UPDATED: Farmer groups react to mandatory Dairy Code release

Farmer groups react to mandatory Dairy Code release

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In what looks to be a win for farmer groups, the mandatory Dairy Code of Conduct has just been released this morning and will be in place on New Year's Day.

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CODE CRACKED: The mandatory Dairy Code of Conduct has been released and will come into effect on New Year's Day.

CODE CRACKED: The mandatory Dairy Code of Conduct has been released and will come into effect on New Year's Day.

In what looks to be a win for farmer groups, the mandatory Dairy Code of Conduct has just been released this morning and will be in place on New Year's Day.

Australian Dairy Farmers (ADF), United Dairyfarmers of Victoria (UDV), NSW Farmers, South Australian Dairyfarmers' Association (SADA), Queensland Dairyfarmers' Organisation (QDO) and Dairy Connect were all pleased with the new code but while initially impressed, Farmer Power was reserving its judgement.

"While Farmer Power welcomes the code, we are checking what appears to be discrepancies between the documents we've received and those on the Federal Register of Legislation," Farmer Power chief executive Gary Kerr said.

"We hope to know more soon."

The code addresses the major sticking point that emerged from the draft - the ability of processors to unilaterally change the price and conditions of their contracts with farmers.

Processors can only unilaterally vary milk supply agreements in two circumstances:

The first is a a change in law with which the processor or farmer must comply and, even then, those variations can only reflect the legal changes and cannot result in a decrease of minimum price in an agreement.

In the second case, a processor may be permitted to step-down the price in an "exceptional circumstance".

When that happens, the processor must advise the ACCC of its intention, provide farmers 30 days' notice and give farmers permission to terminate the agreement.

Examples of exceptional circumstances include the sudden closure of an export market or a biosecurity emergency.

It does not prevent farmers and processors agreeing to vary the contract, provided the variations comply with the code and other laws.

Striking agreement

From 1 January 2020, all new agreements must comply with the code, while agreements already in place have 12 months to become code-compliant.

Processors need to publish standard forms of agreement annually by June 1 on their websites.

All standard forms of agreement must contain minimum prices, justification of prices and a cooling-off period of 14 days.

All processors need to offer non-exclusive supply agreements but can offer an exclusive agreement with terms similar to the non-exclusive agreement.

The prices for exclusive and non-exclusive milk supply do not have to be the same.

Contract inclusions

Contracts must include a clear minimum price, a schedule of monthly prices, or a schedule of yearly prices for longer-term agreements (and the price among years can be different).

There must be a a clear start and end date for the milk supply period, unless the processor is a cooperative.

Quantities only need to be included if applicable but quality requirements of milk, including sampling procedures and assurances about volume accuracy need to detail when the processor may reject milk supplied by the farmer and what will be done with the milk.

When longer than three years, an agreement must allow farmers to postpone its end by 12 months so those who wish to exit the industry to resolve their business, sell assets and address any animal welfare and environmental concerns.

Farmer groups delighted

Dairy Connect chief executive Shaughn Morgan said he was very pleased with the outcome.

"It's a great outcome for us," Mr Morgan said.

"Unilateral variations are outlawed, except in two circumstances.

"One is if there's another global financial crisis or if there's legislative change, which is exactly what we asked for.

"If the processors want a step down in exceptional circumstances, it has to be looked at by the ACCC, so there's a safeguard in place.

"The ACCC will be the arbiter and, if they don't believe the step-down is justified, they can then refer it on for further review.

"Penalty units have changed, so there are 100 penalty units for farmers and 300 for processors.

"Everything we asked for, they've given us.

"The document is great and Bridget McKenzie is smiling from ear to ear."

UDV lauds outcome

United Dairyfarmers of Victoria (UDV) manager Ashlee Hammond said the outcome was achieved with the solidarity of the state dairy farming organisations (SDFOs) and Australian Dairy Farmers (ADF).

"It will bring back some balance of power between farmers and processors and set standards and commitments for each of them," Ms Hammond said.

"We're really glad to see that the penalty units have been adjusted.

"Is that perfect, no, but under a code, penalties were always going to have to apply to farmers as well as to processors.

"Unfortunately, with legislative instruments like this, you can't have your cake and eat it too."

Ms Hammond was pleased to see the term "beyond reasonable control" that allowed unilateral variations by processors in the draft banished from the code.

"Unilateral variations to milk supply term clauses have been banned, which is what UDV was pushing for," she said.

"With regard to prospective step downs, we need to be realistic here - processors need to be in the business of processing milk for dairy farmers to continue producing milk - so we're glad to see 'beyond reasonable control' removed and clearly defined instances where prospective step downs may be allowed.

"Keep in mind there are two clear instances, along with 30 days' notice, and 21 days for farmers to terminate the contract, penalty-free.

"Not only that but the ACCC will have oversight of prospective step downs so UDV and other SDFOs were quite keen to see the ACCC, through their consultative committee and dairy specialists, to have oversight.

"And also, keep in mind, if this clause isn't working for the Victorian dairy industry, there's a chance to review the code at the 12-month mark and the four-year mark."

The UDV was also pleased the controversial cooling off period in the draft code had been clarified.

"UDV pushed for just a standardised 14-day cooling off period after paperwork has been provided, which is what is included in the code," she said.

The requirement for processors to offer non-exclusive as well as exclusive supply agreements would be beneficial for farmers.

"Really gives the farmer absolute flexibility if they want a processor to collect all of their milk every day of the year, they can have that option," she said.

"But, if they do want to take advantage of milk trading platforms and the like that are currently being developed, they have the option to take the non-exclusive standard-form agreement."

Also important to the UDV were the extension of 'good faith' clauses in the code.

"UDV was really pleased to see the 'good faith' clause apply to processors of all size.

"If a farmer milking only 80 cows has to apply by the good faith clause, then processors with a turnover of up to $10 million should have to, too.

"It's really good to see that the clause has been changed and that all farmers and all processors will have to abide by the good faith clause."

Another win included mandatory mediation.

"The UDV pushed for milk supply agreements must provide for mediation - previously that was optional," Ms Hammond said.

ADF praises government for listening

Australian Dairy Farmers chief executive David Inall thanked the Federal Government for listening to the concerns raised by dairy industry representatives following the release last month of the exposure draft code of conduct.

"The final code of conduct addresses our concerns and provides important protections for farmers when negotiating milk supply agreements with their processors," Mr Inall said.

"While the mandatory code will not be responsible for setting the farm gate milk price, it will go some way to improving the bargaining power of farmers and professionalising contract management in the industry.

"Our goal is to ensure that farmers are protected by the mandatory code of conduct and to do all we can to avoid a repeat of the 2016 milk price step-downs.

"The ACCC identified that farmers lacked bargaining power when negotiating contracts and we believe that this will be significantly improved with this mandatory code of conduct."

NSW Farmers asks for more

NSW Farmers' Dairy Committee chair Colin Thompson said the mandatory code was crucial for enhancing dairy farmers' bargaining power with processors.

"The commitment to outlaw retrospective step downs and greatly restrict unilateral variations is a huge positive for farmers," Mr Thompson said.

"It's also promising that penalties for breach of the code may be determined based on respective size of the processor or farm."

It was still important to act on the impact the retail sector was having on the industry.

"NSW Farmers continues to call for action on the market power of the retailer sector, as it is directly damaging the profitability of farmers," Mr Thompson said.

"The irrational pricing of retailers has reduced the money available in the supply chain.

"It has placed pressure throughout the chain and this results in farmers' milk price being squeezed.

"The sale of discounted dairy products must end.

"Consumers need to demand that retailers support farmers by selling dairy products for a fair price.

"We are calling for the price of dairy products to be lifted.

"We are pushing for a minimum price of $1.50 per litre for fresh milk and $9.00 per kilogram for cheese."

South Australia sees progress

SADA policy officer John Elferink said the code would help to protect farmers.

"This code will not set prices for milk and it's not intended to," Mr Elferink said.

"This code will not protect a farmer from making a foolish contractual decision.

"What it will do is create an environment in which the processor must approach the negotiations in good faith and, on top of that, all of the elements of the contract must be clear to the farmer before signing the contract.

"There'll be none of this business of 'Just sign here and by the way you've got no choice, this is the contract you've got to sign'."

The abolishment of retrospective step downs together with stringent new conditions on prospective step downs gave farmers "a lot more grunt".

Mr Elferink said the dispute resolution process was also far more useful for farmers.

"Farmers and processors talk first," he said.

"If they can't resolve it, then there's mediation, which is really nice and cheap and then there's the option of arbitration, where both sides agree to put it in front of a referee who is not a court and they agree to abide by their call.

"These are much more expedient and cheaper outcomes than court cases."

SADA was also very pleased with the involvement of the ACCC.

"One of the things SADA pointed out was that the ACCC needed to behave much more like a policeman on the beat than like a detective in the station," Mr Elferink said.

"The detective in the station only responds when someone phones them but the policemen on the beat have a totally different role.

"Sure, the policeman on beat can investigate crimes but also, importantly, they have the function of saying 'Allo, allo, allo, Johnny, are you sure you want to do that?' and of course Johnny decides not to do that and doesn't commit the offence.

"We note that the ACCC is in the process of hiring a person to fulfil the role of dairy oversight as part of this arrangement and, as a consequence, the ACCC now have their 'policeman on the beat' who will stop Johnny - in this case, the big processor - doing something silly."

Queensland appreciative but still wishes retailers were caught

QDO marketing and communications manager, Sarah Ferguson, said it appreciated the approach Agriculture Minister Bridget Fitzgerald and the department had taken in the drafting of the final document.

"They spent considerable time and effort making sure all of the state bodies were adequately involved and consulted about the changes from the initial draft," Ms Ferguson said.

"I was very impressed, I must say."

Ms Ferguson said the Dairy Consultative Committee would include representatives from across the country that would review the performance of the code.

"You can't really judge a code until it gets tested, so that council will review any concerns that arise over the next 12 months.

"We believe we addressed all of the issues that pertained to Queensland and northern NSW.

"The fresh milk market is different and the key things we were concerned about were exclusivity clauses and how they handle pricing on multi-year contracts.

"That's one of the things that this advisory committee is going to be so important because we're not sure how that's going to look in a contract.

"How can you predict a price in 12 months' time?

"Twelve months ago in Queensland, the average price was 57 and the top price was probably 61 cents a litre.

"Now, a sustainable and fair farmgate milk price needs to be 73 to 78c/l.

"Even the big suppliers are ticking up around the 69 to 70c/l mark.

"None of us could have predicted how bad the conditions would be or how high the cost of production would get so I don't know how you could have put that in a contract."

"The one thing - we've said it constantly and we know we're not going to get any relief on it - we are still disappointed in the fact that the retailers have got off scott free in the mandatory code.

"From the behaviour of Coles in the past week, we all shake our heads and go, 'How did the ACCC still insist that they had no role to play in an imbalance of power?' .

"I have no idea but we have tried for the last 12 months but have been told time and time again that it is the one thing that is off the table, which is disappointing but they have worked really hard on everything else.

"They really actually bloody listened, which is great."

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