remarked that if they had an upfront indicative price in
July/August, they might even choose to not go through the full growing process if it would be
unprofitable for that year. The ACCC is considering these arrangements further to determine
whether they may raise concerns under the upcoming unfair contract term protections. The
ACCC is also considering the use of exclusive supply provisions in this context.
The ACCC’s initial engagement with the viticulture industry has led it to conclude that further
examination of competition issues in the industry, including those relating to contracting
practices, is required.
In horticulture, amendments to the Horticulture Code may assist to improve contracting
practices in some instances. If pre-December 2006 contracts are covered by the Code, a far
higher proportion of the industry will be required to operate with a HPA. This will formalise
10
many of the oral agreements that are currently in place. The absence of written agreements
can leave parties to contracts vulnerable, particularly in circumstances where disputes arise.
Should the merchant / agent distinction be retained in the Code, wholesalers will also be
required to disclose whether they are a merchant or an agent in a far greater number of
transactions. This will serve to improve the transparency of contracts.
A key issue in both industries appears to be a lack of future certainty. In many cases, market
participants have very little information about prices or do not have forward contracts. For
example, consider a fruit grower that does not have a written contract with a processor, or a
winemaker that has no ongoing agreements with a retailer. In both instances, it is likely the
processor and retailer could end the arrangements at any time without legal ramifications.
This lack of certainty is likely to make investment unappealing or inefficient, and to reduce
the future growth of the industries.
5. The influence of major retailers is significant in both industries
What the ACCC heard
In horticulture, commentary during the workshops in relation to dealing with major retailers
was varied. A number of growers said they have very positive direct relationships. Other
growers and grower representatives indicated that major retailers are difficult to deal with.
Growers and industry representatives noted a trend towards growers dealing directly with
major retailers, rather than through wholesale markets. For example, it was suggested that
independent greengrocers are the biggest buyers at the Melbourne markets, with major
supermarkets using the markets to a varying degree, including to top up stock. At a number
of workshops it was argued that retailers are now a key factor in terms of influencing prices
that are available at wholesale markets.
Multiple growers and grower representatives suggested the major retailers will only use a
small number of suppliers to source produce and may have exclusive supply arrangements
in some instances. It was noted that in most cases medium-large scale growing enterprises
would have the direct supply agreements with the retailers. A Tasmanian grower suggested
the number of growers and agents is shrinking due to the dominance of big growers and the
supermarkets.
Concerns raised by growers and wholesalers in horticulture about retailers included:

difficulties raising and resolving disputes with retailers, including in relation to damage to
pallets

retailers imposing stringent quality standards and being quick to reject produce.
Winemaker representatives stated that retailer behaviours have significantly improved since
recent ACCC court actions, although disputes do arise from time-to-time. These disputes
largely refer to price issues. A prominent grower representative argued that retailers are
extracting the greater margins in the supply chain, at the expense of growers supplying the
domestic market.
Representatives of winemakers noted they would like to see alcohol products brought under
the Food and Grocery Code when it is reviewed.
ACCC response
The ACCC continues to closely monitor the relationships between suppliers and retailers,
including through administering the Food and Grocery Code. As the Horticulture Code does
not cover transactions with retailers, the Food and Grocery Code is an increasingly
significant Code for the horticulture industry. The Code governs certain conduct by grocery
11
retailers and wholesalers in their dealings with suppliers.16 Signatories to the Code include
major retailers Aldi, Coles and Woolworths. Since it commenced, the ACCC has witnessed
improved levels of compliance with the Code, but continues to monitor the Code closely. In
this context, in August 2016 the ACCC publicly called for information from suppliers about
any concerns they have with the conduct of the supermarkets and reinforced that complaints
can be made on a confidential basis.17
Case study: Woolworths ‘Mind the gap’ litigation
In December 2015 the ACCC instituted proceedings in the Federal Court against
Woolworths Limited, alleging it engaged in unconscionable conduct in dealings with a large
number of its supermarket suppliers, in contravention of the ACL.
The ACCC alleged that in December 2014, Woolworths developed a strategy, approved by
senior management, to urgently reduce Woolworths’ expected significant half-year gross
profit shortfall. It is alleged that one of the ways Woolworths sought to reduce its expected
profit shortfall was to design a scheme, referred to as “Mind the Gap”. It is alleged that under
the scheme, Woolworths systematically sought to obtain payments from a group of 821 “Tier
B” suppliers to its supermarket business.
This matter is still before the Court.
The Food and Grocery Code does not cover relationships concerning the supply and retail
sale of alcohol. The review of the Food and Grocery Code will consider the products that
should be covered by the Code. The ACCC considers this an appropriate time to consider
whether alcohol transactions should be brought under the Code.
6. There is significant concern that the voluntary Wine Industry
Code of Conduct is not effective
What the ACCC heard
Some growers and grower representatives were concerned about the lack of uptake of the
Australian Wine Industry Code of Conduct. In Griffith, it was stated there has been no takeup of the voluntary Code by winemakers in the Riverina region.
Representatives of winemakers noted that while the majority of major winemakers have
adopted the voluntary Code, they would still like to see an increased number of signatories.
They suggested the major concern raised with the Code is the issue of indicative pricing, as
growers consider indicative pricing information is provided too late, and some winemakers
do not think they should be required to provide this information at all.
In Griffith, growers raised the issue of a possible prescribed or mandatory Code as
administered by the ACCC. It was suggested this might afford some additional protections to
growers. Wine industry representatives in Murray Bridge also suggested the voluntary code
is not having a material impact on the industry and a mandatory code should be considered.
Representatives of winemakers did not support a mandatory code. They suggested a
mandatory code would come at significant cost to the industry and would not solve the
problems the industry is facing.
16
https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct
17
https://www.accc.gov.au/media-release/accc-reminds-suppliers-of-their-rights-under-food-and-grocery-code
12
ACCC response
The Australian Wine Industry Code of Conduct is a voluntary code that is not administered
by the ACCC.18 Peak industry groups Wine Grape Growers Australia and the Winemakers’
Federation of Australia developed the Code.
The Code contains a number of highly valuable elements, such as dispute resolution
mechanisms and minimum requirements for agreements. However, some growers have
been critical of elements of the Code, such as its provision on the timing of indicative pricing
information. Despite this, the ACCC considers that greater take-up of the Code would benefit
the industry, including through ensuring greater consistency of practice.
The February 2016 report by the Senate Standing Committee on Rural and Regional Affairs
and Transport recommended that if targets for increase uptake of the Australian Wine
Industry Code of Conduct are not met, the Government, in consultation with representative
organisations for growers and winemakers, should reconsider the development of a
mandatory code before the end of 2017.19 The Government is yet to respond to this report.
7. There is a fear of raising complaints in the industries
What the ACCC heard
A fear of raising complaints, both to businesses with greater bargaining power and to
regulators such as the ACCC, was raised consistently during the workshops. In one
workshop, the wine industry was described as a ‘retribution state’, in which complaints from
growers would be met with harsh consequences by winemakers.
Growers have spoken of threats of being blacklisted or placed on a ‘trading holiday’ (i.e. the
wholesaler or retailer ceasing to trade with them either permanently or for a set period). In
Bundaberg, a number of growers said they had been put on a trading holiday by a
wholesaler in retaliation for raising a complaint. A citrus grower in NSW stated that he would
not dare raise a complaint with a major retailer.
The fear of raising complaints has also been a barrier to the ACCC’s engagement work. For
example, a number of large growers in Western Australia indicated they would have liked to
attend the Bunbury workshop, but did not due to concerns about being seen to be speaking
with the ACCC.
Representatives of wholesalers suggested that low complaint levels and the lack of use of
mediation services were illustrative of the horticulture industry operating effectively. They
argued that growers should use existing dispute resolution mechanisms in a timely manner if
they want to raise disputes.
Some growers also raised a fear of changing agents. In Bunbury, multiple growers stated
that they did not feel comfortable changing agents, as this may be seen as causing trouble.
Representatives of wholesalers said if growers do not trust their wholesaler they should
switch to another and suggested there is a culture of not wanting to change agents in the
industry. Another wholesaler representative suggested 80 per cent of growers are locked
into long-term arrangements with wholesalers and the remaining 20 per cent will switch
between wholesalers.
A grower representative at the Murray Bridge workshop said whistle-blowing protections
need to be reviewed so growers can raise issues without fear of retribution.
18
http://www.wineindustrycode.org/online_code.html
19
http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/Australian_
wine_industry/Report
13
ACCC response
The extent of blacklisting and trading holidays in horticulture and viticulture is not clear, due
to a lack of available evidence about such alleged conduct. The issue of retribution against
growers was raised at almost every workshop, but the ACCC has not been provided with
specific examples. However, what is clear is that growers believe this type of activity occurs
on a regular basis and the threat of such conduct prevents growers from raising disputes.
Based on this fear of retribution, the ACCC does not believe a lack of reported complaints is
conclusive evidence there are no fair trading issues in the industries.
Concerns about the possible repercussions arising from raising disputes are not only a
significant problem for industry participants; they also hinder the ACCC’s ability to obtain
information about issues in the industries. Since the ACCC can generally only enforce the
law through the courts, it needs evidence in order to take action for a potential breach of the
CCA.
The ACCC is happy to accept complaints on a confidential basis. While this can make
pursuing enforcement actions challenging, the ACCC has options that can allow it to obtain
information without revealing the identity of complainants. This is exemplified by the ACCC’s
successful action against Coles for unconscionable conduct against its suppliers.
Case study: Coles unconscionable conduct
In proceedings commenced in two separate matters in 2014, the ACCC alleged that Coles
Supermarkets Australia Pty Ltd engaged in unconscionable conduct toward approximately
200 of its suppliers.
The ACCC alleged that, in 2011, Coles had developed the Active Retail Collaboration (ARC)
program as a strategy to improve its earnings by gaining better trading terms from its
suppliers. One part of the strategy was to ask its suppliers to pay ongoing rebates for the
program. Coles’ target was to obtain $16 million in rebates from smaller suppliers and
ultimately an ongoing rebate in the form of a percentage of the price it paid for the suppliers’
grocery products.
The Federal Court found that Coles had engaged in unconscionable conduct and ordered
Coles to pay combined pecuniary penalties of $10 million and costs. Coles was also
ultimately required to refund a further $12 million to suppliers.
As part of the ACCC’s investigative strategy, it accepted complaints from suppliers on a
confidential basis. The ACCC then used the information obtained confidentially, to make
information requests using the mandatory information gathering powers available under the
CCA. This enabled the ACCC to obtain information from a range of sources, rather than just
from suppliers that made a complaint.
The ACCC also has powers under section 51ADD of the CCA that enable it to request
information or documents from a trader that they are required to keep, generate or publish
under an industry code, such as the Horticulture Code. This power can enable the ACCC to
obtain information and documents without having to disclose the identity of the complainant.
Further, the ACCC is exploring the use of an app that will allow for the anonymous provision
of information and complaints to the ACCC. This app would enable participants in the
horticulture and viticulture industries to provide information to the ACCC in a secure manner.
Some horticulture growers suggested they are hesitant to switch between agents for fear of
being seen as a troublemaker. However, it is not clear if this is a commonly held view as
other growers indicated they had sold to different agents. Competition between wholesalers
is critical to the efficient operation of horticulture markets, as it ensures growers have
multiple sales options at the markets and provides options for buyers. Broadly speaking,
there appears to be a significant number of different agents and merchants operating out of
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central markets. As an example, the Sydney Produce Market indicates it is home to over 123
fresh produce wholesalers.20
Next steps
The ACCC will undertake further work on the issues identified in this report as part of its
focus on competition and fair trading issues in the agriculture sector.
20
http://www.sydneymarkets.com.au/markets/produce-market/product-market-overview.html
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