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There's Too Much Bull In The Cattle Industry

If we want to help farmers and small businesses, we must give the competition watchdog more teeth.

03/11/2016 4:21 PM AEDT | Updated 04/11/2016 9:46 AM AEDT
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"In the list of industries you want to make sure are functioning well, Australia’s cattle industry is surely near the top."

This week, the Australian Competition and Consumer Commission's found that there's too much bull in the cattle industry. Buyers colluding to keep prices down, saleyards altering cattle weights, agents who act for both buyers and sellers.

The report discusses bid-rigging, physical intimidation and intense social pressure on rural families. The competition watchdog is so concerned that it is now undertaking multiple investigations of cartel conduct in the industry: an offence which carries a potential jail term.

The Australian cattle and beef industry is vital to our economy and our society. It contributes $11 billion a year to the Australian economy. It is the largest contributor to the Australian agricultural sector. Half of our 123,000 farms are engaged in cattle production. In the list of industries you want to make sure are functioning well, Australia's cattle industry is surely near the top.

The ACCC study is critical to ensuring that markets function smoothly. If people behave honestly, auctions are an efficient way of setting prices. But the kind of market manipulation that the competition watchdog has uncovered suggests that there is something seriously amiss in the beef industry.

Alas, while the Commission has spent the last few months finding maggots in the beef industry, resource and legislative constraints mean that they can only undertake a couple of these self-initiated studies annually. This makes you wonder: how much anti-competitive conduct is falling through the cracks?

It feels like every week we hear of another Australian industry that is plagued with competition problems. Dairy farmers being pushed to the point of bankruptcy by retrospective price changes. Suppliers being squeezed out of business by the big supermarkets. Mining companies extending their payment terms. Petrol companies charging prices out-of-step with movements in international prices. Australian markets which are too concentrated.

But despite the success of these studies, Chairman Rod Sims says that the ACCC's ability to undertake these studies is limited. "We can only do two or three of these studies a year" he said. "That is probably our maximum capacity". The ACCC has lobbied hard to be able to change this, on the basis that a broader market studies power "would be helpful to governments, businesses and consumers by assisting in the identification of market problems and possible solutions ". In 2015, the Harper Review agreed -- recommending that the government change the law.

Oddly, the Turnbull Government has dragged its hooves over the proposal. It says that the status quo is just fine, ignoring the complaints from its Chairman and ignoring the pleas from state governments who want something done. The Government also conveniently ignores the fact that its cuts to the ACCC's budget has meant the organisation has cut back its staff. There is a real risk that forward-looking, prevention-focused projects like market studies might languish in the back paddocks.

Labor's policy at the last election was to give the ACCC a broad market studies function, allowing it to identify and investigate competition problems before they destroy peoples' livelihoods. This would bring Australia in-line with comparable jurisdictions like the United Kingdom, European Union and the United States.

Market studies can explore a range of competition issues in the public interest such as increased market concentration, the impacts on inequality in certain markets, ensuring markets are functioning in the best interests of consumers and studies into specific sectors, like Britain's recent market study into retail banking. Australia is an outlier internationally, having no body with a fully independent market studies function.

As they tell participants at Alcoholics Anonymous, the first step to finding a solution is admitting you have a problem. The same goes for overly concentrated markets. Market studies can guide policymakers, instigate legal action and inform consumer information campaigns. Labor believes the ACCC is a natural fit for market studies, as evidenced by its latest important report.

Where's the beef? If you want to make markets work better, it's in giving the ACCC a broader market studies power.

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