The recent report of the Dawson inquiry into the Trade Practices Act (TPA) may have important implications for the development of collective bargaining groups and co-operatives in Australia. If the recommended changes are implemented, it will be easier for small businesses, including farmers and co-operatives, to legally form collective groups and bargain with larger businesses and processors over prices and other sales conditions.

As it stands the TPA makes it illegal for a group of independent traders to form (without authorisation) a collective group and bargain with another trader over the price of a commodity. It is argued that such action substantially lessens competition and hence breaches the TPA. Collective groups can, however, seek an authorisation from the Australian Competition and Consumer Commission (ACCC) to collectively bargain. Authorisations are granted, if the group can show, that the results of such collective action have net public benefits, i.e., the total benefits to the public exceed the costs, which may emerge from the lessening of competition.

The recommendation from the inquiry is to change legislation, so that rather than an authorisation, only a notification to the ACCC is needed to permit collective bargaining. Authorisations are more costly and involved than notifications. For an authorisation the onus is on the collective group to establish the net public interest benefit. In order for the ACCC to object to a notification, it needs to establish that it is not in the public interest, otherwise collective bargaining is permitted. The inquiry recommendation limits the size of collective groups to no greater than $3 million (transaction value) in the first instance, with the amount subject to change at the Minister's behest. The inquiry recommends that the change from authorisation to notification may 'provide a speedier, simpler and less expensive mechanism.'

The government has accepted these collective bargaining recommendations and is proposing to develop a notification process, which will be 'speedier and simpler for small business than existing processes'. The opposition parties have expressed initial support for the changes. The National Farmers Federation (NFF) and the Victorian and Murray Valley Grape Growers Council also support the changes. The Co-operative Federation of Victoria however, has expressed some concern over the $3 million limit to the size of collective bargaining groups.

Notwithstanding these proposed changes to the TPA, the ACCC authorisation process has already led to the formation of collective bargaining groups. The Australian Dairy Farmers Federation won the authority to establish regional dairy farmer bargaining groups to negotiate with dairy processors over supply, including price. This authorisation was confirmed by the Australian Competition Tribunal, after appeal by National Foods Ltd. Dairy farmer collective bargaining groups have been established around Busselton, WA and Sunmilk has been established on the north coast of NSW. Support for these groups has come from the Federal government in terms of a $100,000 grant to establish a series of workshops to inform and educate dairy farmers about collective bargaining procedures and strategies.

Examples of other ACCC collective bargaining authorisations include: Inghams Enterprises who have authority to collectively negotiate with chicken farmers in SA. Oddly, this authority was sought by the processor, not the chicken farmers. Premium Milk Ltd (a non-profit company) has authority to collectively negotiate on behalf of Queensland milk producers with Pauls Limited, on milk prices and quality standards.

The NFF sees significant potential for farmers to benefit from collective bargaining, citing that 30% of domestic agricultural production is sold into highly concentrated markets. However, the $3 million transaction value limit may restrict the practical usefulness of the proposed simpler notification process. In terms of total cash receipts ABARE estimates that for broad-acre farms, the average transaction value is $220k (in 1999/2000) per farm. This implies, at most 13 farmers on average can collectively bargain via notification.

For grape growers, where countervailing market power arguments have often been put, ABARE estimates that in Loxton (Riverland) average wine grape receipts were $60k (in 1996/7); this translates to a maximum of 50 grape growers. In other premium wine areas, however, one expects far greater transaction values and hence far smaller bargaining groups. Despite the possible limitations, there is nothing to stop existing farmer associations from applying for authorisation.

The concept of a bargaining co-operative or association is well established in United States agriculture, and their experience could serve as a useful basis for the development of Australian agricultural bargaining co-operatives. In the US, co-operatives have been established for the sole purpose of bargaining over price and other sale conditions. These bargaining groups cover varied markets and commodities including: apricots, beets, peaches, tomatoes, olives, raisins, ryegrass and milk.

Iskow and Sexton (1992) in a survey of bargaining associations for fruits and vegetables markets confirm that increasing price is the principal objective of negotiations, this is followed by determining the time and method of payment and quality standards. Interestingly, in most cases the total raw volume of the product to be traded is determined prior to price negotiations. Some detailed comments on the practice and strategy of bargaining co-operatives can be found in Bunje (1980).

According to Hueth and Marcoul (2002), the key factors, which explain the prevalence of bargaining groups in the US include: the existence of contract arrangements to facilitate trading rather than a spot auction market; the commodity is processed before it is consumed; the commodity exhibits a high degree of regional concentration; farmers have a limited range of outside options due to limited on-farm storage and the perishable nature of the commodity. It has been argued (Hueth and Marcoul, 2002) that in the US, collective bargaining is not just about influencing price, it is also about sharing information through price discovery, where information on demand and supply is scarce, and also about ensuring contract reliability.

These characteristics are consistent with the ACCC authorisation for dairy products, where bargaining has been granted for a perishable commodity, with trade largely governed by contracts for sale to local regional processors. Another yet untapped example of a similar commodity is wine grapes. Contractors are extensively employed, the regional identification of grapes is important, the number of processors is small compared to the number of growers, and the grapes cannot be stored or used for any other purpose than wine making.

In general, there appears to be some scope for farmers and small businesses to form bargaining co-operatives to countervail market power, and share information in trading with larger processors and buyers. The bargaining co-operative may serve as a useful, non-profit, democratic structure for forming such groups to take advantage of proposed changes in the TPA. It appears that the Federal government is particularly keen to support these endeavours in terms of legislative, and financial support.