The contribution that the food, beverage and grocery-manufacturing sector makes to the Australian economy cannot be refuted. According to the Australian Food and Grocery Council’s (AFGC) 2015 State of the Industry Report (Report) released this week, the sector reached nearly $119 billion in turnover in the preceding financial year, representing almost one third of Australia’s manufacturing industry. The Report, which is one in an annual series of publications developed by the AFGC, documents key statistics regarding the industry and provides fact-based analysis of growth and trends in the sector. The Report’s release coincided with a gathering of industry leaders and policy makers in the food, grocery and beverage sector, who came together in the nation’s capital for the AFGC Annual Industry Leaders Forum (Forum). Once again, Lisa Huett, Melissa Monks and Scott Bouvier from KWM attended the Forum, which included presentations by a number of notable industry specialists, political figures and Chairman of the ACCC, Rod Sims. You can access a full list of those who presented here.
In this blog, we’ll provide a brief snapshot of the issues canvassed by industry leaders, policy makers and regulatory officials at the Forum and deliver our take on the key insights arising from this discussion for the sector as well as for businesses generally.
Vibe from the Forum
With the recent change in Government leadership and Cabinet, it was not surprising to see a smaller line up of Ministers speaking at this year’s Forum about the vision for their portfolios (and unlike last year, no appearance from the PM). However, of those speakers, the main message had a subtle shift in emphasis from championing ‘small business’ to creating a nation of ‘entrepreneurs’. While the Harper competition review and the removal of the carbon tax had featured prominently in last year’s speeches, this year the China-Australia Free Trade Agreement (ChAFTA) took centre stage, along with an emphasis on strengthening our relationships with our Asian neighbours, use of modern technology (including as a disruptor but also as an opportunity in the form of digital government) and a repeat of last year’s theme of innovation. The Food and Grocery Code of Conduct rated a number of mentions, although from the responses it seems like the jury is still out on this one, which is not surprising given it only commenced five months ago. There were no new announcements (other than a warning from the ACCC, see below for more) and no surprises. However as we enter an election year, it may be the calm before the storm as the usual policy launches, announcements and promises are revealed in the countdown to the polls.
Entrepreneurship, innovation and disruptive technologies
A key theme from the Forum was the importance of fostering entrepreneurship and innovation in the food, beverage and grocery and agricultural sector. Such a focus is unsurprising given Prime Minister Malcolm Turnbull’s noticeable prescience regarding the critical value of investment in technology for Australia to grow on a world stage.
In his presentation, Dr Peter Hendy, the Assistant Minister for Productivity (who reports directly to the PM) championed this commitment in the form of the government funded initiative Food Innovation Australia Ltd (FIAL), which is directed at driving innovation and collaboration in the food and agribusiness industry. Minister for Trade and Investment, Andrew Robb also championed FIAL as a catalyst for research, commercialisation, advanced engineering, robotics and other technological innovation in the sector. The Government appears to be ‘putting their money where their mouth is’ with both Ministers referencing funding and R&D tax incentives for entrepreneurial programs and research centres in the sector.
Angus Taylor (Federal Member for Hume and Chairman of the Joint Standing Committee on Treaties) focussed on disruptive technologies, making the case for a shift to consumers regulating the nature of the information they want regarding the food and beverages they consume. The AFCG Report echoes the importance of considering these issues. Indeed, the Report indicates that “the day is coming where one product may have a thousand or more different labels – where shoppers can choose the product information they want to see, from a source they trust. And that day is not far away.” In the AFCG’s view, such a development is not only about customisation of information to consumer preference, but also about “who decides what is important” in terms of labelling and product descriptions. In competitive markets such as the food and beverage sector, business will be all too well aware of the importance of going beyond minimum standards for product information disclosure and labelling, particularly in an era where consumers are equipped with a number of digital avenues to source information if the material provided by a business is not detailed or sufficiently clear. As the AFGC Report indicates “suppliers who fail to deliver in this new, information rich world will find that non-authoritative, perhaps crowd sourced, information providers will fill the gap.” In our experience, not providing customers with fulsome, factually accurate and up-to-date information regarding a product can have wide reaching financial, legal and reputational impacts for a business. The AFCG in conjunction with other partners, including Telstra Corporation Ltd has issued a paper entitled “A Smart New World – Preparing for the mobile shopper” which explores these issues more fully.
Chairman Rod Sims addressed the Forum and spoke about new and emerging issues in the industry. Significantly, Mr Sims indicated that the Commission would be focusing on the food sector and warned of some big announcements regarding this in the next few months.
- Agriculture focus
Mr Sims noted the additional $11.4 million of funds to be provided to the Commission over the next four years to establish an Agricultural Enforcement and Engagement Unit. While this Unit won’t be endowed with any new roles or powers, Mr Sims confirmed that the funding would be used for the purposes of education, engagement, investigative and enforcement activities. Mr Sims indicated that the Commission will particularly be interested in unfair trading issues in agricultural supply chains and announced that the government would be appointing a new ACCC Commissioner with “responsibility for, and deep knowledge of, agriculture issues” in the near future.
- The Food & Grocery Code of Conduct
Mr Sims expressed the Commission’s commitment to the Food and Grocery Code of Conduct (Code), which became effective in June 2015, with oversight by the ACCC. Notwithstanding some teething issues, Mr Sims indicated his confidence in the Code and its success in achieving its stated objectives. It seems that the ACCC will be keeping a close eye on such matters in order to ensure this is the case.
- Country of origin
Mr Sims also canvassed developments in country of origin labelling. As many in the sector would know, the Federal government is seeking agreement from its state and territory counterparts to implement major changes to Australia’s country of origin labelling laws, with the intent that the new laws apply from mid-2016. Mr Sims referred to the proposed changes including, amongst others:
- labelling requiring the percentage of local content in addition to stating a country of origin;
- responsibilities and roles of specialist food regulatory bodies being transferred to the ACCC; and
- food and beverage labelling regimes falling under a new Information Standard under the Australian Consumer Law (ACL) and will replace the requirements of the Australia New Zealand Food Standards Code.
Empowering the ACCC with responsibilities formerly the domain of food regulators will be a very interesting development, and could potentially result in increased enforcement action in this space given the ACCC’s greater willingness, experience and resources to take action compared to food regulators.
In terms of enforcement, it seems that (as in previous times of reform), the Commission will commence with engagement and educational activities before progressing to enforcement. As was the case with the introduction of unfair terms legislation and carbon claims, the ACCC will seek to build awareness and compliance at the outset and if such engagement does not change behaviour, will take enforcement action. With this in mind, businesses will need to ensure that policies and practices are updated (including labels) and employees trained and ready for such legislative changes as soon as they commence.
- Truth in advertising – “Free range” and other premium claims
Mr Sims stressed the fact that truth in advertising is one of the ACCC’s current enforcement priorities, in particular referencing the enforcement action taken by the ACCC regarding “free range” claims made by egg producers and to a lesser extent, concerns with claims made by some in the pork industry. Such scrutiny is interesting in light of market growth, with the AFGC Report indicating that whilst all other fresh produce saw declines in turnover in 2013-14, the egg industry did not.
Mr Sims revealed that Treasury is considering whether or not to adopt a national standard on free-range egg labelling but indicated a preference for a common sense approach based on what the claims literally represent as found by the courts. Mr Sims indicated that business should not misuse such premium claims, because it causes damage to consumers (i.e. they are misled to pay more), competitors (i.e. because those who are legitimately making claims lose their advantage in the market) and innovation (i.e. as trust in such claims is eroded). In particular, Mr Sims noted that misleading claims that impact competitors has been a real focus for it in recent times. Such warnings by the Commission are important and a clear signal, not only to businesses in the food, beverage and grocery sectors but more broadly to take care when making such claims. Misleading and deceptive conduct goes to the heart of consumer protection law and the ACCC has an arsenal of investigative and enforcement powers at their disposal – such statements make clear that the Commission will not shy away from taking action where it believes a business is breaching the law.
Finally, another central theme raised by many of the speakers was Australia’s involvement in free trade agreements, particularly ChAFTA, which has now received bipartisan support and is expected to pass the Senate in November. Dr Hendy stressed the benefit of arrangements such as the ChAFTA and Trans Pacific Partnership for Australia’s food and agriculture sectors, citing the elimination of 98% of tariffs (in relation to the ChAFTA some of which may fall by the end of this year) and a substantial reduction of unnecessary red tape for business. Whereas in last year’s Forum participants focused on whether Australia should enter into such agreements with Asia, this year’s discussion saw a shift to an emphasis on deepening relationships with our Asian neighbours with the aid of these agreements. Shadow Treasurer Chris Bowen championed the need for deeper engagement with Indonesia and the opportunity that it presents as a fast growing economy in the region.
Geoff Raby, the Former Australian Ambassador to China, spoke in detail regarding the ChAFTA and its implications for Australia. Mr Raby indicated that the ChAFTA would provide new vigour to the Australia/China relationship, and further broaden lucrative markets to Australian business. He stressed the significant opportunities in China for Australian food businesses, which are viewed as “clean and green”. He indicated the value of such a proposition which Australian business could leverage, citing one example of the price of a litre of Australian milk in Shanghai, which could retail for up to AUD $8 to $10. Mr Raby also spoke to the “internationalisation” of consumption in China, particularly in relation to food (i.e. cheese, wine, fast food, processed food etc.) and the prospects for Australian business in this regard.