A PROTRACTED Senate inquiry into Australia’s dairy industry has made 12 recommendations for federal parliament to consider including examining the potential need for a mandatory industry code of conduct.
It has also raised concerns about the industry’s new voluntary code - that aims to increase transparency and reduce contractual ambiguity - leaving the door open to allow retrospective price claw-backs by milk processors.
The Senate Economics References Committee inquiry was initiated after the 2016 federal election, to investigate the milk farm-gate pricing crisis that struck during the two month double dissolution election campaign, and tabled its report last week.
Initially flagged to hand down its findings by February 24 this year, the inquiry’s reporting deadline was extended five times due to the Committee’s heavy workload.
The examination interrogated core issues linked to the dairy crisis; including the legality of retrospective elements of milk contracts and the behaviour of milk processor Murray Goulburn.
“The Australian dairy industry is facing an unprecedented crisis with the retail cost of bottled milk per litre often less than the retail cost of bottled water,” the inquiry referral said.
“Australian milk production since deregulation over 15 years has decreased from approximately 11 billion litres per year to 9 billion litres per year – a 20 per cent decrease, while New Zealand milk production has almost doubled.
“Australia’s largest dairy producer and milk price setter, Murray Goulburn, has been allowed to force onto its suppliers unprecedented milk contracts or agreements ensuring that dairy farmers are burdened with retrospective debts ranging from tens to hundreds of thousands of dollars.
“Australian rural and regional communities face losing millions of dollars and thousands of jobs if a fair, long term solution to Australia's dairy crisis is not found.”
The report’s top recommendation called on the Australian Competition and Consumer Commission (ACCC), as part of its inquiry into the Australian dairy industry, to evaluate how the new code of conduct would reduce power imbalances between farmers and processors and suggest any improvements.
Any outcomes from the ACCC inquiry should be incorporated in a proposed review of the code after its first year of operation, the Committee recommendation said.
The committee also recommended the competition watch-dog should consider how dairy industry collective bargaining could be strengthened, to be more widely used and assist in addressing “the power imbalance”.
The committee’s third recommendation said any review of the industry code of conduct should be undertaken by an independent party that can objectively assess if it’s working as intended and “consider if a mandatory code would be more appropriate”.
“The committee notes that a Code of Practice for Contractual Arrangements between Dairy Farmers and Processors in Australia was released on June 30, 2017,” the report said.
“The voluntary code reflects an agreed positon between Australian Dairy Farmers Limited, the Australian Dairy Products Federation and the dairy processors that are signatories (which include the five largest dairy processors).
“The code is designed to set out the recommended minimum good practice standards in terms of milk supply contracts.
“However, as the code is in its early stages of implementation, it is not yet apparent the extent to which it will change contracting practices within the industry.
“The committee remains concerned that a voluntary code may not be sufficient to bring about widespread change in milk supply arrangements and contracting practices.”
The report said the committee was “disappointed” that the code still allowed the opportunity to impose retrospective price reductions on milk suppliers.
“It considers that processors should bear the risk for setting relatively high opening prices and this should be reflected in the code,” the report said.
The report said Australian Dairy Farmers had noted that they had attempted to put in the draft code that step-downs should not occur, “but this was resisted by processors which cited directors' fiduciary responsibilities in times of crisis”.
“Arguably, more conservative opening prices and more equitable risk sharing arrangements could alleviate the need for retrospective price step-downs and give more price stability and certainty for farmers,” it said.
“Farmer Power was critical of the slow progress in developing a code of conduct in Australia given that idea was first raised in 2011 - they supported the introduction of a mandatory code of conduct.
“Many stakeholders supported the introduction of a mandatory code of conduct.
“The QDO (Queensland Dairyfarmers' Organisation) citied the UK experience where a voluntary code was replaced with a mandatory one.”
While accepting seven of the main Committee report’s 12 recommendations, a dissenting report by government Senators rejected calls for an independent review of the $579 million dairy support package delivered in May last year by the Coalition after the Murray Goulburn and Fonterra retrospective price contract cut-backs, saying it “is not necessary”.
“Nor is it preferable to the range of existing accountability measures that are in place,” the dissenting report said.
“The Australian National Audit Office can audit the delivery of the dairy support package and both the Department of Agriculture and Water Resources, and Dairy Australia, are able to be examined by Senators at Senate Estimates.
“Coalition Senators commend the Australian government on the support provided to dairy farmers and note that in 2009 - when the farm-gate dairy price was even lower than in 2016 - the then-Labor government did not provide assistance to the dairy industry in south-eastern Australia.”
The dissenting government Senators’ contribution to the report also rejected a recommendation to scrap the development of a dairy commodity price index which was a $2m commitment in the dairy industry support package announced last year.
“This commitment was welcomed by dairy industry representatives,” the dissenting report said.
“Government members of the committee note that the relevant department has acted on this commitment, consulting with dairy farmer representatives, dairy processors, Dairy Australia and a range of industry service providers on the potential development of an index.
“The Department of Agriculture and Water Resources has undertaken an expression of interest process for the development of the index and is currently assessing the applications received.
“The peak national dairy farmer representative organisation, Australian Dairy Farmers (ADF), has been supportive of and is engaging positively with the Australian government on the development of the dairy price commodity index.”