Farmers are being dudded by weak links in Australia's competition laws says the recently retired top watchdog at the Australian Competition and Consumer Commission, Rod Sims.
Takeover activity and big business market power are constant themes in the farm sector and according to the former ACCC chairman we need better laws to assess them and hold key players to account.
In fact, he argued in some cases the lack of rigour preventing anti-competitive habits and strategies in our takeover laws had centralised substantial market strength in the hands of the most powerful supply chain players.
"Farmers understand better than most that a market economy needs strong competition more than anything else for it to work," he said.
"But they are often on the receiving end of businesses with too much market power - upstream and downstream."
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Now with the Australian National University specialising in public policy and antitrust and competition research, Professor Sims spent 11 years at the ACCC's helm, until April, and before that eight years on the National Competition Council.
He said Australia's Competition and Consumer Act was also poorly placed to help farmers.
Too much power
It effectively undermined their ability to plan and invest, particularly because perishable supply chains were often dominated by a limited number of major retailers and processors with power to reject product or change price arrangements or set lengthy or excessive payment terms.
The rise and rise of some of our biggest agribusiness players actually occurred during his watch at the ACCC, including Brazilian meat giant JBS taking over national smallgoods business, Primo, plus pork producer and processor, Rivalea, and Australia's second biggest salmon farmer and processor, Huon Aquaculture.
Other big farm supply chain takeovers in the headlines in recent years have included Canadian-owned Landmark's (Nutrien) $470 million Ruralco acquisition and dairy giant Saputo buying of Murray Goulburn; the world's largest animal medicines company, US-based Zoetis, buying Australian veterinary pharmaceutical manufacturer, Jurox; Woolworths buying wholesale food distributor PFD, and many more processing and logistics sector mergers.
"I am not saying better merger laws would have prevented these mergers, but the agricultural sector certainly does have many acquisitions," Professor Sims said.
"It's crucial they be assessed against better laws than we have today."
In my view the courts are applying the laws in ways not intended by parliament, and this needs to be addressed
- Rod Sims, former ACCC commissioner
While the ACCC had blocked some anti-competitive business mergers, it frequently lost the argument in court if its opinions were challenged.
"In my view the courts are applying the laws in ways not intended by parliament, and this needs to be addressed," he told last month's National Farmers Federation leaders summit.
Describing agriculture as one of his favourite sectors, he urged the farmers to push hard for reform and better merger laws to allow the competition regulator to play the role parliament intended for it.
In particular, he felt a new deeming provision should apply specifically to acquisitions if one of the merger parties already enjoyed substantial market power.
If that takeover meant substantial market power would likely be entrenched, increased or materially extended, then the deal should be deemed anti-competitive.
Also citing tougher rules in the US as an useful example, Professor Sims said Australia needed greater supply chain fairness for the sake of farmers and the wider economy.
A starting point would be revamping the limited rules around misuse of market power and unconscionable conduct.
Unfair practices
In fact, unlike many countries, Australia stood out for not having an "unfair practices provision" in its Competition and Consumer Act.
"In the USA, an unfair practice occurs where a behaviour is likely to cause substantial harm to the affected party, or, this harm cannot be avoided by the affected party, or the harm is not outweighed by countervailing benefits to consumers or competition," he said.
Professor Sims also has grave misgivings about the progress of privatising government infrastructure.
He said it worked well in the 1980s as assets such the Commonwealth Bank and Qantas performed better in private ownership, but privatisation had "largely gone wrong" in the past 20 years.
Governments used asset sales to maximise returns to their coffers and, in doing so, invariably instigated rules to limit new competition to the assets they offloaded so as to entice better bids.
Some monopolies were privatised without any regulation, even though it was well known the new owner would hike prices to recoup their big purchase costs.
Professor Sims is still fuming about the NSW Government inserting provisions in the Port Kembla and Port Botany sale deals banning a future shipping container port at Newcastle.
The ACCC spent years trying to unwind the rule which required the Port of Newcastle to pay $100 to its NSW rivals for every container it handled if it ever became a big container competitor.
The competition watchdog also eventually diluted the Victorian Government's 800 per cent pre-sale land rent hike at the Port of Melbourne and a 50 year non-compete clause over the future container port at Hastings.
We seem to treat our infrastructure as cash machines, and importers and exporters are the losers.
- Rod Sims
"Our ports are essential gateways and most other countries want them to be as efficient as possible to benefit their economies," he said.
"Australia has gone down the path of unregulated privately owned monopolies instead.
"We seem to treat our infrastructure as cash machines, and importers and exporters are the losers.
"Farmers have much to gain if our infrastructure is used to help the economy."
However, he said grain port owners had a powerful lobbying presence in Canberra, and wanted to avoid any regulation even though their operations were often monopolies, favouring their own marketing arms when they allocated access rights.
Grain farmers' options for a best price were subsequently restricted.
Professor Sims also feared monopolies would gouging the freight market on the federal government's "nation building" inland rail line which was originally promoted as drastically cutting Brisbane to Melbourne freight costs.
He noted, due to a previously lost ACCC merger case, Pacific National dominated east coast container rail freight.
"It's the only player with good access to intermodal facilities in Melbourne, Sydney and Brisbane so potential competitors, without such access, can't compete effectively," he said.
"If Pacific National remains dominant, and can keep excluding competitors, it will likely keep most of the inland rail gains for itself.
"If it faces little or no real competition, why should it price any lower than required to keep sufficient traffic on rail rather than road?"
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