Peak farm body wrongly avoids conflict with its dairy code contract

Why ADF's dairy code contract proposal won't help in milk processor disputes


Fair prices are important in milk contracts, but more significant will be the complaint resolution procedures which processors agree to



In just over a week every processor planning to buy milk from dairy farmers next financial year, must publish a standard form Milk Supply Agreement on its website, as required in the Dairy Industry Code of Conduct.

The form must include all matters the code requires to be provided for in a written milk supply agreement.

In particular, farmers will be keen to see the minimum milk price being offered by processors.

Maybe of less concern, but of greater significance will be the complaint resolution procedures included by processors.

Why? I'll explain.

The new Australian dairy code introduces a range of provisions and prohibitions regarding matters which have beset dairy farmers for years, such as price claw backs and exclusive supply restrictions.

The government seeks to set industry conduct by specifying these matters in the code and requiring they be included in a milk supply agreement.

Conflict procedure

Where a conflict about compliance with the agreement arises it is resolved by the complaint resolution procedures agreed between the parties in the milk supply agreement.

The resolution procedures in the agreement are: a complaint notification and negotiation process; a mandatory mediation process available on request of a party; and binding arbitration, but only if agreed in writing between the parties.

This "streamlined" dispute process of negotiation, mediation and binding arbitration was described by Senate inquiries as "generally the norm in both the government and business sectors".

If a comprehensive conflict resolution clause is not provided in the milk supply agreement, it will preclude the opportunity for parties to achieve a fair, final and inexpensive resolution of any conflicts.

When the Australian Dairy Farmers released its version of a "template" agreement this week, it included a recommended complaints and disputes clause.

ADF's draft template for complaint and dispute handling fails to identify an independent body that can mediate and arbitrate contractual disputes between farmers and processors, as urged by the ACCC. - Derek Minus

However, I believe this ADF clause should NOT be used by dairy farmers and processors as it fails to incorporate recommendations the Australian Competition and Consumer Commission identified as needed after its extensive 18-month inquiry into the dairy industry.

Derek Minus

Derek Minus

The ACCC's inquiry report in April 2018, noted bargaining power imbalances between processors and dairy farmers resulted in market failure in the Australian industry.

The regulator made eight recommendations for improving relationships between farmers and processors it said would facilitate efficient production and supply of dairy products.

Establishing a mandatory dairy code of conduct was one of them.

Where it fails

In my view ADF's draft template for complaint and dispute handling fails to identify an independent body that can mediate and arbitrate contractual disputes between farmers and processors, as urged by the ACCC.

It also fails to require binding determination or arbitration by including a detailed dispute resolution clause that provides rules by which the arbitration would be conducted, also recommended by the ACCC.

Nor does it specify the complaint handling process should also govern disputes between collective bargaining groups and processors, as recommended by the ACCC.

It does not define the complaint resolution procedures to be adopted (ANSI standard processes exist for this), or identify a comprehensive complaint resolution process and the rules by which it should be conducted.

Held to account

The dairy code has been promoted as a way to increase fairness and transparency between dairy farmers and processors, but to achieve a "fair" outcome when it is claimed a party has breached the code's provisions, the aggrieved party must be able hold the other party to account.

The ACCC is an industry regulator not a dispute resolution body, and unfortunately many people are confused about this point.

Rather than use the ADF template for dispute handling I suggest farmers and processors should negotiate milk supply agreements featuring these important protections that will allow a final resolution to any complaint to be quickly and inexpensively achieved.

More detailed information can be found on the dairy code website's resolution procedures page:

  • Derek Minus is a Sydney barrister and farm sector dispute mediator and arbitrator with specific experience in the dairy and horticulture industries. He is former Commonwealth mediation adviser.
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