The Australian Competition and Consumer Commission (ACCC) is calling for a mandatory code of conduct to improve contracting practices between dairy processors and farmers.
This was the key recommendation to come out of a final report from the regulator's dairy inquiry, which was initiated by Treasurer Scott Morrison in response to the large and retrospective reductions in milk prices imposed by Murray Goulburn and Fonterra in April 2016.
“A mandatory code of conduct would address problems arising from the large imbalance in bargaining power and information that exists between dairy farmers and processors,” ACCC commissioner Mick Keogh said.
“Currently, processors can impose milk prices and other terms of milk supply contract terms that are heavily weighted in their favour. Some milk supply contracts also contain terms that restrict farmers’ ability to change processors for a better offer.
“These issues ultimately harm dairy production efficiency and reduce the effectiveness of competition between processors,” Keogh said.
The ACCC said its inquiry involved extensive investigations, consultation and data analysis over a period of 18 months. It said it explored ways to address the above concerns and found the existing provisions of the Competition and Consumer Act (2010), the dairy industry’s voluntary code of conduct, or a prescribed voluntary code would be inadequate.
“A mandatory code would improve the quality of information and price signals available to dairy farmers, enable fairer allocation of risk and enhance competition by removing switching barriers. While introducing a code won’t fully correct the bargaining power imbalance, it will reduce some of the negative consequences,” Keogh said.
The ACCC also recommends increased transparency in milk price offers made by processors to farmers, and the removal of barriers to farmer's switching, such as delayed loyalty payments and extended notice periods.
The ACCC's final dairy report is available at www.accc.gov.au/dairyinquiry.
