What’s stopping processors from offering step-ups?

The mandatory dairy code of conduct does not prevent processors from increasing farmgate prices, argues Shaughn Morgan.

Healthy state: Consumer support of fresh milk and dairy products have remained strong despite the impact of COVID-19 on other parts of the economy. Picture: Jodie Richter

THERE has been much speculation as to the lack of any step-ups by the major dairy processors to their farmers.

Customer support of fresh milk and dairy produce has remained strong despite the impact of COVID-19 on other parts of the Australian economy.

So, why no step-ups? It has nothing to do the dairy code, but may have something to do with processors’ actions, which the Australian Competition and Consumer Commission should consider examining.

Let’s be clear, the dairy code, after years of advocacy, was introduced to restore trust, transparency and openness between farmers and their processor, particularly after the milk price clawbacks of 2016.

In reality it has made no difference to the contractual relationship between the dairy farmer and the processor.

What did change was that both parties had to negotiate in good faith to sign a plain English contract, with proactive safeguards such as straightforward dispute resolution procedures and the prevention of step-downs.

Processors also had to publish their contracts for the world at large to see and set a minimum price. None of this prevents processors making step-ups or erodes their profitability.

The fact that there have been no step-ups this season is something the ACCC should consider looking into.

I am not suggesting any breach of the law or indeed the Act, but under Section 45 of the Competition and Consumer Act 2010 all parties must not engage in anti-competitive behaviour.

Some behaviour need only be a concerted practice which could substantially lessen competition, which the Act prohibits.

It may be argued that processors are lessening competition by not delivering step-ups.

The ACCC would have to prove, for instance, that they are distorting the market and lessening competition. Thus, the general provisions of general contract and competition law must surely have a role in what is happening.

And the ACCC has a duty to ensure compliance with the legislation that underpins its very existence. We need to find the right answer, not just the easiest one.

●Shaughn Morgan is Dairy Connect chief executive

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