Dairy Industry Code: frequently asked questions

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What will the Dairy Industry Code do?

The code will help protect farmers against egregious conduct from processors, improve transparency in the industry and set enforceable minimum standards of conduct for business practices between farmers and processors.

The code is being implemented in response to the findings and recommendations from the Australian Competition and Consumer Commission’s (ACCC) Dairy Inquiry and the 2017 Senate Economics References Committee Australian Dairy Industry Inquiry.

How will the code improve transparency in the dairy industry?

Under the code, processors will be required to publicly release standard forms of agreement with a single minimum price that applies throughout the agreement, a schedule of yearly minimum prices or a schedule of monthly minimum prices.

Additionally, processors must give farmers a 14 day cooling-off period and meet recordkeeping requirements that better allow the ACCC to audit and prosecute breaches of the code.

How will my business be impacted by the code?

The code sets out requirements to have agreements for all purchases of milk, for processors to establish mandatory dispute resolution practices, and other matters that will help to establish better standard business practices for dealings between processors and farmers.

How will the code prevent step-downs?

Under the code, retrospective step-downs are prohibited in all circumstances.

Prospective step-downs will be prohibited except in limited exceptional circumstances. These circumstances are to address temporary emergencies involving extraordinary events caused by factors that occur outside of Australia, have a highly significant effect on supply, demand or costs in the dairy industry and are not caused by decisions made by processors, for example:

  • a foreign country unexpectedly restricts the importation of Australian dairy products
  • trade shocks involving one of Australia’s major trading partners.

Can a one-size-fits-all approach work in a geographically diverse industry?

The code has considered the breadth of operating practices across the 8 dairying regions as well as the segmentation of domestic and export-focused markets.

The code balances clear rules to prohibit egregious conduct with the flexibility to support ongoing reform, innovation and diverse business models and to allow farmers and processors to negotiate terms that suit their individual circumstances and business models.

How does the code respond to the ACCC’s Dairy Inquiry?

The ACCC Dairy Inquiry Final Report contained 8 recommendations to encourage and facilitate more efficient dairy production and supply in Australia, including improvements to the bargaining position of dairy farmers.

The most significant recommendation was for a mandatory code of conduct (under the Competition and Consumer Act 2010) to be established (Recommendation 8).

The government has delivered on this recommendation by bringing the code into force from 1 January 2020.

How can I make a complaint about my agreement?

The ACCC will monitor and enforce compliance with the code. This role is consistent with the ACCC’s role with other codes such as the Horticulture Code of Conduct.

If you believe your agreement does not comply with the code, you may wish to notify the ACCC on 1300 302 502. Following investigation of complaints, the ACCC can issue infringement notices if they find the code has been breached.

The ACCC has established the Dairy Consultative Committee to provide a forum for dairy industry representatives to discuss issues with the ACCC related to the implementation of the code.

The code does not affect the right of either party to an agreement to bring about legal proceedings or otherwise use the code’s dispute resolution provisions to resolve a dispute.

Will the code regulate the behaviour of supermarkets?

The government regulates the dairy supply chain through a combination of the Dairy Industry Code and the Food and Grocery Code of Conduct. The Food and Grocery Code of Conduct covers the relationship between supermarkets and their suppliers.

The code will cover the behaviour of supermarkets when they are the first purchasers of milk. For example, Woolworths and Coles have direct sourcing arrangements with a number of dairy farmers. In these instances, the code will cover the contracting behaviour between supermarkets and dairy farmers.

How will the code address egregious conduct by processors against farmers?

The code will protect farmers against egregious conduct by processors by prohibiting retrospective price step-downs, limiting unilateral changes to agreements, not allowing exclusive supply arrangements with tier pricing or maximum volume limits, and requiring that all processors and farmers deal with each in good faith.

When will the code be enforced? Who will enforce the code?

Following the code’s implementation from 1 January 2020, the ACCC will monitor and enforce compliance with the code. This role is consistent with the ACCC’s role with other codes such as the Horticulture Code of Conduct.

The code also includes penalties if a party contravenes the code and allows for the ACCC to issue infringement notices.

Which processors will have to comply with the code?

The good faith provisions of the code will apply to all farmers and processors, regardless of size.

The rest of the code is targeted towards larger processors to provide rules for acceptable business practices between dairy farmers and processors. Processors that are small businesses are otherwise exempt from the code.

When will the code be reviewed?

After 12 months the code will be reviewed to consider its role, impact and operation.

The code will also be reviewed in its fourth year of operation. Reviews will include a consumer representative.

What does the code require in terms of pricing in agreements?

Milk supply agreements must specify a single minimum price that applies throughout the agreement, a schedule of yearly minimum prices or a schedule of monthly minimum prices. Standard forms of agreement must include a justification of each minimum price specified in the agreement.

Retrospective price step-downs are prohibited in all circumstances.

Prospective step-downs will be prohibited except in limited exceptional circumstances to address temporary emergencies involving extraordinary events that occur outside of Australia, such as a trade shock involving one of Australia’s major trading partners.

Exclusive contracts will not be able to have two tier pricing, where the minimum price payable for a specified amount of milk supplied during a period is greater than the minimum price for milk supplied in excess of that amount.

Similarly, exclusive contracts will not be able to have volumetric limits that specifies a maximum amount of milk that the farmer may supply to the processor under the agreement during a period.

How does the code regulate the agreements between processors and farmers?

The code implements clear and enforceable rules about how business relationships between farmers and processors are conducted.

It sets out the key rights and obligations of each party, including:

  • requiring processors to publicly release standard forms of agreement by 1 June each year
  • requiring all agreements to be in plain English (or contain a plain English overview) and consist of a single document
  • requiring all agreements to set out minimum prices
  • requiring a cooling off period of 14 days for farmers
  • prohibiting retrospective step-downs in all circumstances
  • prohibiting unilateral prospective step-downs except in limited exceptional circumstances
  • establishing a dispute resolution process
  • restricting unilateral changes to the terms and conditions in agreements.

How are innovative milk trading practices accommodated?

A number of approaches to alternative milk pricing and trading concepts are emerging, aimed at supporting farmers to have a greater role in managing the sale of their milk.

To facilitate this, the code requires processors to release at least one non-exclusive standard form of agreement annually, with farmers able to negotiate to have exclusive arrangements if they wish.

All agreements must stipulate when ownership of milk changes. 

The code does not prevent the use of alternative trading or marketing arrangements for the sale of milk provided they are not inconsistent with other parts of the Code.

How does the code deal with unilateral variations?

Unilateral variations to an agreement can only be made by a processor when a change in the law requires a change to the milk supply agreement.

Changes can only be made to clauses relevant to the change in laws and only to the extent necessary to comply with the changed law. There can be no change to minimum prices as a result.

A unilateral change in price (unilateral prospective step-down) will only be allowed in limited exceptional circumstances. These circumstances are to address temporary emergencies involving extraordinary events caused by factors that occur outside of Australia, have a highly significant effect on supply, demand or costs in the dairy industry and are not caused by decisions made by processors, for example:

  • a foreign country unexpectedly restricts the importation of Australian dairy products
  • trade shocks involving one of Australia’s major trading partners.

Why were certain clauses changed from the exposure draft?

The department sought feedback from dairy stakeholders on the exposure draft during the third round of consultation on the code.

The final code took this feedback into account.

The code addresses issues raised in consultation with the dairy industry while preventing egregious behaviour and setting up better safeguards for Australian dairy farmers.

How was the consultation process undertaken?

The government undertook extensive consultation with dairy farmers and processors about the code and its content. Feedback on draft clauses, the exposure draft of the dairy code regulations and potential regulatory impacts were sought over three consultation rounds:

  • round 1 opened on 31 October 2018 and closed on 28 November 2018
  • round 2 opened on 15 January 2019 and closed on 15 February 2019
  • round 3 opened on 28 October 2019 and closed on 22 November 2019.

The government sought stakeholder feedback through:

  • 18 public consultation meetings held in all dairy regions
  • multiple meetings with over 20 industry representative bodies and processors
  • three tele-town hall sessions
  • phone calls to a dedicated Dairy Industry Code hotline
  • emails to a dedicated Dairy Industry Code inbox.
Last reviewed: 17 September 2020
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