The mandatory Dairy Code of Conduct, which will take effect from New Year's Day, has been greeted with almost universal approval from farmer bodies but processors aren't so sure.
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Australian Dairy Farmers, United Dairyfarmers of Victoria (UDV), NSW Farmers, South Australian Dairyfarmers' Association, Queensland Dairyfarmers' Organisation and Dairy Connect were all pleased with the new code and Farmer Power welcomed the code, although maintaining it was "not perfect".
The code addresses the major sticking point that emerged from the draft - the ability of processors to unilaterally change the price and conditions of contracts with farmers.
Processors may only unilaterally vary milk supply agreements in two circumstances:
- A change in law with which the processor or farmer must comply and those variations can only reflect the legal changes and cannot result in a decrease of minimum price
- A processor may be permitted to step-down the price in an "exceptional circumstance"
When that happens, the processor must advise the ACCC of its intention, provide farmers 30 days' notice and give farmers permission to terminate the agreement.
Examples of exceptional circumstances include the sudden closure of an export market or a biosecurity emergency.
It doesn't prevent farmers and processors agreeing to vary the contract, provided the variations comply with the code and other laws.
All new agreements must comply with the code from January 1, 2020, while existing agreements have 12 months to become compliant.
Processors must publish standard forms of agreement annually by June 1 on their websites, which must contain minimum prices, justification of prices and a cooling-off period of 14 days.
All processors need to offer non-exclusive supply agreements but can offer an exclusive agreement with terms similar to the non-exclusive agreement but the prices for exclusive and non-exclusive milk supply don't have to be the same.
Contracts must include a clear minimum price, a schedule of monthly prices, or a schedule of yearly prices for longer-term agreements (and the price among years can be different).
There must be a a clear start and end date for the milk supply period, unless the processor is a cooperative.
Quantities only need to be included if applicable but quality requirements of milk, including sampling procedures and assurances about volume accuracy need to detail when the processor may reject milk supplied by the farmer and what will be done with the milk.
Agreements longer than three years must allow farmers to postpone its end by 12 months to help any who wish to exit the industry to settle their affairs.
UDV happy
UDV manager Ashlee Hammond said the outcome would bring back some balance between farmers and processors and set important standards.
UDV was pleased the penalty units were adjusted.
"Is that perfect? No, but under a code, penalties were always going to have to apply to farmers as well as to processors," Ms Hammond said.
She was pleased to see the term 'beyond reasonable control' that allowed unilateral variations by processors in the draft banished from the code.
"With regard to prospective step-downs, we need to be realistic here, processors need to be in the business of processing milk for dairy farmers to continue producing milk, so we're glad to see 'beyond reasonable control' removed and clearly defined instances where prospective step-downs may be allowed," she said.
UDV was also relieved to see that the ambiguous cooling off period in the draft code had been clarified.
"UDV pushed for just a standardised 14-day cooling off period after paperwork has been provided, which is what is included in the code," Ms Hammond said.
The requirement for processors to offer non-exclusive as well as exclusive supply agreements would be beneficial for farmers.
"[It] really gives the farmer absolute flexibility if they want a processor to collect all of their milk every day of the year, they can have that option," she said.
"But, if they do want to take advantage of milk trading platforms and the like that are currently being developed, they have the option to take the non-exclusive standard-form agreement."
Also important to the UDV was the extension of 'good faith' clauses in the code.
"If a farmer milking only 80 cows has to apply by the good faith clause, then processors with a turnover of up to $10 million should have to, too," she said.
"It's really good to see that the clause has been changed and that all farmers and all processors will have to abide by the good faith clause."
Another win included mandatory mediation.
"The UDV pushed for milk supply agreements must provide for mediation, previously that was optional," she said.
Farmer Power's reservations
Farmer Power expressed some reservations about the code.
"Though it may not be perfect, we believe that it meets most of our expectations though some concerns still surround section 28 of the mandatory code and its possible interpretation," it said in a statement.
"The current mandatory code, however, is a far step from the voluntary code that many other bodies within the industry were pushing for.
"At least now we have accountability as well as transparency as a benchmark in the dealings between processors and our dairy farmers.
Processors pause
The Australian Dairy Products Federation, which represents processors, released a statement of concern.
"We are currently working through the details of the code and will be looking to understand how to best support our members [to] deliver on the tight deadlines as stipulated," it said in a statement.
"We have some initial concerns regarding the changes made from the exposure draft to the final version, and any unintended consequences there may be for both dairy farmers and processors."
It did not say which changes were of concern.
