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Mandatory dairy code moves forward

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The Coalition Government is continuing to advance the Mandatory Dairy Code of Conduct following requests from key dairy farmer bodies last year.

Minister for Agriculture David Littleproud said the code would outlaw several practices which have been used by milk processors in the past.

"Australian Dairy Farmers, Queensland Dairyfarmers' Organisation and Dairy Connect asked for a mandatory code of conduct last September and we're delivering it," Minister Littleproud said.

"This won't fix the all industry's structural problems but it's a good first step. The next step is to draft wording for the regulations in this code, in consultation with industry."

"The mandatory code of conduct will:

  • ban retrospective price cuts to dairy farmers;
  • ban mid-season price cuts except in exceptional circumstances;
  • ban exclusive contracts which stop farmers selling their excess milk to another company;
  • ban two tier pricing which allows processors to pay different amounts for milk supplied by the same farmer; and
  • ban processors withholding "loyalty payments" if a farmer moves to another processor, which removes the financial handcuffs from farmers and allows them to more easily sell their milk to the highest bidder.

"Giving farmers more flexibility to switch between processors will help create competition among processors for dairy farmers' milk," Minister Littleproud said.

"Allowing farmers to sell excess milk to a second company is a no-brainer – exclusive contracts stopping farmers selling off their extra milk to another company distort the market.

"Retrospective price cuts are un-Australian and I'm glad to be stamping that out."

The Australian Competition and Consumer Commission (ACCC) concluded in its 2018 Dairy Inquiry that the bargaining power imbalance between processors and dairy farmers, combined with unequal availability of information between them, results in market failure in the Australian dairy industry. This led the ACCC to recommend that Government establish a mandatory code of conduct for the dairy industry. The code was also requested by the ADF last year.

The mandatory code will help to manage the business and contractual relationship between farmers and processors. It will establish standard business practices for dealings between processors and farmers, and protect farm businesses against egregious conduct by processors.

The code will also improve pricing transparency in the industry and will work with the Food and Grocery Code to cover the supply chain. However, the Dairy Code will not regulate farm gate milk prices or set the price that dairy processors and retailers charge for their products.

Fast Facts:

The mandatory code of conduct for the dairy industry proposes rules business transactions between processors and farmers, including to:

  1. require parties to deal with each other fairly and in good faith having due regard to the other party's legitimate business interests
  2. prevent unilateral changes to agreements
  3. require that annually on a set date processors publicly release a standard form agreement covering the terms of supply and a price (and if applicable a pricing mechanism for longer-term agreements) that covers the term of the agreement
  4. prevent retrospective price step downs
  5. prohibit prospective step downs unless in specific circumstances such as force majeure, or exceptional market circumstances or major changes in global market conditions
  6. prohibit exclusive supply arrangements in combination with two-tier pricing
  7. prohibit processors withholding loyalty payments if a farmer switches processors
  8. introduce a dispute resolution process for matters related to contracts between farmers and processors, and
  9. alleged breaches of the code will be investigated by the Australian Competition and Consumer Commission with penalties available.

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