The mandatory code of conduct has been in place for a few months now, but the real test of its effectiveness comes with the negotiation of new milk supply agreements in the lead up to the new season.
All contracts signed after January 1 this year must comply with the code, while prior agreements have 12 months to transition to become compliant.
The federal government made a commitment in the lead up to last year's election to develop a standard form contract that meets the requirements of the mandatory code and can be used by processors and farmers in negotiating supply agreements. The government contracted Australian Dairy Farmers to develop this template, which will provide a foundation for both farmer and processor obligations under the code with the least cost to industry.
Farmers and processors won't have to spend time becoming experts in the code or contract management nor will they have to spend time developing new agreements from scratch. They can simply adopt the template, or develop their own contract using the template as a basis.
The template will also help to resolve a number of issues identified by the Australian Competition and Consumer Commission in its Dairy Inquiry report.
The competition watchdog made several recommendations related to contracting practices, including that milk supply arrangements should be acknowledged in writing, processors should provide farmers with all contractual documents before the contract start and contracts should be simplified.
Many farmers have had no contracts with their processors or contracts that may have contained complex terms.
- Terry Richardson
Many farmers have had no contracts with their processors or contracts that may have contained complex terms. The new standard form contract will ensure that all farmers will have a contract with acceptable and meaningful conditions.
ADF's goal is to ensure that farmers have a stronger bargaining position when negotiating contracts. One of the ACCC Dairy Inquiry's key findings was that contract arrangements between processors and farmers have been favourable to processors and exacerbated most farmers' weak bargaining power.
The template was developed by comparing the mandatory code and other legal requirements to current contracts in the marketplace. Two versions will be made available on the internet for anyone wanting to use the contract or even to compare with their own milk supply agreements. The first template is limited to articulating the requirements of the Code of Conduct, while the second includes other legal and commercial features typically found in a milk supply agreement.
Of course, ADF expects that many farmers will have questions about the template and it will seek to answer those through a series of webinars and other online tutorials.
The past few years have been difficult for the dairy industry, underscored by diminished trust between farmers and processors.
One of the key commitments of the Australian Dairy Plan is to improve trust and transparency along the dairy supply chain. The new standard form contract will help this process. ADF will be encouraging farmers and processors to use this template and seek further information from ADF. We will host a series of webinars to explain the template and answer any questions. Details about these information sessions will be posted on the ADF website once dates have been finalised.
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