No yolk as ACCC cracks egg cartel

RICHARD GLUYAS
MAY 29, 2014
THE AUSTRALIAN
IN February 2012, Australian Egg Corporation managing director James Kellaway called together the nation’s top 25 producers at the Mercure Hotel at Sydney Airport to discuss an “oversupply crisis”.
Mr Kellaway didn’t need to tell his members they had a problem — prices had fallen through the floor, affecting industry ­returns.
However, the short-term ­solutions proposed by the AEC chief would create a crisis of a different kind, as yesterday’s Federal Court allegations of cartel conduct demonstrated.
According to a 28-page statement of claim lodged by the Australian Competition & Consumer Commission, one of Mr Kellaway’s PowerPoint slides advised producers to “dispose of eggs by either donating eggs to one or many charity groups or dumping/burying eggs”.
“Reduce the number of laying hens by culling birds (there is currently capacity with the major processors). Use of an independent auditor?” the slide continued.
“Increase demand? (AEC has invested $1 million above budget to assist ‘move’ volume).”
The $1.7 billion egg industry was yesterday in a state of turmoil after the ACCC instituted proceedings against the AEC, Mr Kellaway, two other AEC ­directors, and several egg companies, including the listed Farm Pride Foods.
The AEC released a short statement saying it had co-operated with the commission’s investigation and intended to “fully co-operate in the court process”, but was otherwise unable to comment.
While the cartel arrangement was ultimately not implemented, ACCC chairman Rod Sims said the conduct was regarded ­“extremely seriously”.
He warned that industry associations had to be conscious of competition compliance issues when they brought together competing firms.
“We’re keeping an eye on some associations, so we hope that this case sends them a message,” Mr Sims told The Australian.
“At the moment, the behaviour of some associations is wandering around the edge of being acceptable. We’re hoping that this will encourage them to step back.”
The allegations in the egg industry case focus on conduct from November 2010 to February 2012, so the ACCC had the post-2009 option of mounting a criminal case. However, Mr Sims said the commission had determined that civil remedies were appropriate because the alleged behaviour was “very much overt, not covert”.
“Before you take criminal proceedings, it should be clear that people are aware that what they are doing is wrong,” he said.
Apart from Mr Kellaway, the AEC directors targeted in the proceedings are Jeffrey Ironside, a director of Twelve Oaks Poultry, which is the trading name for Ironside Management Services, and Zelko Lendich.
Mr Lendich is a former director of Farm Pride. The company announced in March that he would step down at the end of April “to spend more time with his family” after serving 11 years as chairman or managing director.
The ACCC is seeking an order to ban Mr Kellaway from managing a company for two years, and one-year disqualifications for Mr Ironside and Mr Lendich. It’s also seeking declarations, injunctions and penalties, as well as orders that the AEC, Farm Pride and Twelve Oaks establish and maintain a compliance program, and that the three men attend compliance training.
The watchdog has further applied for an adverse publicity order, in which it warns that each member of the AEC could have been liable to pay a penalty of $10m or more if the members had entered into the proposed agreement.
Mr Sims said that egg consumption per capita had increased in the past 10 years, leading to an increase in the demand for producers’ eggs.
“The ACCC is concerned that the alleged attempt sought to obtain agreement by egg producers to reduce supply, which if successful could have impacted on egg prices paid by consumers.”