Dairy crisis: law could force milk processors to change contracts with farmers

Unfair contracts law will extend consumer protections to small businesses in deals with large businesses from November
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A new law designed to protect small businesses from unfair contracts could force milk processors to change supply agreements with dairy farmers as the industry comes under intense pressure over the price crisis.
The unfair contracts law comes into effect on 12 November and extends consumer protections to small businesses in deals with large businesses. Under the new law, the courts would be able to strike out any unfair contract terms.
The deputy chairman of the Australian Competition and Consumer Commission, Michael Schaper, told Guardian Australia that, while the new law did not cover existing contracts such as the Murray Goulburn and Fonterra contracts that slashed milk prices retrospectively, the reform would cover contracts after November.
“The critical element here is what is fair and what is unfair and there are three limbs to that,” Schaper said. “Firstly, is there a term in the contract that is not really necessary to protect the legitimate commercial interests of the big firm?
“The second one is whether or not it is something that if relied on, causes a loss to the small business.
“The third one is that there is a major imbalance in the rights and responsibilities between the two sides.”
The ACCC is currently investigating the milk cooperative Murray Goulburn and the circumstances around its partial float on the stock market, after it paid out high milk prices and then slashed them retrospectively, leaving their farmer members owing hundreds of thousands of dollars.
Schaper said it was up to the courts to decide whether a term of the contract was unfair rather than the ACCC. But the law will change business-to-business contracts across the spectrum including financial services, phones, leases, franchises and agriculture.
“What we have been saying [to different industries] is we think these areas are problematic, why don’t you tidy them up before the law comes into play,” Schaper said.
Under the changes, a judge can strike out unfair terms and allow the rest of the contract to operate.
“If the question is, does this apply to the Murray Goulburn farmers, the very short answer is it doesn’t apply to their existing contracts at the moment – that’s the big one and it’s not retrospective, it’s going forward.”
The new law applies to annual contracts worth up to $300,000 or multiyear contracts covering up to $1m. But, importantly, the ACCC says if the price is not specified the contract is deemed to be under the threshold.
In the case of dairy farmers, average dairy contracts are worth well over $300,000 but supply agreements often do not state a clear price because processors change price over the life of the annual agreements.
“It’s the amounts that can be quantified when you enter into the agreement so that it’s an amount you know for certain,” Schaper said.
“But a lot of contracts, you don’t know for certain what [price] is going to be and our interpretation of the law is that if you cannot quantify it absolutely then you have got to treat it as zero.”
As a result, the law could significantly change the way processors are allowed to deal with dairy farmers.
While he could not comment specifically on future Murray Goulburn contracts due to the ACCC’s ongoing investigation, Schaper used the example of a franchise agreement, where a business pays a fee of $100,000 upfront plus 10% of their earnings every year. In that case, the 10% earnings would not be counted in the threshold because it is not quantified.
“We are generously interpreting it in a way to try to give coverage to as many small businesses as we can and [the Australian Securities and Investments Commission] has taken a similar tone because incidentally, Asic look after financial services under this arrangement.
“We may get knocked out of the court on that one but, for the time being, that is the advice we have been given and no one has kicked back to us to say we think you are barking up the wrong tree.
“We are reasonably confident in what we’ve got and where we are going with it.”
David Basham, a dairy farmer and the acting chair of the peak industry body Australian Dairy Farmers, said in anticipation of the unfair contract laws, processors would have to scrutinise the supply agreements to make sure they are fair.
He said the unfair contract law could also overturn the long held practice in which most large processors insist that dairy farmers supply them exclusively – unlike other commodities where growers are free to sell to any buyer.
“[Under the unfair contract changes] it could be a restriction of trade,” he said.
“We’ve seen dilemmas with new processors coming in. People want to supply some milk but cannot risk changing over completely making it harder for new players.”
Schaper said the ACCC would be finalising the Murray Goulburn investigation in the next few weeks.
“Every industry works differently, you don’t want to come in with a heavy hand and destroy what works in an industry but at the same time people need to know what they are getting committed to,” he said.
 
Source: TheGuardian
Link: https://www.theguardian.com/australia-news/2016/aug/18/dairy-crisis-law-could-force-milk-processors-to-change-contracts-with-farmers
 

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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