New dairy regulation won’t be a milk price panacea

Mandatory dairy code contract transparency won't apply to retailers


Greater farmer bargaining power under a new code of conduct is unlikely to influence retailers' cheap milk price plans


Dairy farmers have been warned not to expect the industry’s proposed mandatory code of conduct to trigger any obvious lift in prices negotiated between milk processors and retailers.

After months of volatile debate, peak farmer body Australian Dairy Farmers has told the federal government it will offer unified support for a mandatory code for processor-farmer contracts as long as the rules provide for full industry coverage and improve bargaining power for milk producers.

The national body stressed a mandatory code must include an independent dispute resolution procedure.

The code must also outlaw retrospective milk price step downs, enforce contract and price transparency, and its effectiveness must be reviewed within three years.

We’ve advocated a code should also exist between retailers and processors and would like to think there’s scope for this in the future - Simone Jolliffe, Australian Dairy Farmers

However, farmer bargaining power under the new code was unlikely to have much influence on the way retailers set prices or what returns trickled down from supermarkets to dairy farmers.

ADF director, Simone Jolliffe, said farmers should not expect the code be a universal cure for milk payment discontent among farmers, and particularly not a sign of higher retail prices ahead.

“The ACCC has only recommended a code between processors and farmers, although we’ve advocated a code should also exist between retailers and processors and would like to think there’s scope for this in the future,” she said.

However, Dairy Connect chief executive officer, Shaughn Morgan, said there was now scope for improved transparency and robust negotiation.

This should mean fairer supply deals and more realistic expectations of farmers’ production costs and capabilities by processors and, in turn, retailers.

Discount milk retailing at $1 a litre for the past eight years has been one particularly sore issue for the dairy industry, especially given the energy, water and feed cost pressures farmers farmers have faced in the past few years.

“I doubt a mandatory code will solve all problems, but I can see it providing the foundations for real negotiation with processors and ridding the industry of some appallingly unreasonable supply contract clauses,” he said.

It should result in more pressure on processors to accept equitable, sustainable contracts, and then they can go to the retailers and push for more realistic prices on retail products - Shaughn Morgan, Dairy Connect

“It might not deliver an extra 40 cents a litre to the farmgate price, but it should result in more pressure on processors to accept equitable, sustainable contracts, and then they can go to the retailers and push for more realistic price deals on retail products.”

Dairy Connect has been one of the many smaller and state-based lobby groups supporting the Australian Competition and Consumer Commission’s (ACCC) recommendation for the mandatory code.

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Until this week ADF wanted to see the recently introduced voluntary code of practice given more time to settle in and be upgraded, rather than support government-enforced regulation.

Milk processors have also been loudly warning a regulated mandatory code of conduct would cost farmers and dairy companies and add no value to the industry.

However, the Australian Dairy Products Federation, and the ADF’s previous stance, were in stark contrast to the mood among dairy farmers in five states, and even within Victoria there was a strong farmer support base for a mandatory code.

Large-scale Victorian processor, Saputo, also broke ranks with the likes of Fonterra and Norco, backing a mandatory code, while the ACCC described it as a vital reform needed to ensure dairying’s long-term viability.

Agriculture Minister, David Littleproud, keen for more robust rules and better price and contract conditions between farmers and milk processors, applauded ADF’s philosophical agreement, and promised to take the proposal to cabinet.

“This was a difficult decision and one that ADF did not take lightly,” an ADF statement said after its national council voted seven to six in favour of the mandatory code.

“There are a broad range of views within ADF’s membership and these views are deeply respected and understood.”


ADF’s Mrs Jolliffe described the outbreak of unity a “big act of collaboration”.

“You can take from that decision we want to get on with introducing the regulatory process and address the balance of power between processors and farmers,” she said.

ADF’s new position comes after several months of working with industry body the Australian Dairy Industry Council (ADIC), which led to the development of a strengthened code.

ADF said there were still issues to be resolved around its implementation.

It noted the competition watchdog did not disclose the costs of administration, investigation thresholds, performance standards and accountability metrics.

Dairy Connect’s Mr Morgan noted the ACCC had indicated the mandatory code would not mean additional compliance costs for farmers and only some initial costs for processors and minimal ongoing costs.

“The ACCC’s major dairy industry review found the dairy industry would only achieve transparency, equity and sustainability with a mandatory code of conduct.”​

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The story New dairy regulation won’t be a milk price panacea first appeared on Farm Online.


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