UNFAIR industry practices and contract terms complaints by dairy farmers “are not effectively addressed” by existing competition and fair trading laws, a draft dairy code impact statement has acknowledged.
Sections of the Competition and Consumer Act 2010 (CCA) aimed at preventing powerful companies using restrictive trade practices and unfair contract terms to improve market position, provided “minimal deterrence” in relation to compliance and enforcement, the statement acknowledged.
Apart from only applying in specific instances and with retrospective enforcement, CCA provisions were further “undermined by some fundamental limitations” when applied to business relationships between dairy farmers and milk processors, it said.
The Dairy Industry (Farmer-Processor Transactions) Code of Conduct early assessment regulation impact statement (RIS) was prepared by Federal Department of Agriculture and Water Resources (DAWR) staff.
It was released last week, along with a draft clauses proposal and issues statement, for comment by February 15 as part of a second round of public consultation on a dairy code.
The RIS set out a strong case for strengthening existing competition and fair trading laws, as they apply to the dairy industry, through the addition of a code of practice.
It pointed out factors like a need to continue milking cows for animal health reasons, the perishable nature of milk, limited ability to store milk on-farm for more than a few days, environmental laws preventing farmers dumping milk and, in places like WA, a lack of competition between processors for raw milk, prevented dairy farmers boycotting processors who they considered act unfairly.
In December the Australian Competition and Consumer Commission (ACCC) announced some processors had agreed after extensive negotiation to amend clauses of standard-form milk supply agreements to comply with modified business-to-business unfair contract terms laws.
But the RIS pointed out that including unfair terms in a contract is not illegal, there are no penalties a court can impose and a $300,000 ceiling on contract value the unfair contract terms laws apply to, means they offer little protection for dairy farm businesses.
The RIS also pointed out, it is easy for processors to modify price or another aspect on a couple of individual contracts to cast legal doubt over whether their milk supply contracts as a whole are standard form and subject to the law.
In the RIS, DAWR staff outlined the potential impacts of four dairy code options.
One option is for a version of the existing legally unenforceable voluntary code.
In WA, the three major milk processors Lion Dairy and Drinks which produces Masters Milk, Parmalat which produces Harvey Fresh milk and Brownes Dairy have now signed up to the voluntary code.
The other three options are for codes with provisions and penalties prescribed by legislation which could make them legally enforceable.
One is a voluntary code where provisions and penalties would only apply to processors who signed up to it and only for the period they remained signed up.
The other two options are for mandatory codes, one covering only the major processors – 20 processors received 95 per cent of the 9.35 billion litres of milk produced nationally in 2017-18 and the remainder went to 51 small processors – and the other including all processors.
A prescribed mandatory dairy code applying to major processors – a tax office definition of a small business as having aggregate annual turnover of less than $10 million could become the distinction – offered close to maximum protection for farmers with minimum “regulatory burden” on small business, according to the RIP.
There was also less likelihood of “unintended consequences”, it said.
It argued applying a mandatory code to all processors would see small processors, like boutique cheese makers who only take small volumes of milk, carrying a “disproportionate” share of the cost of implementing a dairy code.
Farmers were also in a much more equitable position when dealing with them than with large corporate processors, it said.
The RIP assumed there would be no compliance costs for dairy farmers under any of the options.
As reported in Farm Weekly last week, DAWR staff estimated the annual cost of implementing a prescribed dairy code mandatory for large processors would be $290,000.
The draft code proposals would require processors to provide plain-English standard form agreements at the same time so farmers could compare prices and conditions.
They also propose agreements stipulate a minimum price for the first year and a method for determining the minimum price over subsequent years of any longer term agreements.
Retrospective price step downs would be banned but comment is sought on two options for prospective step downs.
Farmers could supply multiple processors and exclusive supply arrangements with a two-tier pricing model would be banned and processors could not withhold loyalty payments from farmers who switched processor.
An independent dispute resolution process with each side paying its own costs is identified as essential but the format has not yet to be determined.
“Careful consideration needs to be given to the development of a dispute resolution mechanism that is independent, fast and accessible,” the RIS stated.
Some other issues raised by farmers during earlier consultations on a dairy code could not be included because they fell outside the scope of managing development and operation of business contracts between two parties, DAWR staff said in the documents released last week.
They said these left out issues included re-regulating farmgate prices, pricing and contract arrangements between processors and retailers, milk swaps between processors, developing multiple codes depending on geographic locations or whether processors supply domestic or export markets and establishing an independent milk ombudsman to regulate aspects of the industry.
To make a comment or submission on a proposed dairy code, see haveyoursay.agriculture.gov.au/ dairy-code-conduct.