Code of conduct must be mandatory

By Dairy News

AUSTRALIA’S CORPORATE watchdog believes a mandatory code of conduct would address problems caused by bargaining power imbalances between processors and farmers.

The ACCC (Australian Competition and Consumer Commission) last month released its interim report into the Australian dairy industry following its 12-month inquiry.

ACCC Commissioner Mick Keogh said a mandatory code would address bargaining power imbalances, improve price and production signals, stop practices that transfer risk inappropriately and enhance the competition for farmers’ milk.

“What’s clear is that processors, often under pressure from supermarkets or export market competition, use their relative bargaining power to shift risks onto dairy farmers,” Mr Keogh said.

“The power imbalance is evident in the nature of contracts between the processors and farmers. These involve uncertain pricing information and contract terms which deter switching.

“A code would strengthen dairy farmers’ weak bargaining position and therefore improve competition at the farm gate.”

The ACCC says while the recently introduced voluntary code of conduct has improved contract terms in milk supply agreements, it doesn’t go far enough.

“There’s been some improvements following the introduction of the voluntary code but, in the ACCC’s view, it is unlikely to fully address the issues that cause detriment in the industry in the longer term.

“The voluntary code is not enforceable and processors can choose to not participate or not comply, and there are no negative consequences.”

The ACCC recommended additions to the current voluntary code:

PROCESSORS and farmers should enter into written contracts for milk supply that are signed by the farmer;

MILK supply contracts should not include terms which unreasonably restrict farmers from switching between processors; and

PROCESSORS should publish information identifying how their pricing offers apply to individual farm production characteristics to enable better farm income forecasts.

The ACCC also analysed the impact of $1 per litre private label milk on earnings through the dairy supply chain.

Mr Keogh said farmers earn the same regardless of whether their milk ends up as private label, or more expensive branded milk.

“We don’t think that an increase in the retail price of private label milk would necessarily benefit farmers, and that any additional profit would mainly be captured by the major supermarkets and processors,” Mr Keogh said.

The ACCC has found the major supermarkets have leveraged their buying power to lower wholesale processing costs and capture profits from processors.

While the supermarkets have kept some of the resulting profits, they have mostly transferred the benefits of these wholesale cost savings to consumers.

Other recommendations of the Dairy Inquiry report are:

ALL processors should simplify their contracts where possible.

FARMERS should ensure they have properly considered the legal and financial implications of contracts with processors.

The ACCC is seeking feedback in the interim report by January 31 before releasing a final report in April, next year.