Chapter 5

The Bill and its operations

5.1        This chapter looks at the provisions of the Bill in detail and suggests a way
in which it might operate, if passed into law.

The provisions of the Bill

5.2        The Bill requires grocery retailers over a certain size to display the average farm gate price received by farmers for each type of fresh fruit or vegetables produced within a specified 12-month period: the producer price.

5.3        The constitutional basis for the Bill is that it applies to constitutional corporations. A constitutional corporation is defined in Clause 7 of the Bill as one
'to which paragraph 51(xx) of the Constitution applies'. Paragraph 51(xx) of the Constitution give the Parliament the power to 'make laws...with respect to':

(xx)  foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth.

5.4        Effectively this means any corporation trading within Australia.

5.5        Clause 7 of the Bill also provides that:

• the producer price is 'the average farm gate price received by farmers for
  a specific type of produce produced within a specified 12-month period';
• produce means 'fresh fruit and vegetable produce';
• farm gate means 'the point at which produce leaves the farm where it is produced';
• the farm gate price is 'the price of produce available at the farm, excluding the costs of transport, processing, storage and marketing and profit margins of any entity involved, including the grocery retailer';
• a grocery retailer is one that has retail premises with 'more than 1,000 square metres of floor space dedicated to the display of grocery items', which are 'used primarily for the sale of food based grocery items'; and
• a food-based grocery item is one 'sold for human consumption' by the grocery retailer that is 'intended for human consumption by the manufacturer or producer of the item', but which is 'not meant for consumption at the retail premises at which it is sold to the consumer'. 

5.6        A corporation to which the Bill applies must ensure that the producer price is 'displayed prominently and in close proximity to the selling price displayed for the produce' and that it is 'legible and unambiguous'. Producer prices are also required to be displayed on the grocery retailer's website: clause 9(3).

5.7        Should it have 'reasonable grounds to suspect that (a grocery retailer) has contravened' these provisions, the ACCC may issue an Infringement Notice under the Competition and Consumer Act 2010 or take action against the retailer in the Federal Court: clause 12. The Infringement Notice penalty is set at 600 penalty units (currently $66,000): clause 13. 

Aspects of the Bill requiring clarification

5.8        The Bill is simple in its structure and its provisions appear relatively clear. However, as the committee found from evidence provided in submissions and by witnesses in its public hearing, it is not as straightforward as it appears at first reading.

5.9        Certain aspects of the Bill are not specified clearly, though in some cases it is reasonable to make assumptions about how they will operate in practice. If the Bill were to be enacted the committee believes these matters must be clarified. Some of those issues have been raised in submissions to the committee and are discussed in greater detail in Chapter 4.

5.10      It can be assumed that:

• if it is to be effective and provide meaningful information to consumers, the Bill will apply to individual varieties of produce, rather than to families as a whole. By way of example, it is assumed the retailer would have to display the producer price for each variety of apple it sells, rather than an average price for apples as a whole;
• for practical reasons it does not apply to imported fruit and vegetables;
• the 12-month period will be specified in regulations; and
• it will be a rolling price, updated at regular intervals. 

5.11      However, the committee believes that assumptions about other aspects of the Bill cannot be made with the same level of confidence. These are:

• at what intervals producer prices should be updated - daily, weekly, monthly, seasonally, annually or some other period;
• who is responsible for calculating the producer price;
• whether a party holding information that would allow the producer price to be calculated has an obligation to pass on that information; and
• if so, what penalties should apply for failing to make that information available.

5.12      The question of who is responsible for calculating the producer price is raised in submissions. It is natural to expect that this would be the task of the retailer. The retailer is the only party with a real incentive, in the form of a punishment for not doing so. Further, it is the only party in a position to know which farm gate prices it requires to calculate the producer price.

5.13      However, the producer cannot calculate the producer price without knowing the farm gate price, in which case there must be some system established to allow the producer to become aware of that price and some obligation on the producer to update the retailer on the price. For this and other reasons, a number of submissions believe that calculating the producer price will either be the producer's task or it will be forced upon producers by the retailers.[1]

5.14      This issue was examined in more detail in Chapter 4 of this report. It is raised here to highlight one of the drafting deficiencies in the Bill.

5.15      In its evidence to the committee the ACCC, which would be responsible for the enforcement of the Bill should it be enacted, raised some significant questions about whether it could fulfil its role, as the Bill is presently drafted:

Should the Bill proceed, parliament may want to turn its mind to specific court remedies intended to apply within the Competition and Consumer Act, including relevant penalties, and whether the infringement notice provisions in the Bill connect properly with the provisions of the Competition and Consumer Act. On a similar note, it is not entirely clear whether the Bill seeks to apply the ACCC's investigative powers to the provisions, and parliament may want to give some consideration to that issue.

...[F]rom an enforcement perspective, some further clarity on the setting of the 12-month period and the degree of specificity and the types of produce may also be required. Just to clarify what I am talking about there: will it require different types of apples, for example, to have a different price associated with it? [2]

5.16      The committee believes it is undesirable for there to be any confusion on the part of the ACCC about its capacity to investigate the failure of a retailer to display
a producer price, its relation to the infringement notice power and what court remedies would be available to it. Accordingly, those issues must be remedied before the Bill could be enacted.

5.17      A greater concern, from the point of view of enforcement, arises from
the difficulties identified in evidence relating to the retailers' knowledge of the information required to calculate the producer price. The evidence received by
the committee indicates that the retailer does not have that information and would be dependent on the producer to provide the data.

5.18      This would make it difficult, though not impossible, for the ACCC to prove
a breach of the Bill's provisions. It will certainly need to use its powers to compel
a wide range of potential witness to provide it with information and documents if it is to prove a breach. The inconvenience and cost to a farmer of providing the ACCC with the documentation required to prove the farm gate price should not be underestimated. This inconvenience would be exacerbated by the lack of perceived benefit to farmers of the Bill, as evidenced in submissions and evidence to the committee.

How would the Bill work?

5.19      Even allowing for those uncertainties, the committee has not been able
to formulate a simple manner in which the Bill may operate.

5.20      The Bill places the onus on the retailer to display the producer price.
As stated, the committee believes it should be the retailer who makes the calculation.

5.21      This will require a system by which a retailer can become aware of the average farm gate price of the produce it sells. The Bill does not address whether there should be an enforceable obligation upon the producer to provide that information, however, without it, a retailer is likely to have a defence to any prosecution for
non-compliance with the Bill. 

5.22      Evidence provided to the committee, as set out in Chapter 4, suggests that,
as the average farm gate price excludes 'the costs of transport, processing, storage and marketing and profit margins of any entity involved, including the grocery retailer', this may be a particularly difficult thing to work out.

5.23      Nonetheless, assuming the farm gate price can be calculated, the committee suggests there are really only two ways retailers could obtain that price:

1.   from a central repository of farm gate prices, or

2.   the producer would notify the retailers directly of their farm gate prices.

5.24      The first option would involve further administrative costs for farmers, as well as raising concerns about the security of that system.

5.25      The second option raises different concerns in relation to the administration costs for farmers and the accuracy of the information being provided. Whether the producer would provide notification to the retailers' central buying system or to retail stores individually, would be a matter for each retailer, depending on its own pricing system. Once notified of the farm gate price, it would then fall to the retailer to manage its own system for calculating the producer price and forwarding that information to its stores.

5.26      Additionally, there have been suggestions that the requirement to display a producer price will alter the current business relationships between the retailer and the producer, as suggested in a number of submissions. One suggestion is that it may lead to retailers obtaining produce from fewer sources and with less topping up of fresh stock from local markets, affecting the quality of produce being offered for sale.[3] Or it may result in retailers, as far as possible, removing the wholesalers and agents from the supply chain, as a means of simplifying the process.

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