Dairy processors have been provided with additional information on their legal obligations under the Dairy Code of Conduct.
The Australian Competition and Consumer Commission has updated the guidance ahead of the June 1 deadline for the release of milk supply agreements for the 2023-24 dairy season.
The ACCC's updated Dairy Code guidance provides further detail on:
- how processors need to publish their milk supply agreements;
- when they can terminate an agreement with a farmer;
- how they can comply with the 'single document' requirement; and
- the meaning of a non-exclusive agreement under the code.
The updated guidance incorporates the Federal Court's findings in the first ACCC proceedings brought under the Dairy Code.
The updates also simplify various aspects of the guidance to assist dairy farmers and processors to understand their rights and obligations under the code.
"The code has been in place now for almost three full dairy seasons and, generally speaking, we have seen compliance continue to improve," ACCC deputy chair Mick Keogh said.
"However, we urge processors to remain vigilant.
"We want processors to familiarise themselves with our revised guidance so they are completely clear on their obligations under the code.
"For most processors, this won't require any major changes to current practices."
Ensuring compliance with industry codes of conduct in the agricultural sector is a compliance and enforcement priority for the ACCC in 2023-24.
"We'll be conducting further compliance checks following the publication of new milk supply agreements on 1 June to ensure processors are complying with the code," Mr Keogh said.
Processors' publishing obligations
Under the code, if a processor intends to buy milk from farmers in the next financial year, they must publish:
- all their standard form milk supply agreements for the upcoming financial year. Each milk supply agreement must also include a statement of justification;
- a statement of circumstances for each milk supply agreement; and
- a report on any disputes that were subject to mediation or arbitration in the preceding year.
These documents must be published on the processor's website before 2pm (AEST) on June 1 of each year.
Once published, these documents must generally remain on the processor's website and cannot be changed until the end of the next financial year.
To meet the publishing requirements of the code, processors must make their standard form milk supply agreements available directly from their website.
The publishing requirements will not be satisfied if the website only provides a method of requesting the documents from the processor.
Terminating a milk supply agreement
All milk supply agreements must specify the circumstances in which the farmer and the processor can:
- agree to vary or terminate an agreement, and
- unilaterally vary or terminate an agreement.
Any consensual variation or termination of the agreement must follow the process set out in the milk supply agreement.
Where an agreement is terminated, the terms of the agreement will continue to apply up until the specified date of termination.
A processor can only unilaterally terminate a milk supply agreement where the farmer has committed a material breach of that agreement.
A material breach refers to a breach that is objectively important or significant to both parties.
It does not include a breach that is properly characterised as trivial or minor.
Whether a particular breach of the agreement constitutes a material breach may depend on the circumstances surrounding the breach and the nature of the obligation in question.
The ACCC considers a material breach may include:
- refusing to remedy a breach that has been brought to the other party's attention;
- repeated or systemic breaches of the milk supply agreement; or
- a serious breach of relevant legislation or regulations - including food safety, environmental or animal welfare requirements.
The ACCC considers the following actions would not generally constitute a material breach:
- isolated or one-off breaches of the agreement that do not have a significant or serious impact on the processor
- temporary issues with the quality or quantity of milk supplied.
Single document requirement
Under the code, all milk supply agreements must consist of a single document.
In the dairy industry it is common for milk supply agreements to consist of multiple parts. For example, a single document 'milk supply agreement' might consist of:
- a document setting out the terms and conditions for milk supply;
- a supplier handbook;
- a pricing letter; and
- any other policies or manuals that farmers must adhere to under the agreement.
The single document rule applies to all agreements entered into by a processor, as well as all standard form agreements published on a processor's website.
If a milk supply agreement consists of multiple parts, the ACCC considers that all parts of the agreement should be clearly identified and incorporated into the milk supply agreement.
For example, by being annexed or attached to the milk supply agreement.
Once a farmer enters an agreement with a processor, the processor cannot unilaterally vary the terms set out in the relevant supplier handbook or manual, except where allowed by the code.
Processors have an obligation to keep copies of all versions of:
- all milk supply agreements on their website;
- any agreements entered into with farmers; and
- any supplier handbooks or pricing letters that form part of their agreements.
Exclusive and non-exclusive agreements
Under the code, a milk supply agreement may be either exclusive or non-exclusive.
The milk supply agreement must clearly specify whether it is an exclusive or non-exclusive agreement.
Where a processor offers to enter into an exclusive supply agreement in particular circumstances, the code requires a processor to publish a non-exclusive version of any exclusive milk supply agreement, which is available to farmers in the same circumstances.
The code defines an 'exclusive supply agreement' as a milk supply agreement that prohibits the farmer supplying milk to another processor.
If an agreement expressly provides that a farmer is not allowed to supply milk to any other processors, it will be an exclusive agreement.
In contrast, an agreement that permits a farmer to supply more than one processor will be a non-exclusive agreement.
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