The investigation by the Australian Competition & Consumer Commission follows claims that the two companies, which have slashed the milk prices they pay their 3600 farmers up to 20 per cent in the past fortnight, retrospective to last July, are using their size and power to intimidate and pressure small suppliers.
The ACCC will also investigate if the high $6-a-kilogram milk price promised by the Murray Goulburn co-operative to its dairy farmers last year at the time it was seeking agreement by its farmer-shareholders to a partial float on the Australian stock exchange, was always known by the company to be unrealistic.
ACCC chairman Rod Sims confirmed yesterday that preliminary inquiries had been escalated to a formal investigation.
“While linked to contractual arrangements, the ACCC is interested in the timing and notice of the milk price cuts, the period in which farmers have been given to consider their options and all of this against the backdrop of supply arrangements that place a lot of risk on farmers,” Mr Sims said.
“The ACCC will consider whether the changes have involved misleading conduct or whether there are elements of unconscionable conduct.”
The ACCC probe will also investigate if Fonterra’s farmgate milk price-setting mechanism, which is tied to that of Victoria’s biggest “bulk milk processor of the day” — Murray Goulburn — constitutes collusive practices or cartel behaviour.
The Australian Securities and Investments Commission is also investigating Murray Goulburn for potential corporate and disclosure irregularities or failures.
Opposition agriculture spokesman Joel Fitzgibbon this week called on federal regulators to put Murray Goulburn and Fonterra’s actions under the microscope.
“I’m very critical of Murray Goulburn; farmers have been treated very badly because the board got it badly wrong,” he said.
“Market power certainly is an issue because there is now comparison between the power and size of Murray Goulburn and these small farmer suppliers.”
Farmers are also taking legal advice on the ability of Murray Goulburn and Fonterra to effectively claim back income from farmers that they have already paid for their milk. A Murray Goulburn spokeswoman said the company was confident its payment system was legal.
Mr Sims said investigators had been pulled off other inquiries so this one would be completed as quickly as possible.
Unconscionable conduct, if proven, is a serious offence committed by major companies in their dealings with smaller suppliers and can lead to legal proceedings.
In late 2014, Coles was found by the Federal Court to have engaged in unconscionable conduct in 2011 in its dealings with more than 200 small suppliers, in proceedings instigated by the ACCC.