Dairy code clamps down on unfair processor practices

Dairy farmers are set to benefit from greater negotiating power with milk processors after the federal government announced it is progressing the Mandatory Dairy Code of Conduct.

The code will have nine key principles which will help increase the fairness and transparency between the two, outlawing several practices previously used by milk processors.

Minister for Agriculture David Littleproud said, “The mandatory code of conduct will:

• ban retrospective price cuts to dairy farmers;
• 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; and
• ban processors withholding ‘loyalty payments’ if a farmer moves to another processor, which removes the financial handcuffs from farmers and allows them to more easily sell their milk to the highest bidder.”

He explained the code would stamp out “un-Australian” retrospective price cuts and give farmers more flexibility to switch between processors, which will increase competition and ban exclusive contracts which distorts the market.

Last year, the Australian Competition and Consumer Commission (ACCC) recommended that government establish a mandatory code of conduct after its 2018 Dairy Inquiry. This found that the bargaining power imbalance between processors and dairy farmers, combined with unequal availability of information between them, results in market failure in the Australian dairy industry. Key industry bodies Australian Dairy Farmers, Queensland Dairyfarmers’ Organisation and Dairy Connect also requested a code last September.

The code will improve pricing transparency in the industry and will work with the Food and Grocery Code to cover the supply chain, but it will not regulate farm gate milk prices or set the price that dairy processors and retailers charge for their products.

“This won’t fix all the industry’s structural problems but it’s a good first step," Littleproud said. “The next step is to draft wording for the regulations in this code, in consultation with industry.”

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