Major review for dairy contracts

Major review for dairy contracts


Agribusiness
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Five dairy processors have agreed to change supply contract terms deemed unfair to farmers.

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Australian Competition and Consumer Commission deputy chairman Mick Keogh.

Australian Competition and Consumer Commission deputy chairman Mick Keogh.

FIVE dairy processors, including WA’s three major milk processors, have agreed to change supply contract terms deemed unfair to farmers.

Brownes Food Operations, Lion Dairy and Drinks (LDD) and Harvey Fresh owner Parmalat Australia, together with Norco Co-operative Ltd and Fonterra Australia, have each agreed to amend specific terms in their milk supply agreements.

The Australian Competition and Consumer Commission (ACCC) announced early last week that the processors had agreed to address concerns some supply contract terms did not comply with the business-to-business unfair contract terms law introduced by the federal government just over two years ago.

The competition watchdog, which in April concluded an inquiry into the dairy industry, said it had been working with the processors individually for a year on the changes to ensure dairy farmers were not disadvantaged.

Most processors have agreed to allow dairy farmers to terminate their contract if the processor varies supply terms such as price or quality requirements, placing the farmer in a worse position.

The ACCC also raised concerns with some processors about lengthy notice periods - up to 12 months in some contracts - for farmers to terminate contracts, one-sided termination rights, broad indemnities and terms that restrict a farmer’s ability to lease a farm or sell their cattle.

ACCC deputy chairman Mick Keogh said assessing unfair contract terms in the dairy industry was complex and required careful consideration.

“Farmers should be getting a fair deal when they contract to supply milk to dairy processors,” Mr Keogh said.

“Our work focused on terms in milk supply contracts that have the potential to cause the greatest harm to farmers.

“Where we raised concerns, most processors worked with us to find a solution to better balance farmers’ rights under the contracts.”

In July the ACCC announced Warrnambool Cheese and Butter Factory, Victoria, owner Saputo had altered terms in its milk supply agreements and milk supply handbook to comply with the amended business-to-business unfair contract terms section of the Australian Consumer Law.

WAFarmers dairy section president and Australian Dairy Farmers (ADF) national council member Mike Partridge welcomed the ACCC’s announcement of contract changes by processors.

He said all of the terms of concern identified by the ACCC had been present in WA supply contracts at times.

WAFarmers dairy council president Mike Partridge.

WAFarmers dairy council president Mike Partridge.

“We (WAFarmers) welcomed the business-to-business unfair contract terms amendments when they became law a couple of years ago and we now welcome them being put to use on milk supply contracts,” Mr Partridge said.

“Ultimately the fairness of negotiations and agreements between small business farmers and big business processors will be regulated by a mandatory code of conduct, but that is still some time off yet so it is good to have this extra protection for farmers in place until then.”

A mandatory code was the major recommendation from the ACCC’s review of the dairy industry and last month the Federal Department of Agriculture and Water Resources completed national consultation meetings with dairy farmers which it said was the first step to implementing a mandatory code.

As reported in Farm Weekly, WAFarmers dairy council supports standard-format one-year supply contracts offered simultaneously by processors as a minimum starting point for a code, with a notification period of 30 days for farmers to tell processors they are not signing.

But the code will only regulate the farmer processor half of the dairy supply chain and will not cover commercial relationships between processor and retailer.

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ADF president Terry Richardson called the supply contract terms changes announcement this week a win for farmers.

“This is an important step in strengthening bargaining power for farmers, which was one of the key issues highlighted by the ACCC in the dairy inquiry,” Mr Richardson said.

Advocacy group Dairy Connect’s chief executive officer, Shaughn Morgan said the work of the ACCC and Mr Keogh in paving the way for better balanced supply chain relationships needed to be acknowledged.

“As the industry progresses towards a new universal mandatory code of conduct governing stakeholder behaviour, we can see for the first time clear signs that commercial equity is in reach for farmers,” Mr Morgan said.

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