Competition law can sometimes seem like something that only concerns large corporations. The ACCC’s recent Federal Court proceedings against Sunny Queen and 11 other egg producers and suppliers are a timely reminder that businesses of all sizes need to understand where legitimate commercial cooperation ends and anti-competitive conduct begins.
The ACCC alleges that, since at least October 2020, major players in the Australian egg industry coordinated decisions concerning production, pricing, supply, expansion and the reduction of production during periods of perceived oversupply.
These are allegations only and will ultimately be determined by the Federal Court. However, the case raises some important issues for Australian businesses.
What is alleged to have happened?
The ACCC alleges that Sunny Queen, Hall and McLean Farms coordinated aspects of their businesses through their relationship with Sunny Queen.
According to the ACCC, the businesses allegedly shared information about future egg production, used a common method for pricing eggs, coordinated decisions about expansion and coordinated reductions in production when there was perceived oversupply and declining wholesale prices.
The ACCC alleges that this conduct meant there was little or no competitive rivalry between some of the businesses involved.
The allegations also extend beyond production and pricing. The ACCC alleges that Sunny Queen restricted the number of eggs that rival producer Kinross could sell to customers and prevented Kinross from supplying major retailers including Coles, Woolworths, Aldi, Metcash and Costco.
Perhaps most unusually, the ACCC alleges that Sunny Queen, Hall and McLean coordinated in relation to the purchase of a property at Pittsworth, Queensland, with the purpose of preventing rival egg producers from acquiring it.
That allegation demonstrates that competition issues can arise not only from what businesses sell, but also from decisions about assets, expansion and potential competitors.
You do not need a written “cartel agreement”
One of the most significant aspects of the proceedings is the ACCC’s allegation of a “concerted practice”.
The Competition and Consumer Act prohibits contracts, arrangements, understandings and concerted practices that have the purpose, effect or likely effect of substantially lessening competition.
The ACCC describes a concerted practice as cooperation between businesses which goes beyond businesses independently responding to market conditions. Importantly, it does not necessarily require the same elements as a traditional contractual agreement or understanding.
This is the first case brought by the ACCC involving concerted practice allegations since that prohibition was introduced in 2017.
For business owners, the practical message is important.
A competition law problem does not necessarily begin with two competitors sitting down and agreeing to fix prices. It can arise from the exchange of commercially sensitive information, discussions about future production or capacity, coordinating responses to market conditions or working together in a way that reduces competitive pressure.
What about legitimate cooperation?
Businesses regularly cooperate with other businesses for perfectly legitimate reasons.
Joint ventures, industry associations, supply arrangements, distribution agreements and shared facilities can all have legitimate commercial purposes.
The issue is whether the arrangement crosses the line into conduct which restricts genuine competition.
A business should therefore be particularly careful when discussions with competitors involve:
- current or future pricing;
- production volumes or capacity;
- customers or suppliers;
- future expansion plans;
- market allocation;
- restrictions on who can supply particular customers;
- commercially sensitive business strategies; or
- decisions about reducing supply.
What may appear to be an innocent exchange of information can look very different when considered in the context of the broader market.
The property acquisition allegation
The allegation concerning the Pittsworth property is also worth noting.
The ACCC alleges that the acquisition was coordinated to prevent a rival egg supplier from acquiring the property and that the acquisition substantially lessened competition.
This highlights the importance of considering competition law when acquiring businesses or assets.
An acquisition does not necessarily need to involve purchasing a direct competitor to raise competition concerns. An asset may be strategically important because it provides a potential competitor with the ability to enter a market, increase capacity or expand its operations.
What should your business do?
The egg industry proceedings provide a useful opportunity for businesses to review their own practices.
A practical competition law checklist
- Keep competitive decisions independent.
Pricing, production, customers, expansion and supply decisions should generally be made independently of competitors. - Be careful about information sharing.
Do not casually exchange commercially sensitive information with competitors, even where there is an existing business relationship. - Review industry association meetings.
Industry groups can be valuable, but discussions should not stray into competitors’ pricing, customers, production or future strategies. - Check exclusive arrangements.
Restrictions preventing a supplier or customer from dealing with competitors should be reviewed carefully, particularly where the business has significant market power. - Consider competition issues before acquisitions.
When buying a business, property or other strategic asset, consider whether the transaction could prevent a competitor from entering or expanding. - Get advice early.
If a proposed joint venture, collaboration, supply arrangement or acquisition involves competitors or potentially reduces competition, obtaining legal advice before the arrangement is implemented can be considerably safer than trying to fix the problem afterwards.
A warning for all businesses
The ACCC has described the alleged conduct in the egg industry as serious and has emphasised that businesses must make their production, supply and pricing decisions independently.
For business owners, the lesson is straightforward: competition law is not simply about price fixing.
The way businesses share information, deal with competitors, restrict customers, acquire strategic assets and coordinate commercial decisions can all potentially raise competition law issues.
The allegations against Sunny Queen and the other egg producers remain to be determined by the Federal Court. Nevertheless, the proceedings provide a timely reminder that businesses should think carefully about competition law before entering into arrangements with competitors or making strategic decisions that could affect competition in their market.
If you are considering a joint venture, collaboration, exclusive supply arrangement, industry arrangement or acquisition involving a competitor, it is worth obtaining advice before proceeding.
About the Author: This article was authored by Steven Brown, Steven Brown’s legal career covers working with multinational corporations and Australian listed companies to family-owned businesses. This range of experience has equipped Steven with the unique ability to offer tailored legal services that make a significant difference to businesses of all sizes.
