Three consultations on the Mandatory Code of Conduct for the dairy industry were held in Boonah, Gympie and Malanda over the past two weeks. Facilitated by Department of Agriculture and Water Resources assistant secretary Jo Grainger, the consultations were open and transparent, and it was felt the department genuinely wanted to know what the industry believed should and shouldn’t be included in the code.
The first question that was asked at each consultation was “What are we trying to achieve with a mandatory code for the dairy industry?” It wasn’t a question that was expected or that has been asked before. The answer was simple – fairness for all players across the supply chain. Unfortunately, it is clear that the code will not cover the conduct of retailers as they are theoretically covered by the voluntary Grocery Code of Conduct.
What Queenslanders call step downs were perhaps the major concern and were a key talking point. Certainly, there needs to be a provision to allow alterations to the pricing in the major processors’ long-term contracts to allow for clear market changes.
If such a step down (price reduction) is required due to market forces, then there needs to be a threshold where suppliers have the option to leave. We believe that a 5 per cent drop on the contracted price should be the threshold for farmers to match or leave without penalty.
Clearly the current practice of multiple-year lock-in contracts with a processor when the contracted price is only set for 12 months cries out for an agreed mechanism for setting future price, whether up or down. Also having bonuses and penalties means there is constant uncertainty and using loyalty payments (and penalties should you leave) to lock in suppliers is something that the code needs to address.
Currently, the loyalty payments are not a reward for loyalty, but are part of the non-contract base price. There is no intention of trying to make loyalty bonuses illegal, but we should call a spade a spade and call them supply contract bonuses.
Resolving these key points would be a major win for suppliers.
Another key area for discussion was the process of dispute resolution – specifically, who would be responsible for and fund mediation. For the large processors, it would be expected that they would employ an officer to handle disputes. But independent and smaller processors were unlikely to afford a full-time staff member. It was suggested, as a way of encouraging supply to smaller processors, that those processing somewhere between ½ to 1 million should be exempt.
Overall, this first round has been handled extremely professionally by the department and QDO hopes that this transparency and true consultation continues.