This isn’t a recommendation we’ve made lightly; it is one of the key ones flowing from our 18-month inquiry into the dairy industry and would build on the steps already taken through the voluntary industry code.
We know that the change required across the industry is significant, and the need for the industry to change is enormous.
While the voluntary code has been a good start, it doesn’t prevent processors reverting to old practices once there is less attention on the industry.
Dairy farmers don’t have any real bargaining power with processors.
A mandatory code can change this by putting safeguards around the terms processors can and can’t include in contracts and improving competition between processors.
The code would set out clear and simple rules for milk supply agreements — all participants would have to adhere to the rules and there would be penalties involved for breaches.
The benefits of a mandatory code are many: it’s designed to address the issues that have led to the power imbalance between farmers and processors, and could include:
BANNING retrospective step-downs and setting out circumstances when step-downs are appropriate or not;
PROHIBITING extended notice periods being imposed on farmers who want to switch processors, which often require farmers to make a decision before any clear market information is available;
PREVENTING processors making loyalty payments conditional on farmers continuing to supply for a subsequent season; and
REQUIRING that contracts contain an independent and cost-effective dispute resolution process.
These are issues that are hurting farmers and we’re past the point of allowing the situation to continue.
There are also some myths that need busting. A mandatory code does not tell people how to run their businesses and it wouldn’t set a standard farmgate price for milk or dictate to processors what contracts they can offer.
We know there are always concerns new regulation will cost money.
For farmers, based on what we’re recommending, the costs are nothing.
The code would simply require them to retain copies of their contract and act in good faith when dealing with processors.
For processors there would likely be some start-up compliance costs in setting up new agreements, but in the medium to long term the additional costs would be minimal.
Overall, the benefits outweigh the costs by a large margin.
The dairy industry has had a rough trot, but it is not beyond repair.
We’re not suggesting a mandatory code is a silver bullet that will fix all the issues, but it would bring fairness back — and this is why it’s so vital this change happens, to ensure we have a sustainable dairy industry in Australia for generations to come.
Mick Keogh is deputy chairman of the ACCC.