STANDARD format one-year supply contracts offered to farmers simultaneously by WA’s three major milk processors should be a minimum starting point for a mandatory dairy code.
Farmers should have 30 days to consider the new contracts and seek legal or financial advice before signing, with a similar period required of them to notify their processor if they are not resigning, to improve farmers’ ability to switch between processors.
A mandatory code should continue to allow farmers to sell excess milk beyond contracted volumes to a third party, as they can under a voluntary code it is proposed to replace and farmers want to avoid a re-occurrence of some local boutique cheese makers being denied access to milk.
Longer-period contracts and exclusive-supply contracts could be offered as a negotiated option and two-tiered pricing could remain as a means of helping balance supply – but not in conjunction with an exclusive-supply contract.
Prices must be specified for each year of a longer-term contract to avoid the current situation where some farmers are locked in for five years with a processor but with only the first year’s farmgate price on the contract.
Farmers should also continue to be paid once a month for their milk.
These were some of the basic requirements expected of a mandatory dairy code, dairy farmers told three visiting Canberra officials from the Department of Agriculture and Water Resources (DAWR) at consultation meetings at Brunswick Junction and Margaret River recently.
The DAWR officials also met with Brownes Dairy management in Perth on Friday before they left and will be talking to Lion Dairy and Drinks and Harvey Fresh owner Parmalat in the Eastern States to get milk processors’ views on a mandatory code.
Dairy farmers at the meetings stressed the code should set “minimum standards”.
It must also be flexible enough to accommodate significant differences between the Eastern States’ multi-product, export-focussed, adequate competition dairy industry with exposure to global market factors and WA’s effectively no-competition, predominantly domestic drinking milk industry.
They said a mandatory code should shield WA farmers not exposed to export market forces from price “step-downs” imposed by Eastern States-based processors because of changes to the global market for dairy products.
Federal Forrest MP and Harvey dairy farmer Nola Marino and WAFarmers dairy section president Mike Partridge particularly stressed this point at the Brunswick Junction meeting.
“We don’t want the code to make WA farmers vulnerable to step-downs which apply to export focused markets in the Eastern States,” Ms Marino said.
One concession especially proposed for the mandatory code to protect WA farmers, the DAWR officials said, would require WA processors to give farmer suppliers 12 months’ prior notice if they were to be dropped when there were no alternative processors able to take their milk.
In other Australian dairy areas, where there may be up to six processors operating and more ability for farmers to find another home for their milk, the notification period was likely to be 30 days, the officials said.
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The meetings were told the concession for WA was an acknowledgement of an effective lack of competition between milk processors here for supply and a consequence of Brownes Dairy’s controversial dropping of three of its best suppliers on September 30, 2016, the first time in WA suppliers were dropped without a breach of contract.
A dispute resolution process proposed to be introduced in the mandatory code needed to be “effective, efficient and low cost”, farmers said.
“We’re dairy farmers producing a perishable product, in a vulnerable position with no competition in the market, we don’t have time to go to the ACCC (Australian Competition and Consumer Commission) for a resolution,” Ms Marino pointed out.
“The (dispute resolution) process needs to be simple and effective and that’s a whole another ball game.”
Federal Agriculture and Water Resources Minister David Littleproud recently initiated work on a mandatory national dairy code after approaches from the industry and recommendations stemming from an ACCC inquiry into the dairy industry.
The dairy code is proposed to be administered by the ACCC like other mandatory prescribed industry codes such as the horticulture, wheat port, franchising and oil codes of conduct and the sugar and unit pricing (regulates food price labelling for certain grocery retailers) codes.
Mr Partridge said while the code was “not a silver bullet”, it would help WA farmers if it achieved the stated aims of making pricing more transparent, contracts simpler and addressed the power imbalance between a farmer and processor.
But he and Ms Marino indicated they were disappointed the code was only proposed to cover half of the dairy supply chain.
“One of the messages I hope you take back to put in your report is that that the ACCC inquiry acknowledged the impact of supermarkets on the price of milk but their inquiry report focussed on the processing side of it and us (dairy farmers), not on the supermarkets,” Ms Marino told the DAWR officials.
“Supermarkets control the market – what margin they make on milk and what the farmers are paid for their milk is completely different.
“There’s a lot of manipulation by the supermarkets in this space and a lot going on between the supermarkets and the processors that is significant as well, but this process you are going on with here doesn’t help with that.
“You talk about where the market power sits – I know where the market power sits in WA (with supermarket chains).
“It’s an issue the ACCC continues to overlook, it chooses to do nothing about it,” she said.