If there is one thing the dairy industry can agree on, it's the feeling of paralysis that has existed since the milk price step-downs in 2016.
Trust along the dairy supply chain was significantly damaged by those events and persistent tension has permeated the relationship between farmers and processors ever since.
It really underscored the need for the dairy industry to implement a code of conduct to govern the contractual arrangements between farmers and processors, especially when the Australian Competition and Consumer Commission determined that farmers suffered from a lack of bargaining power in that relationship.
Now the Federal Government has released a mandatory code for the industry, which is already in force as of January 1, giving farmers vital protections when negotiating milk supply agreements with their processors.
The code is a major coup for federal agriculture minister Bridget McKenzie, who was able to reverse the criticism that was heaped on the government's exposure draft and gain the support of all state dairy farmer organisations, many of whom stood beside her in December as she unveiled the final product.
Under the new code, retrospective milk price step-downs are banned, a dispute resolution process has been introduced, and processors cannot withhold loyalty payments from a farmer who switches processor or make exclusive supply arrangements with farmers in combination with either two-tier pricing (where the second tier is less) or volumetric limits.
The code also stops processors from making unilateral changes to milk supply agreements, except under specific circumstances - when complying with legislative changes, which cannot reduce the minimum milk price or in certain exceptional cases which could reduce the minimum price paid to farmers.
In the latter circumstance, the processor must notify the competition watchdog and farmers, who must be allowed to terminate their milk supply agreements if they wish.
All processors must also publicly release a Standard Form Agreement on June 1 each year, covering the terms of milk supply and a price (or prices) that cover the terms of the agreement.
The ACCC, which last year recommended the dairy industry transition from a voluntary to a mandatory code, has been tasked with monitoring and enforcing compliance with the code, consistent with its duties under other industry codes of conduct, including such as the horticulture code.
While the mandatory code will not be responsible for setting the farmgate milk price, it will go some way to improving the bargaining power of farmers and professionalising contract management in the industry.
It has been a long and difficult journey to get to this point. Australian Dairy Farmers, initially working through industry body the Australian Dairy Industry Council (ADIC), was intimately involved in the development of the code of conduct.
ADF constructed the industry's original voluntary code in 2017 before preparing draft clauses for a potential mandatory code, much of which was used by the government to develop the final code of conduct.
While the mandatory code will not be responsible for setting the farmgate milk price, it will go some way to improving the bargaining power of farmers and professionalising contract management in the industry.
- David Inall
Every effort must be made to ensure that farmers are protected in their contractual negotiations and to avoid a repeat of the 2016 milk price step-downs.
The ACCC, in its report into the dairy industry last year, identified that farmers lacked bargaining power when negotiating contracts.
The mandatory code is an important step in improving transparency and setting minimum standards of conduct in milk supply agreements.
