Dairy inquiry spills over to next year

The Australian Competition and Consumer Commission (ACCC) agriculture unit and agriculture commissioner Mick Keogh had been due to submit their final report to Treasurer Scott Morrison at the end of the month.

But last week Mr Morrison granted an ACCC request for more time.

Instead, an interim report will now be released in late November and the final report is due in Mr Morrison’s office by April 30, 2018.

In a statement the ACCC said it had asked for more time so it could consult further with the dairy industry.

“We sought the extension to allow us to consult with the industry through an interim report,” the ACCC said.

“This report will contain interim findings and recommendations based on our analysis of issues such as competition between milk processors, contracts between processors and farmers and the impact of domestic retail prices on the industry.”

The inquiry into the dairy industry was ordered by Mr Morrison on October 27 last year in response to widespread complaints by dairy farmers about what they saw as unfair treatment from milk processors and big retailers to drive farmgate prices down.

The lasting impact of $1-a-litre ‘private label’ supermarket milk on the dairy industry was one aspect to be specifically investigated by the ACCC inquiry.

In WA private label processing by Brownes Dairy for Woolworths and Lion Dairy and Drinks for Coles – Lion also markets Masters brand milk in WA – absorbs about one third of raw drinking milk produced by farmers.

In March, 18 representatives of the State’s 142 remaining dairy farm enterprises, a former milk processor and two of the three former Brownes suppliers forced out of the industry last year, attended the only WA hearing of the national inquiry.

At Bunbury Mr Keogh heard allegations of predatory pricing behaviour and unconscionable conduct by a major retailer and processors.

Farmers blamed low processor margins due to private label milk for unsustainable farmgate prices and a lack of investment in value-adding or shelf life-extending technologies in WA.

In July, when Mr Keogh was in Perth for The University of Western Australia’s Institute of Agriculture forum, he met with WA’s three major processors Brownes, Lion and Parmalat for closed-door sessions at which processors were compelled to provide information about their operations.

Since then Brownes suppliers have been considering new contracts criticised by some as offering “a three-year term but a one-year price”.

The base ‘reference price’ offered by Brownes is said to be between five and eight cents a litre below what its competitors have been paying but with opportunity for farmers prepared to modify summer supply to earn up to almost one third more.

A controversial clause in earlier draft versions of contracts, which would have allowed Brownes to penalise suppliers who did not produce 90 per cent of their agreed milk volume, has been dropped.

Most of Parmalat’s 63 Harvey Fresh suppliers also run out of contract at the end of this month.

As previously reported, Parmalat’s WA milk supply manager Malcolm Fechney and national field service manager Mark Linton from Brisbane met with suppliers at closed meetings in May and June to discuss better matching of supply to demand.

Parmalat, which was seeking a 10 per cent overall reduction in contracted milk supply, plans to offer all its WA suppliers a new contract from January.

Delaying the final ACCC inquiry report was unlikely to have any impact on these contract negotiations, WAFarmers dairy section president Mike Partridge said on Monday.

“The inquiry has been a long and drawn out process, we’ll just have to wait for the final report and hope that it and its recommendations have some teeth and that they are adopted,” Mr Partridge said.

He said irrespective of the ACCC dairy inquiry, new small business standard-form contract laws came into effect last November and governed how a larger business like a milk processor dealt with a smaller business like a dairy farmer.

Last month the ACCC initiated Federal Court action against one of Australia’s largest waste management companies, JJ Richards & Sons Pty Ltd, in a first test case for its standard-form contract legislation.

Mr Keogh has previously acknowledged milk supply contracts are an issue “relatively specific” to WA, with non-binding supply agreements based on a season average price rather than a contracted price more widely used in Eastern States.

The ACCC held a separate inquiry into the actions of Australia’s largest milk processor Murray Goulburn Co-operative Co Ltd and also Fonterra Australia Pty Ltd in attempting “step downs” last year from previously indicated farmgate prices.

In April it instituted proceedings in the Federal Court against Murray Goulburn alleging it engaged in unconscionable conduct and made false or misleading representations in contravention of Australian consumer law.

It also alleged former managing director Gary Helou and former chief financial officer Bradley Hingle were knowingly “concerned” in the conduct.

No action was initiated against Fonterra because its indicative farmgate price and the risk it might reduce were “more transparent”, the ACCC said.

In August a national Senate Economics References Committee inquiry into the dairy industry, conducted at roughly the same time as the ACCC inquiry, referred a third of its 12 recommendations to the ACCC inquiry.

The Senate inquiry was widely criticised by dairy farmers for passing decisions back to the ACCC.