EXPLANATORY STATEMENT

 

Select Legislative Instrument 2006 No. 376

 

Issued by the Authority of the Minister for Agriculture Fisheries and Forestry for the Treasurer

 

Trade Practices Act 1974

 

Trade Practices (Horticulture Code of Conduct) Regulations 2006

 

Section 51AD of the Trade Practices Act 1974 (the Act) provides that a corporation must not, in trade or commerce, contravene an applicable industry code.

 

Section 51AE of the Act allows industry codes to be prescribed by regulations. An industry code is a code regulating the conduct of participants in an industry towards other participants in an industry. The regulations may declare the industry code to be a mandatory or a voluntary industry code.

 

Section 172 of the Act provides that the Governor‑General may make regulations not inconsistent with the Act, prescribing all matters that are required or permitted by the Act to be prescribed or are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

 

The purpose of the Regulations is to prescribe a new Horticulture Code of Conduct.

 

The Government has agreed to introduce a mandatory code to improve the clarity and transparency of transactions between growers and wholesalers of fresh fruit and vegetables. The code will be administered by the Minister for Agriculture, Fisheries and Forestry.

 

The Government’s decision followed concerns expressed by the grower community over a number of years about the need to improve commercial transparency in the fresh fruit and vegetable wholesale markets. The Government agreed to a mandatory code after it became clear that growers and wholesalers could not agree on a voluntary code.

 

The problems of lack of transparency and clarity in trade between growers and wholesalers were identified in the 2003 Report of the Review of the Retail Grocery Industry Code of Conduct. The Report recommended that the Government implement a principles based code underpinned by regulation with simple disclosure and business practice provisions.

 

The key issues that the proposed mandatory code aims to address are:

·            a lack of clarity about when a wholesaler is trading as an agent or as a merchant when dealing with growers;

·            a failure to invest in written documentation of trade, including written transaction information and written trading agreements; and

·            the need for an effective dispute resolution process, including independent assessment of transactions and compulsory mediation.

 

These issues are predominantly confined to the grower-wholesaler relationship. The code will not apply to retailers, processors or exporters because they are not wholesale intermediaries and because they mostly trade under clear and transparent terms.

 

The consultation process included the public release of draft code options. Public forums were held in five capital cities and three regional centres in addition to a range of meetings with individual growers, wholesalers, state governments and Australian Government agencies. Over 200 submissions were received on the draft code options.

 

The code options were further developed in consultation with key representative groups, the National Farmers’ Federation, Horticulture Australia Council, the Australian Chamber of Fruit and Vegetable Industries and the Central Markets Association of Australia.

 

A total of six options were considered in the Regulation Impact Statement that was cleared by the Office of Regulation Review. The preferred option was considered to address, with lower compliance costs, the issues of clarity and transparency in transactions between growers and wholesalers.

 

The key requirements included in the code are that:

·            wholesalers must publish and make publicly available “terms of trade” documents outlining their preferred trading conditions;

·            growers and wholesalers must have written agreements which specify a range of trading conditions, including whether the trader will trade as an agent or a merchant;

·            wholesalers must provide written transaction information to growers, particularly in regard to prices obtained and prices paid by wholesalers; and

·            growers and wholesalers must participate in both independent assessment of transactions and mediation where there is a dispute under the code.

 

Details of the proposed code are set out in the Attachment.

 

The proposed code would be enforced by the Australian Competition and Consumer Commission. A formal review will be conducted after the second year of the code’s operation.

 

The Act specifies no conditions that need to be satisfied before the power to make the Regulations may be exercised.

 

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

The Regulations will commence on 14 May 2007 following a public awareness campaign to inform affected parties of their rights and obligations under the new code.

 

The Treasurer agreed that the Minister for Agriculture, Fisheries and Forestry submit the proposed Regulations to the Executive Council.

Authority: Section 172 of the Trade Practices Act 1974

 

Attachment

 

 

DETAILS OF THE TRADE PRACTICES (HORTICULTURE CODE OF CONDUCT) REGULATIONS 2006

 

Purpose of the code

 

The Regulations prescribe a new Horticulture Code of Conduct (the Code).

 

The purpose of the Code is to regulate trade in fresh fruit, vegetables, nuts, herbs and other edible plants (horticulture produce) between growers and wholesale traders (traders) to ensure transparency and clarity of transactions. The Code also provides a fair and equitable dispute resolution procedure for disputes arising under the Code.

 

Summary of the Code

 

The key requirements of the Code are that:

·            traders publish and make publicly available “terms of trade” documents outlining their preferred trading conditions (Part 2);

·            growers and traders have written agreements which specify a range of trading conditions, including whether the trader will trade as an agent or a merchant (Part 3);

·            traders provide written transaction information to growers (Part 4); and

·            growers and traders must participate in independent assessment of transactions and mediation where there is a dispute under the Code (Part 5).

 

Application of the Code

 

The Code is intended to apply to trade in horticulture produce between growers and wholesale traders operating in Australia. A wholesale trader is:

·            a merchant, who purchases a grower's horticulture produce for resale of that produce; or

·            an agent, who sells a grower's horticulture produce on the grower's behalf for a commission or fee.

 

The Code would not apply to trade in horticulture produce between growers and processors, growers and exporters, or growers and retailers. The definition of horticulture produce restricts the Code to unprocessed horticulture produce and the definition of merchant excludes processors, exporters and retailers.

 

The Code would not apply to any written agreement entered into before the registration date, unless the written agreement is varied on or after the commencement day (14 May 2007). Varied could mean that the written agreement is amended, extended or transferred. The registration date is when the Regulations are registered on the Federal Register of Legislative Instruments.

 

Any written agreement entered into after the registration date but before the commencement date would be subject to the Code on its commencement date.

 

Trader’s Terms of Trade

 

The Code requires that a trader prepares, publishes and makes publicly available a “terms of trade” document which contains basic information on how the trader intends to do business with growers. This document will improve the information available to growers in regards to the services provided by different traders and provide clarity to some aspects of trading which have previously been open to dispute.

 

It is intended that a trader will determine how he or she wishes to make the terms of trade publicly available. This could be satisfied by displaying them at the trader's business premises and/or on the trader's website. The Code also requires that a trader will provide a copy of the terms to any grower that requests them.

 

The Code requires that any changes a trader makes to the terms of trade are published and made publicly available in the same way as the original terms.

 

It is intended that the trader’s terms of trade provide standard terms which can be changed to meet the needs of individual agreements with growers. For example, the trader’s terms of trade may state that a trader will pay a grower within 30 days of sale, however an individual grower and trader may agree that 14 days payment is appropriate. The terms of an individual written agreement (Horticulture Produce Agreement) which establishes a relationship between a grower and trader will prevail where there is any inconsistency.

 

Items to be included in a Trader’s Terms of Trade

 

The trader’s terms of trade must contain the following information, in addition to any other information the trader wishes to include, which is not inconsistent with the Code:

1.      Whether the trader is prepared to trade as an agent or a merchant, or both.

2.      Any requirements the trader has in respect of delivery of produce to the trader. For example, the trader may wish to specify requirements for the:

·            notification of delivery of produce;

·            packing or labelling of produce;

·            documentation describing the quantity, variety, size, class or other characteristics of the produce; and

·            any other requirements the trader wishes to include which are not inconsistent with the Code.

3.      Any quality requirements the trader has in respect of horticulture produce.

4.      Any circumstances in which the trader may reject produce delivered by a grower. This could include, for example, where:

·            produce does not meet specified quality or quantity requirements;

·            produce has been delivered without the required notification;

·            produce has not met the requirements for packing, labelling or description; and

·            any other requirements the trader wishes to include which are not inconsistent with the Code.

The Code will require that the trader provide written notification to the grower of a rejection of produce and the consequences of that rejection. The trader’s terms of trade should specify a time period in which the trader will provide the grower with this written notification.

5.      The period within which the trader will pay the grower either, in the case of an agent, for the proceeds of a sale of the grower’s produce or in the case of a merchant, for the purchase of the grower’s produce. The trader may wish to specify different periods for agent and merchant trading arrangements or for different kinds of produce.

6.      The details of any insurance the trader may hold in respect to goods under the trader’s control.

7.      Where a trader declares that he or she is prepared to trade as an agent, the terms of trade would include the following additional information:

·            the basis on which commissions, fees or extra costs are charged by the agent. The agent can choose any basis it considers appropriate for charging commissions, fees or extra costs which is not inconsistent with the Code. This could include charging a fixed fee or percentage of the sale price. The trader is not required to disclose any fixed dollar or percentage amounts in its terms of trade, however may choose to disclose these amounts as standard rates;

·            whether any commissions, fees or extra costs are payable by the grower in the event that produce has not been sold; and

·            whether the trader is prepared to pursue bad debts on behalf of the grower and the terms which will apply. This provision would allow traders to manage credit on the grower’s behalf, consistent with current practices in the wholesale markets.

8.      The trader’s terms of trade may include any other matters, which are not inconsistent with the Code. This may include the trader’s business name, ABN, the trader’s contact details and the trader’s business hours. The trader may also wish to include other items that form part of Horticulture Produce Agreements.

 

Horticulture Produce Agreements

 

The Code requires that a trader and grower must have entered into a signed written Horticulture Produce Agreement (agreement) that complies with the Code before they can trade with each other.

 

The Code prohibits a trader from acting as both an agent and a merchant under the one agreement.

 

The agreements are intended to be flexible to cater for long term multiple transaction supply arrangements through to single spot market transactions. Traders could use a standard agreement for the short term arrangements. The trader’s terms of trade will form the foundation of the standard agreement as each item in the terms of trade, among other things, is required to be addressed in the agreement.

 

The Code provides for agreements to be for any term agreed between a grower and trader. The parties may also choose not to set a specific term, but enter an agreement on a transaction-by-transaction basis.

 

Nothing in the Code prevents merchants or agents from pooling the produce of different growers, provided that reporting and other requirements under the Code are met.

 

Contractual arrangements under Horticulture Produce Agreements

 

The Code sets out contractual arrangements which only apply to agreements of more than 90 days or that are extended beyond 90 days. These arrangements provide greater protection for parties entering a longer term agreement. The key arrangements are that:

·            the trader is to obtain a signed statement from the grower that the grower has either sought independent legal advice in regards to an agreement or that the grower has been told by the trader to get independent legal advice and has decided not to get that advice; and

·            either party may terminate the agreement within 14 days of the agreement being entered into (a cooling-off period). However the parties can agree on a shorter or longer period or extend an initial period if agreed. The minimum cooling off period is 7 days.

 

Items to be included in a Horticulture Produce Agreement

 

The agreement must contain the following information, in addition to any other information the trader wishes to include, which is not inconsistent with the Code:

1.      Whether the trader is trading as an agent or a merchant.

2.      Any requirements the trader has in respect of delivery of produce to the trader.

3.      Any circumstances in which the trader may reject produce delivered by a grower.

4.      The time period within which the trader will provide written notification to the grower of a rejection of produce and the consequences of that rejection.

5.      The period within which the trader will pay the grower either, in the case of an agent, for the proceeds of a sale of the grower’s produce, or in the case of a merchant, for the purchase of the grower’s produce.

6.      The details of any insurance the trader may hold in respect to goods under the trader’s control.

(For the items 2 to 6, the trader may choose to replicate the contents of their terms of trade or change the terms to tailor an individual trading agreement with a grower).

7.      If the agreement is for a limited time – the term of the agreement.

8.      The process for varying or terminating the agreement.

9.      Any quality and quantity requirements relating to horticulture produce.

10.  How the trader deals with horticulture produce which does not meet the specified quality and quantity requirements.

11.  The contact details of the person the grower should contact in the event of a dispute.

12.  The contact details of the person the trader should contact in the event of a dispute.

 

For a trader trading as an agent, the agreement should also specify:

1.      The period in which the trader will pay the grower for the proceeds of a sale of the grower’s produce.

2.      The period for which the trader will provide a report to the grower of the produce received and sold by the trader. It is intended that the report may be provided for single or multiple transactions over an agreed time period.

3.      The period after the end of the reporting period in which the trader will provide a statement to the grower with details outlined in clause 20. These details include the time and date of delivery of produce, the dates of sale, type and quantity, prices received, details of amounts deducted by the trader and details of produce not sold.

4.      The basis on which commissions, fees or extra costs are charged by the trader and the rates that apply to these charges (eg. dollar or percentage).

5.      Whether any commissions, fees or extra costs are payable by the grower in the event that produce has not been sold.

6.      Whether the trader will pursue bad debts on behalf of the grower. This could include that the trader will take full responsibility for debt recovery matters or that the grower will take full responsibility for debt recovery matters or that debt recovery will be pursued by the trader for a certain time after which it will be left to the grower.

7.      Whether the grower will have any role in pursuing bad debts. The Code requires that if a grower has a role in pursuing bad debts the trader is to provide the grower with the details of the buyers of produce upon a request from the grower.

 

For a trader trading as a merchant, the agreement should also specify:

1.      When the price will be agreed between the grower and trader, noting that the price for merchant transactions can either be set before delivery or immediately on delivery of produce.

2.      The period in which the trader will pay the grower for the purchase of the grower’s produce.

3.      The period for which the trader will provide a report to the grower of the purchase of the grower’s produce. It is intended that the report may be provided for single or multiple transactions over an agreed time period.

4.      The period after the end of the reporting period in which the trader will provide a statement to the grower with details outlined in clause 28. These details include dates and times of purchase, quality and quantity and prices paid.

 

Other matters affecting trade under a Horticulture Produce Agreement

 

A trader must accept delivery of produce under an agreement unless produce does not meet requirements specified in the agreement.

 

If the trader decides to reject produce, the trader must make reasonable attempts to contact the grower immediately and provide written notification to the grower of a rejection of produce and the consequences of that rejection within the period specified in the agreement. It is intended that consequences could include downgrading the quality of produce through to destruction of the produce.

 

The Code requires that the trader exercise all reasonable care and skill in handling and storing the grower’s produce to ensure that it stays at the highest quality possible. Reasonable care and skill would be judged according to the relevant industry standard.

 

The Code provides that when a grower has not been paid within the specified period, the grower may suspend further deliveries or cancel the agreement. The grower is to provide written notice to the trader prior to taking either action.

 

Other matters affecting agents and growers

 

An agent is required to pay the grower the proceeds for a sale less any commissions, fees and extra amounts specified in the agreement.

 

The payment must be made within the period specified in the agreement.

 

The Code clarifies that under an agent agreement, ownership of produce remains with the grower until the agent sells the produce.

 

The agent must act in the best interests of the grower in selling the grower’s produce and only sell the grower’s produce on an arms length basis. The meaning of arms length basis will be determined according to the circumstance, but generally a ‘non-arms length basis’ would be taken to mean:

·            a related body corporate (within the meaning of the Corporations Act 2001);

·            individuals who are relatives; or

·            individuals who are acting in concert with one another.

If the trader believes that a sale may be viewed as not on an arms length basis, the trader should obtain consent from the grower to pursue the sale.

 

The agent is to pursue bad debts on the grower’s behalf on the basis provided for in the agreement. This means that growers and traders will decide in the agreement how bad debts will be pursued, including possibly with continuing current common practices such as the trader taking responsibility for debt recovery.

The agent is to provide a statement to the grower for the period specified in the agreement specifying dates of sale, time and date of delivery, type and quantity, prices received, details of amounts deducted by the trader and details of produce not sold. The statement is to be provided to the grower within the period specified in the agreement.

 

The grower, or a representative of the grower, may request to inspect the agent’s records relating to the sale of the grower’s produce. However, the agent is not required to provide the grower with the name or contact details of the person to whom the produce was sold. This provision is intended to allow the trader to protect the details of buyers. Many traders consider this information to be their intellectual property.

 

The only occasion the trader is to provide the grower with details of the produce buyer is where it is established in the agreement that a grower will have responsibility for collection of bad debts. This includes where it is agreed that the grower will have responsibility for collection of bad debts after a certain period of time.

 

Other matters affecting merchants and growers

 

The Code requires that the price to be paid by a merchant for the grower’s produce is agreed to either before, or immediately upon, delivery of produce to the merchant. The price to be paid by the merchant must only be an amount and not a rate. This provides flexibility to meet the needs of different trading arrangements whilst resolving previous uncertainty about merchant trading arrangements. Previously, a merchant could set the price once the produce had been on–sold to a third party. This has been a key point of contention by many growers.

 

The meaning of immediately upon delivery will be determined on a case by case basis according to what is reasonable in the circumstances.

 

The merchant must not deduct any fees or charges for services performed by the merchant. This provision will ensure that the price agreed upfront by a grower and trader will prevail. However, this provision will not prevent the deduction of statutory levies from the purchase price by a merchant.

 

The Code clarifies that under a merchant agreement, ownership of produce can not transfer prior to agreement on price. Ownership transfers when:

·            produce is delivered to the merchant – if the price is set at the farm gate; or

·            price is agreed – if the price is to be set upon delivery of produce.

 

The merchant is to provide a statement to the grower for the period specified in the agreement specifying dates and times of sale, quality and quantity and prices paid for produce. The statement is to be provided to the grower within the period specified in the agreement.

 

Resolving disputes

 

The intention of the Code is to allow growers and traders to use any dispute resolution procedures they choose to resolve a dispute. However, if a grower or a trader wishes to pursue a dispute using the Code’s dispute resolution process then the other trading party must comply. This includes attending mediation and complying with any agreement reached through mediation.

 

Nothing in the dispute resolution part of the Code will affect the right of a party to take legal proceedings or submit a complaint to the Australian Competition and Consumer Commission.

 

The Code provides for the appointment of a Mediation Advisor who is to administer mediation services under the Code. The Mediation Advisor will compile a list of suitably qualified or experienced mediators to conduct mediation under the Code and will appoint mediators to disputes.

 

Dispute resolution under the Code involves the following steps:

1.      A grower or trader (complainant) must send a written notice to the person he or she has a dispute with. The note is to specify the nature of the dispute, the outcome the complainant wants and what process they think will resolve the dispute.

2.      The complainant and the respondent must then try to resolve the dispute.

3.      If after three weeks the dispute has not been resolved, then either party may refer the matter to the mediation advisor.

4.      The mediation advisor will appoint a mediator to the dispute within 14 days of referral.

5.      The mediator will decide how the mediation is to be carried out, such as by telephone or meetings and where any meetings would occur.

 

Where mediation is successful the mediator will document the agreement and provide a copy to both parties. The mediator will advise the mediation adviser that the dispute has been successfully resolved.

 

The agreement reached between parties will be a legally enforceable contract. Parties may pursue a breach of contract under existing laws.

 

The mediator or the complainant may terminate mediation at any time. The respondent may only request termination of a dispute after 30 days to ensure that sufficient time is provided to reach an outcome on a dispute. The mediator will terminate the mediation unless the mediator believes a resolution is imminent.

 

The mediator will report termination of mediations to the Mediation Adviser, including the names of the parties and the nature of the dispute.

 

Costs of the mediation, if any, including travel costs of the mediator, will be shared equally by the parties unless they decide otherwise. Each party will be responsible for their own costs.

 

Horticulture Assessors

 

The Code provides for the appointment of Horticulture Assessors to investigate and report on matters arising under a Horticulture Produce Agreement. An assessor can be appointed by a grower or a trader regardless of whether a dispute has been lodged under the Code. It is intended that rapid discovery of the facts by independent assessors will resolve many issues and concerns without the need for mediation or expensive legal action.

 

The Code will provide that an assessor can investigate and report on any matter arising out of an agreement. It is expected that the assessor will report on two key areas of concern, which are whether:

·            rejection of horticulture produce was in accordance with the agreement and the Code. This might particularly relate to quality issues; and

·            amounts paid by the trader were calculated in accordance with the Code, for example, that fees and charges were calculated on the basis provided for in the agreement.

 

Growers and traders subject to the Code are required to provide necessary access to these assessors to perform their assessment. For agents, this means that the assessor should be provided access to all financial and other records related to the grower’s produce. For merchants, this means that the assessor should be provided access to all records up to the point at which ownership of produce passed from the grower. The records the assessor may inspect relate to the 12 months preceding the date of the assessor’s appointment.

 

For agent arrangements, the assessor cannot report to the grower the name and contact details of the buyer of their produce except where the grower has a role in the collection of bad debts and the name and contact details relate to a bad debt. However, the assessor can provide an assessment on whether they believe produce was sold in accordance with the requirements of the Code. This may include an assessment on whether the trader had sold produce on an ‘arms length’ basis.

 

Horticulture assessors will be identified and placed on a register by the Mediation Advisor. Technical skills as well as independence will be a key qualification in compiling this list.

 

Assessors will be drawn from existing horticulture surveyors available in places where produce is sold and in major produce growing areas. Assessors, for financial matters are also readily available, including qualified accountants.

 

The costs of appointing an assessor will be met by the party who appoints the assessor. If the assessor is appointed as part of a mediation then the parties will share the costs unless he parties agree otherwise.