The chicken and the egg and the ACCC


Posted By on 6/05/16 at 9:42 AM

‘Cruelty free’, ‘non GMO’, ‘Fair Trade’, ‘free range’

Advertising your goods using any of these promises will likely help you win over an increasing number of conscientious consumers who are willing to pay more for products they trust. But you’d better be sure that representations like these are accurate.

Background

‘Free range’ is commonly understood to mean something better than cage or barn laid eggs. Offering a free range product allows a supplier to attach a higher price point designed to (at least partially) offset higher costs of production in maintaining applicable standards.

Free Range Egg Farms (FREF), the trading partnership of Derodi Pty Ltd and Holland Farms Pty Ltd, purchased eggs from a network of farms and supplied those eggs under the brands Ecoeggs, Port Stephens and Field Fresh. FREF extensively marketed the eggs as free range via carton labels, print ads, Facebook pages, Twitter accounts and various websites. The Ecoeggs website showed images of hens in a sunny, grassy field with the tagline “taste freedom” and included videos with descriptions like “hens enjoying their outside time, digging, dust bathing and running around”. The site also claimed Ecoegg farms had an average maximum of “only 2 hens per square metre” allowing hens to move freely between the range and the barn, and that consumers could be confident that stamped Ecoeggs were genuine certified free range eggs.

The allegations

The ACCC alleged that between 1 January 2012 and 2 December 2014, FREF breached the Australian Consumer Law by making misleading representations about the quality or history of the egg products, and misleading the public about the nature or characteristics of those products.

During this period, the farms produced a large number of eggs, which accounted for approximately 2.36% of the free range egg market in Australia. FREF was a profitable partnership and eggs from the barns in question made up approximately 33% of the eggs FREF marketed as free range. The premium FREF was able to charge for its eggs over barn laid eggs was between $0.50 and $3.88 per dozen.

However, the Federal Court found that the Hutchinson Farm barns and the relevant barn at the Sepos Farm (both NSW suppliers of FREF) were not up to scratch. Each of the offending barns housed an average of around 8 to 11 hens per square metre and significantly limited access to outside areas or the time hens spent there. While the barns had pop holes with connected exit ramps, these holes were kept closed until 90% of the hens had commenced laying eggs, generally not until they were 26 to 32 weeks old. Even then, access was limited – hens at one of the Hutchinson Farm barns were kept inside for a further 38 weeks after they had commenced laying, and the ramps leading from the pop holes were made of rubber which became hot in summer and were slippery when wet.

The court considered the scale of the contravention to be significant because of the period of time over which representations were made, the fact that eggs are a widely consumed product and that consumers are heavily reliant on the kinds of representations concerned. The free range marketing was found to be the most prominent feature of the egg packaging, though it was not the only claim made that may have affected the pricing of the eggs (a patented omega 3 rich feed was also mentioned on the Ecoeggs label).

In characterising the scale of the contravention, the court took into consideration the multi-platform marketing program supporting the sale of the eggs, which led consumers to reasonably believe the hens were able to move around freely on an open range on an ordinary day (ie a day where weather conditions did not make this dangerous).

The outcome

FREF was fined $300,000, ordered to publish corrective advertising, implement a compliance program and pay the ACCC’s costs of the proceeding.

FREF’s admissions, cooperation and previously clean slate were mitigating factors in the courts determination of the penalty, which the court described as being “on the low side” considering the significance of the contraventions.

FREF has since released a statement saying it has ceased to work with the Hutchinson Farm and implemented a voluntary compliance program which exceeds industry standards.

With proceedings in relation to alleged cartel conduct on foot, and publication of the CluckAR App by consumer advocacy group CHOICE, clearly the industry is under careful scrutiny.

Bronwyn Montgomery Lawyer

Bronwyn came to KHQ Lawyers as a graduate lawyer having completed a BA (Media and Communications) and Juris Doctor at the University of Melbourne.  Bronwyn completed her Graduate Diploma of Legal Practice... Read More