Rules of the dairy game better defined

The mandatory dairy code of conduct has helped clarify the relationship between farmers and processors, writes Mick Keogh.

Mick Keogh.

A game of football is always more satisfying for all involved when the rules are clear and well-understood, and the teams are evenly matched. Strong competition brings out the best in all the players, and everyone benefits.

This applies equally in a sector such as dairy. Clear rules, and strong and balanced competition within the supply chain benefit all — including consumers — and mean that a sector which employs 46,000 people and is worth $4.4 billion annually has the best chance of further growth.

Thanks to the implementation of the mandatory Dairy Code, the ‘rules’ in the dairy sector are much clearer, some of the effects of significant imbalances in bargaining power between processors and farmers have been addressed, and competition has been strengthened to the benefit of all involved.

Before the Code was introduced, it was common for processors to wait until the start of a new milk season before releasing their pricing offers. Sometimes, prices for the new season were not revealed until after the season had commenced, leaving little time for farmers to compare different offers.

Many milk supply agreements were relatively informal, leaving the farmer unclear on the terms of supply or lacking the protection of a formal contract. Step-downs in the farmgate milk price caused substantial damage to farmers and the industry, and some milk supply agreements contained clauses that prevented or restricted switching, such as loyalty bonuses for one season requiring ongoing supply to the next.

Under the mandatory Dairy Code the terms of milk supply are now a lot clearer. Transparency and certainty has been enhanced by improving communication of prices and key information.

Most processors must now publish standard form milk supply agreements on their websites by 2pm on 1 June each year. In these agreements they must commit to a binding minimum price and there are significant restrictions on step-downs. Having both sides clear on their rights and obligations is certainly a big change from where things were four or five years ago. Processors are also required to provide a report on disputes that have arisen with their suppliers during the past twelve months.

The ACCC has been engaging with processors to make sure there is a good understanding of what is required under the code, and has initiated enforcement action in a number of cases where there was noncompliance with the code. We will also be conducting compliance audits, which can occur at any time throughout the year.

While the Code has brought some positive changes and promotes good faith dealings between farmers and processors, there is room for improved compliance. In addition, the Code will be reviewed by Government later this year to make sure that it is fit for purpose and continues to serve the industry well. The ACCC, as well as industry, will have an opportunity to provide feedback.

In the meantime, ensuring compliance with the Dairy Code is a key priority for the ACCC and we will not be shy about ‘blowing the whistle’ if we see infringements.

• Mick Keogh is the deputy chairman of the Australian Competition and Consumer Commission