ANZ weighs in to the mandatory Dairy Code of Conduct debate

The bank's head of institutional food, beverage and agribusiness Gerry Karam said the issue could have a marked impact of the dairy landscape and ultimately on the products available to consumers.

The Dairy Code of Conduct came into effect on January 1, 2020, and aimed to redress the power imbalance between processors and farmers.

In particular, it aimed to prevent a repeat of the disastrous milk price clawbacks of 2016, when farmers faced retrospective cuts.

Tightening milk supply has heightened processor competition around the June 1 deadline for milk prices to be announced, leading to higher milk prices.

But processors have warned the higher prices could lead to rationalisation in the industry and have called for the code to be reviewed.

Farmers have rejected the call.

Australian Dairy Farmers president Ben Bennett said competition for supply, not the code, was forcing processors to offer higher prices.

Now ANZ, in it latest 'Food for Thought' report, says there are growing calls for a re-examination of the pricing system.

"Under the current system, every June, Australia's dairy companies arrive at a final minimum farmgate price they will pay to their particular farmer suppliers, to which they must adhere for a full year," Mr Karam said.

The current structure was designed to create certainty for dairy farmers, "offering greater opportunity to enhance, expand and de-risk their operations".

But rapidly declining milk supply and growing import competition had led to tightening margins for processors.

Mr Karam said imports of staple products such as butter and cheese, particularly from New Zealand, had soared.

"At a wider level, some argue that changing the system could see Australia's milk production fall to a level where the country - particularly non-dairy producing regions - could become increasingly import reliant," he said.

"Australia's dairy farmers argue that the nature of their business model means they require a reasonable degree of price certainty to not only remain viable, but to innovate and grow.

"Without this certainty, many argue, an ongoing strong decline in milk production may not only be irreversible, but of immense damage to the processing sector."

Mr Karam said consumers would also play an influential role in the industry's direction.

In particular, consumer willingness to buy imported dairy products, or even have an awareness of different products' country of origin, would play a vital part.

Their willingness to pay a premium for Australian dairy products would also be a factor.