French-owned dairy giant Lactalis Australia has become the first milk processor facing Federal Court penalties for allegedly failing to comply with a host of regulations in the dairy code of conduct.
The Australian Competition and Consumer Commission has initiated Federal Court proceedings against Lactalis saying it failed to introduce transparent or fair standard contract arrangements with Queensland dairy farmers last year.
The competition watchdog noted Lactalis was one of Australia's largest dairy processors, buying milk from at least 400 farmers in all states for its 80-year-old Pauls milk brand.
Lactalis also owns the Oak, Ice Break, Vaalia, Tamar Valley, President and Lemnos flavoured milk, yoghurt and cheese brands.
The ACCC claims refer to provisions of the dairy code introduced in January 2020 and, if proven in court, will see the regulator seek penalties, injunctions, legal costs and a corrective advertising order imposed against the company.
Reduced bargaining power
Lactalis's actions allegedly weakened the bargaining power of farmers supplying milk to the company, known as Parmalat Australia until 2019.
It had failed to make its milk supply agreements publicly available on its website by the 2pm June 1, 2020 deadline, as required by the code.
Instead, it asked farmers to sign up to a mailing list to receive a copy of the agreements.
ACCC deputy chairman Mick Keogh said this effectively reduced the transparency of Lactalis' milk supply agreement terms and conditions during the limited timeframe in which farmers were comparing supply options for the new financial year.
Lactalis is also in trouble for allegedly arranging milk supply agreements with producers which permitted it to terminate an agreement if the company considered a milk supplier had engaged in "public denigration" of processors, key customers or other stakeholders.
The ACCC claimed this clause let Lactalis exit agreements in circumstances where there was no material breach of the supply contract.
The dairy code specifies processors may only unilaterally terminate agreements after a material breach by the farmer.
Lactalis is further accused of restricting farmers' ability to supply more than one processor because it failed to publish genuine non-exclusive milk supply agreements.
Non-exclusive contracts have been a key competition requirement under the code so farmers have more flexibility in choosing who to supply to.
For every exclusive milk supply agreement a processor publishes, they must also offer a non-exclusive supply option to farmers.
None of the allegations apply to contracts published on Lactalis' website for the current supply season, although Mr Keogh said the ACCC was assessing this year's agreements for compliance.
"One of the key aims of the dairy code is to improve the clarity and transparency of trading arrangements between dairy farmers and the companies buying their milk," he said.
"Farmers need access to timely information when making decisions about which processor to supply milk to."
He said although Lactalis had also offered non-exclusive milk supply deals, it actually required farmers to supply at least 90 per cent of their previous year's monthly volume, or 90pc of current production if it was lower.
The ACCC alleged this rule prohibited most farmers from supplying milk to another processor because the remaining 10pc was insufficient for rival companies to be interested in buying.
It has also alleged Lactalis did not comply with the dairy code's "single document" requirement, failing to provide farmers with all three documents that made up Lactalis' milk supply agreement.
In most cases, just one document was provided to farmers when the agreement was executed.
"It is very important that farmers have access to a complete record of the milk supply agreement they have signed up to," Mr Keogh said.
"This safeguards against any subsequent changes to the agreement, and allows both parties to understand their rights and obligations."
"The ACCC reminds dairy processors any failure to comply with the dairy code may result in enforcement action by the ACCC and attract penalties."
The code requires contracts offer a minimum price for milk and a single contract document specifying quality and quantity requirements, including testing procedures, and specifying circumstances in which parties may unilaterally terminate their milk supply agreement.
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