Competition forces agricultural efficiencies: ACCC

Competition policy ultimately aims to achieve greater economic efficiency and growth.

This is how Mick Keogh, the first agricultural commissioner on the Australian Competition and Consumer Commission (ACCC), explains the growing inclination of governments to look in on agribusiness commercial decision making processes and step in to drive greater competitive tension.

Australian agricultural sectors had undergone a great deal of change in the last couple of decades, Mr Keogh told delegates at this year’s Australian Bureau of Agriculture Resource Economics and Sciences (ABARES) Outlook conference in Canberra.

Markets have been deregulated, infrastructure and services have been privatised, and farm input sectors and commodity markets have become more concentrated and globalised.

“Whenever a sector goes through significant change, issues arise about the level of competition and the resulting distribution of benefits to different participants within that sector,” Mr Keogh said.

The just-completed cattle and beef market study is the first of what the competition authority anticipates will be a number of similar investigations conducted across the agriculture sector.

It looked at competition, efficiency, transparency and trading issues in the beef and cattle supply chain and made a host of recommendations - some controversial - currently being digested by industry groups.

The ACCC has as much a role to play in the agriculture sector as it does on the behalf of consumers, Mr Keogh argued.

“For consumers, competition means having options – competing products to buy, multiple suppliers offering them and different features and prices to select from,” he said.

“This applies equally to farmers, who want options when purchasing inputs and when selling farm products.”

Competition hinges on rivalry, where market participants use various methods and tactics to get a win – whether it is sales or a higher price - and that facilitates efficiencies, according to Mr Keogh.

He used the analogy of early buyers of motor cars in the United States, when a Model-T Ford was the only choice.

“In response to questions about colour options, Henry Ford is reputed to have said customers could have  any colour car they wanted, as long as it was black,” Mr Keogh said.

“In reality, the difference in performance between modern motor cars and a Model-T Ford is all due to the rivalry that was inevitable as competition came along.”

So what does a competitive market look like?

Ironically - given they have currently been under the microscope - weaner cattle sales are one of the best examples.

Multiple sellers know they have to present good quality stock in order to attract higher prices, while the multiple buyers know they will have to offer competitive prices in order to secure animals.

“In a market like this, no one seller or buyer has what is referred to as market power, which is the ability to demand higher prices or to pay less than the prevailing market price,” Mr Keogh explained.

“But few markets are structured the way that a weaner cattle sale is.

“For that reason, governments have implemented competition policies to protect or improve the competitiveness of markets.

“These involve a range of different policy instruments that extend from regulated pricing and access arrangements in monopoly markets such as railways and ports, through to measures such as price monitoring and information transparency in markets where competition is stronger, although limited.”

What comes out of the ACCC’s work in the beef and cattle game is now in the hands of industry players and governments.

The ACCC’s final report, including its full list of recommendations is available on the authority’s website.