Lani Bajracharya

Fowl play: Egg producer penalised for false ‘free range’ claims

Lani Bajracharya

3 December 2014

Competition and Consumer Law

With a growing demand for ethically farmed (and frankly tastier) produce in Australia, it is not surprising that egg producers have been practically falling over themselves in recent years to market their products as ‘free range’. And who can blame them? Especially when consumers are typically willing to pay twice as much for ‘free range’ eggs as for their ‘caged’ counterparts.

 

However, with no nationally consistent or legally enforceable definition of what constitutes ‘free range’ farming in Australia, consumers are often left at a loss (both figuratively and monetarily) as to what such labels mean in practice for the chooks involved.[1]

 

In an effort to combat this confusion, the ACCC has initiated proceedings in recent years seeking penalties against certain players in the poultry industry for misleading and deceptive product labelling.[2]   Such action has been considered necessary to protect consumers from, what appears to be, a liberal application of the term ‘free range’ and to deter other egg producers from making false credence claims (for more on recent proceedings brought by the ACCC in relation to misleading ‘free to range’ labelling, please see our previous blog here).

 

ACCC v Pirovic Enterprises Pty Ltd

 

The most recent in a series of cases involving the ACCC targeting such credence claims is ACCC v Pirovic Enterprises Pty Ltd (Pirovic),[3]  in which the Federal Court declared by consent that egg producer and supplier, Pirovic, had breached the Australian Consumer Law (ACL) through the labelling and promotion of its ‘free range’ eggs.[4]

 

Pirovic’s misleading marketing

 

Pirovic was engaged in the business of producing and supplying eggs which were sold to consumers in New South Wales. In a statement of facts, agreed to by both parties, Pirovic admitted to marketing its eggs to consumers as being of a ‘free range’ quality through:

 

  • its use of the words ‘free range eggs’ on both its egg cartons and website; and
  • certain phrases and images on its website which suggested to consumers that its hens lived in ‘large barns’ and could ‘roam freely on green pastures during the day’.[5]

 

The parties agreed that, by engaging in such marketing, Pirovic had represented to consumers that its eggs were laid by hens that were farmed in conditions which enabled them move around freely on an open range on an ordinary day (being a day where the chooks were not being medicated or endangered by weather conditions or predators).

 

This was held to be misleading in circumstances in which Pirovic’s 80,000 laying hens were actually kept in conditions preventing free movement, as a result of:

 

  • the stocking densities of the barns; ?
  • the flock sizes in the barns; and ?
  • the number, size, placement and operation of the physical openings allowing the hens access to an open range.[6]

 

Interestingly, it appears that the composite form of advertising employed by Pirovic – which went beyond the mere use of the term ‘free range’ and involved the use of both evocative words and imagery to portray its laying hens as being free to luxuriate in grassy fields – has also been used by other poultry farmers who have been found liable for misleading product labelling.[7] In this respect, it appears that farmers like Pirovic may have contributed to their own ruin, by first increasing consumer expectations of their ‘free range’ farming conditions and then later falling short of the fiction they themselves designed.[8]

 

Declarations and observations of the Court

 

As a result of its conduct, Pirovic agreed to declarations that it had contravened sections 18, 29(1)(a) and 33 of the ACL by:

 

  • Engaging in conduct in trade or commerce that was misleading or deceptive, or likely to mislead or deceive; ?
  • Making misleading representations that its goods were of a particular quality or history;
  • Engaging in conduct liable to mislead the public as to the nature or characteristics of goods.[9]

 

While the Court considered these admissions properly made, it also noted with some emphasis that Pirovic had not been indifferent in its conduct.  The Court observed that, in marketing its eggs as ‘free range’, Pirovic did have regard to the fact that:

 

  • its farming conditions were consistent with those of other competitors that sold free range eggs; ?
  • its labelling practices were reviewed by a peak industry body, the Australian Egg Corporation Limited (AECL) and deemed to comply with its egg labelling guide;
  • it was licensed by the AECL to use the Egg Corporation Assured Trade mark;[10]
  • Each of Pirovic’s ‘free range’ farms had a Level A accreditation for free range egg production.[11]

 

Orders

 

The Court ultimately concluded that orders should be made substantially in accordance with what was proposed by the parties, being that Pirovic:

 

  • pay a pecuniary penalty of $300,000; ?
  • pay $25,000 of the ACCC’s costs of the proceeding; and ?
  • Implement a 3 year trade practices compliance program, at its own expense.[12]

 

In making these orders, the court emphasised that its role was not merely to ‘rubber stamp’ what had been agreed to by the parties. Nonetheless the Court was satisfied that the agreed penalty was appropriate in the circumstances, having regard to the agreement between the parties, the accepted co-operation on the part of Pirovic, the ‘primary objective’ of deterrence and the public interest in avoiding a lengthy hearing.[13]

 

Meaning of ‘free range’

 

While the Court noted that the Pirovic case ‘should not be seen as a resolution of what constitutes free range in the abstract’, ACCC Chairman, Ron Sims is of the view that the case provides ‘clear guidance’ to egg producers that any free range claims made must be backed by farming practices which allow hens to actually move about on an open range each day.[14]

 

In fact, just last month the ACCC sent letters to egg suppliers Australia-wide drawing their attention to the Pirovic decision and encouraging them to review the words and images used on their ‘free range’ egg cartons and any advertising claims about their ‘free range’ eggs.[15]

 

One thing the Pirovic case certainly highlights is the need for nationally consistent and mandatory standards for ‘free range’ farming in Australia.[16] The fact that Pirovic’s ‘free range’ claims were found to be in breach of the ACL while being simultaneously backed by farming and labelling practices which met industry standards (which are largely voluntary) is a clear sign that the lack of uniform legislation in this area is only leading to further uncertainty for consumers and egg producers alike.

 

Lessons learned

 

In an era where value judgments and animal welfare considerations appear to be having an increasing impact on the purchasing decisions of consumers, the Pirovic case also serves as an important reminder to businesses to ensure that any credence claims made about their products are substantiated by genuine business practices – especially where such claims are made in an effort to induce consumers to pay premiums for products. As the case shows, a failure to do so may lead to substantial penalties for misleading conduct and a potentially irreparable loss of business goodwill.

 

Whether Australia is any closer to establishing national and uniform standards for ‘free range’ farming remains to be seen.  However, in the meantime it looks like it will remain up to the ACCC to separate the ‘bad eggs’ from the bunch.

 

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[1] In Queensland there is a statutory definition of ‘free range system’ contained in the Animal Care and Protection Regulation 2012 (Qld). For more on recent and controversial legislative amendments made to the Regulation made mid-last year, please see our previous blog here.

[2] For more on proceedings brought by the ACCC in relation to misleading credence claims and product labelling, see Adrian Coorey, ‘The cost of misrepresenting to the public cage eggs as free range eggs: Australian Competition and Consumer Commission v Bruhn’ (2012)  28 Competition and Consumer Law News 4; Felicity Lee, ‘False or misleading credence claims:  what’s the harm?’ (2013) 29 Competition and Consumer Law News 4; Sonya Parsons, ‘The meaning of “free”: why the ACCC is focusing on chicken and egg sales’ (2013) 29 Competition and Consumer Law News 2; Tracy Lu, ‘Watching what you eat – recent issues in Australian food labelling law’ (2014) 27 Australian Intellectual Property Law Bulletin 7.

[3] Australian Competition and Consumer Commission (ACCC) v Pirovic Enterprises Pty Ltd (No 2) [2014] FCA 1028.

[4] Australian Competition and Consumer Commission, Federal Court orders $300,000 penalty after finding ‘free range’ egg claims to be misleading (23 September 2014)  < https://www.accc.gov.au/media-release/federal-court-orders-300000-penalty-after-finding-free-range-egg-claims-to-be-misleading>.

[5] Above, n 3 at [9] – Pirovic admitted to marketing its eggs to consumers as being of a ‘free range’ quality through its use of ?

  • The words “Free Range Eggs” on its website and egg cartons; ?
  • The words “Our hens feed on wholesome natural gains, roam freely on green pastures during the day and return to the safety of large barns at night”; ?
  • The words “What is a Free Range Egg?” Free Range eggs are layed [sic] from hens that live in large barns and have the opportunity to go outside to roam and forage within a ranging area.” ?
  • Images of the free range egg cartons on its website; ?
  • Images of hens in a grassy field.

[6] Above, n 3.

[7] For example, see ACCC v Turi Foods Pty Ltd (No.4) [2013] FCA 665  and ACCC  v Bruhn [2012] FCA 959.

[8] Michael Bradley and Hannah Marshall, ‘Home on the range: ACCC v Pirovic free range eggs decision’ (2014) 30 Competition and Consumer Law News  8 & 9

[9] Above, n 3 at [10].

[10] Note that the New South Wales Food Authority had deemed the Egg Corporation Assured Scheme to be compliant with the Primary Industries Standing Committee’s Model Code of Practice for the Welfare of Animals – Domestic Poultry (4th Edition, SCARM Report 83, 2002).

[11] Above, n 3 at [11].

[12] Above, n 3.

[13] Above, n 3 at [14]-[30].

[14] Australian Competition and Consumer Commission, Federal Court orders $300,000 penalty after finding ‘free range’ egg claims to be misleading (23 September 2014)  < https://www.accc.gov.au/media-release/federal-court-orders-300000-penalty-after-finding-free-range-egg-claims-to-be-misleading>.

[15] Australian Competition and Consumer Commission, ACCC urges egg industry to review free range claims (13 November 2014) <https://www.accc.gov.au/media-release/accc-urges-egg-industry-to-review-free-range-claims>.

[16] Ibid. Conversely, ACCC Chairman Rod Sims appears to have endorsed a more ‘common sense’ standard stating that “In the Pirovic case the court ruled that free range means the birds can and do go outside on most days. It is up to producers to determine how to meet this common sense definition”.