No end in sight for price-fixing saga

Editorial comment piece for the December issue of Manufacturers' Monthly.ALTHOUGH the Visy/Amcor cardboard box price-fixing and market-sharing cartel is no longer in the headlines, don’t think this story has ended. There are a few more twists in this sordid tale to come.

ALTHOUGH the Visy/Amcor cardboard box price-fixing and market-sharing cartel is no longer in the headlines, don’t think this story has ended. There are a few more twists in this sordid tale to come.

As most readers would know, it all started in the late 80s and early 90s when Amcor, Visy and Smorgon were engaged in a vicious price war to secure uneconomic contracts and market share of the ‘cardboard box’ market (which Smorgon eventually lost).

By 1999, Visy and Amcor realised that by working together, by not under quoting (or not quoting at all) specific customers, they were able to renegotiate those contracts onto more viable pricing.

Showing a blatant regard for the law, Visy and Amcor had a dream arrangement for four years; an agreed price floor for their customers, which included George Weston, Cadbury Schweppes, Parmalat, National Foods, Nestle, Inghams, Goodman Fielder and Coca-Cola Amatil. But all good things must come to an end.

Rather accidently, word eventually filtered out and when Amcor was approached the company rolled over and turned whistleblower. In line with a policy that was introduced in 2005, Amcor won immunity from prosecution by the ACCC (Australian Competition and Consumer Commission) due to its co-operation and the eventual prosecution of Visy.

While the record $38m in penalties handed out to Visy by the courts last month might seem excessive, in reality it’s peanuts to one of Australia’s richest men.

Richard Pratt and his immediate family are said to be worth around $5.4bn and own Visy Industries with annual revenues of around $3bn.

The settlement is a victory for ACCC chairman Graeme Samuel. Since taking the helm of the ACCC back in 2003, Samuel has made busting cartels a priority.

The ACCC has another seven or so cartel prosecutions in the courts at present, and a further 36 under investigation, including a probe into allegations of price fixing of freight charges by Qantas and other international airlines.

The immunity policy is proving crucial to busting cartels with all cartels being prosecuted through the courts flowing from the policy.

However if Amcor thought it would escape penalty by being a whistleblower, the company has made a big mistake. The company’s co-operation has entailed actual and implied statements that expose it to action brought by other parties.

The next chapter in this long-running drama will be the launch by a number of Amcor’s and Visy’s unhappy customers of a civil damages class-action reportedly up to $700m; the estimated amount Amcor and Visy overcharged customers over the four years.

Whether senior members of the cartel should be treated as criminals is a contentious point. Most readers would agree (I think) that Pratt and his team should go to jail, but lawyers argue they can’t be sent if the impact of their conduct is not clear.

Then what about Amcor, just because the company was the whistleblower, its senior management escaped prosecution. I don’t remember that happening in any criminal court case I’ve attended.

Criminal law has long recognised the risks in accepting the evidence of one co-accused against another. Criminal penalties would only exacerbate this concern in the cartel context.

Interestingly, Australia is one of the last developed economies not to have criminal penalties for certain types of cartel conduct.

Another twist in the tale yet to come is from Cadbury Schweppes, who believes the cartel was much wider than what the ACCC alleged and included both companies’ PET plastic bottles and food and beverage cans division. These allegations will soon be tested in the courts.

In an $80m damages claim, Cadbury alleges that Amcor has never sought to supply it with bottles since 2000, nor has Visy ever offered to supply cans to Cadbury for a lower price than Amcor’s.

So be warned, while the idea of having a price floor agreement with your competitor may sound appealing, the authorities clearly have the inclination and the tools to stamp this insidious side of business out.

Resolutions for 2008

As this is the last issue of Manufacturers Monthly for the year, I would like to remind readers of two ‘must-do’ events for 2008.

First, go to www.manmonthly.com.au and register for the free weekly newsletter. It’s the easiest way to keep up to date with what is happening in the manufacturing world.

Secondly, take the time to enter MM’s Endeavour awards program for 2008. Again visit www.manmonthly.com.au and click on the Awards button on the left. The awards program is free to enter, and offers manufacturers the opportunity to showcase their products and achievements. See pages 14 and 15 for more information.

I would also like to take this opportunity to thank all readers and advertisers for their support over 2007, and to wish you all a very merry Christmas and a prosperous New Year.

May your Christmas stockings be filled with everything you desire.