Dairy farmers will have more power to negotiate with milk processors under a new mandatory industry code of conduct proposal from federal government.
Agriculture Minister David Littleproud announced today the federal Cabinet had endorsed the mandatory code, which was developed in consultation with industry, and will take effect on July 1 2020.
“Australian Dairy Farmers, Queensland Dairyfarmers’ Organisation and Dairy Connect asked for a mandatory code of conduct last September and we’re delivering it,” Mr Littleproud said.
Industry representatives are sweating on the final version of the mandatory code, and any potential back-tracking by government.
Industry groups welcomed the key points of the code outlined by Mr Littleproud today:
- Ban retrospective price cuts
- Bring milk supply contracts under unfair contract legislation
- 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
- Ban processors withholding loyalty payments if a farmer moves to another processor, to make it easier for farmers sell their milk to the highest bidder
Mr Littleproud said the code would stamp-out “un-Australian” retrospective pricing, increase market competition by enabling farmers to switch between processors more easily, and ban exclusive contracts that distort the market and prevent farmers selling excess milk non-contracted companies.
“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 fin this code, in consultation with industry.”
Australian Dairy Farmers in a statement it aims strengthen farmers’ bargaining while respecting commercial realities and supporting innovation and market dynamics.
“A new code of conduct is an important step that will clarify and strengthen relationships between farmers and processors across all states of Australia,” ADF said.
Dairy Connect chief executive Shaughn Morgan said consultation over finalisation of the code would spur robust discussion between government, farmers and processors.
“Now is a good time for dairy industry stakeholders and government to begin finalising the contents for the mandatory code,” Mr Morgan said.
Mr Morgan was pleased that both major parties are focusing on structural failure in the dairy industry. He has also welcomed Labor agriculture spokesman Joel Fitzgibbon’s plans to implement a milk floor price.
“Dairy farms are diminishing, cows are being culled, fodder prices are increasing and power prices have skyrocketed,” Mr Morgan said.
“Joel Fitzgibbon has put forward a possible solution. That’s a good thing, in that a third party can look at the facts and that allows us in industry groups to look at the policies, comment on them and give advice to government.”
ADF said dairy farmers are struggling with sustained high input costs and flat farmgate returns and growing numbers of farmers exiting the industry.
“The current proposal to set a floor price for milk would likely have considerable implications for Australia’s domestic and export markets,” ADF said.
The industry group is working with Labor to understand the policy, and is developing its position on a milk floor price.
Mr Fitzgibbon said he had positive feedback from industry on the floor price policy.
“Minister Littleproud is wrong to claim that there is no industry leadership support for Labor’s Minimum Farm Gate Milk Price,” he said.
“Everywhere I travel farmers express their disappointment with the lack of support they are receiving from Liberal and National Members of Parliament.”
Mr Littleproud said consumers should to punish retailers selling dollar milk, and called for a boycott on Coles and Aldi.
He opposes a milk floor price and yesterday said it could hurt the industry and highlighted claims that industry groups oppose the policy.
A Labor-controlled Senate Committee found in 2017 that a floor price or levy on fresh milk could distort the market and reduce farmer productivity; downgrade the competitiveness of Australia’s dairy export; decrease domestic consumption of fresh milk and; even impede Australia’s trade standing when advocating against international import tariffs on our dairy exports.
National Farmers' Federation chief executive Tony Mahar said the code would help address the power imbalance between processors, supermarkets and producers.
"The sector’s challenges are complex, but evening the playing field between small family dairy businesses and the might and power of processors and retailers, can only be positive," Mr Mahar said.
The mandatory code proposal released today also contains rules for transactions between processors and farmers:
- Require parties to deal with each other fairly and in good faith having due regard to the other party’s legitimate business interests
- Prevent unilateral changes to agreements
- 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
- Prevent retrospective price step downs
- Prohibit prospective step downs unless in specific circumstances such as force majeure, or exceptional market circumstances or major changes in global market conditions
- Prohibit exclusive supply arrangements in combination with two-tier pricing
- Prohibit processors withholding loyalty payments if a farmer switches processors
- Introduce a dispute resolution process for matters related to contracts between farmers and processors, and
- Alleged breaches of the code will be investigated by the Australian Competition and Consumer Commission with penalties available.