Dairy Code of Practice must address key concerns

Posted on Friday, August 03, 2018 - Category: In the News


Farmers want protection. They want to know that if they have a contract dispute with their processor, there is a mechanism in place to ensure their interests are safeguarded. They want certainty that there will never be another milk price crisis.

The dairy code of practice which has been in place now for just over a year was the industry’s response to address the power imbalance between farmers and processors. Before the code was introduced in July last year, farmers had little protection against practices used by some processors.

The performance of the code of practice was reviewed by the Australian Competition and Consumer Commission (ACCC) in its dairy inquiry.

Despite recommending that the industry proceed with a mandatory code, the competition watchdog acknowledged the significant effort it took to implement the voluntary code and the positive impact of the code on current-year (2017/18) milk contracts.

But the risk for farmers remains the same and if success is to be measured solely by the strength of the code to eliminate risk, the current code needs strengthening. Some processors are not signatories to the code and there are no penalties enforced for breaches.

How does this prevent a repeat of the milk price crisis? Farmers can take their business elsewhere if their processor isn’t a signatory to the code. But this is a problem in regions with only one monopoly processor. It is not a viable solution and the risk is that suppliers could once again be forced into hardship should the milk price crash.

The ACCC report noted that the current code does not include a mechanism to resolve disputes between farmers and processors – a key difference with the voluntary Food and Grocery Code of Conduct, which introduced an independent adjudicator to resolve complaints.

If a revised code is to provide adequate protection for farmers, it must have binding sanctions for non-compliance and independent management oversight – including reporting and review – of code conditions.

The ACCC report generated considerable discussion around the benefits of a mandatory code. They argued that a mandatory code would eliminate this risk for farmers, providing them with greater protection and paving the way for increased farm investment and processor competition.

But there are still many unknowns that must be investigated before the industry can proceed with a new version of the code.

The dairy industry will wear the burden of paying for administering a mandatory code. Despite media commentary suggesting the cost would be negligible, it is a requirement of the federal Government’s Cost Recovery Guidelines that those affected by the code must pay for its administration.

Part of the code of practice review process is that we assess the potential benefits of a mandatory code to farmers against the expected costs to farmers.

If the decision is made to proceed with a mandatory code, the impact must be fully understood. It will be extremely difficult to reverse the decision if a mandatory code doesn’t operate as farmers expect it should.

We understand the desire for quick action, but farmers should expect their national representative body to conduct this review in a considered and comprehensive manner.

At the end of the process, regardless of the outcome, this will be a significant step with long-term ramifications for the industry, so we must get it right.

It is vital that farmers have the best information available to them and it is our job to provide that guidance and clarity as we are committed to working on improved contractual arrangements for farmers and rebuilding confidence in the industry.

 

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