On 30 April 2018 the ACCC released its final Dairy Inquiry report, painting a picture of significant imbalances in bargaining power in the dairy supply chain. One of the report’s key recommendations was a mandatory code of conduct for the dairy industry. On 13 December 2019 the Minister for Agriculture, Bridget McKenzie, announced that a mandatory Dairy Code of Conduct will take effect from 1 January 2020 (Code): the Competition and Consumer (Industry Codes—Dairy) Regulations 2019 (Cth).
This announcement comes hot on the heels of the Government’s decision not to implement the mandatory code of conduct for digital platforms advocated by the ACCC in its Digital Platforms Inquiry. Nonetheless, the introduction of the Dairy Code reflects the trend of mandatory industry codes legislated under the Competition and Consumer Act 2010 (Cth) in recent years: the 2014 Wheat Port Code of Conduct, a revised Franchising Code in 2015, a new Horticulture Code in 2018 and the Electricity Retail Code of Conduct in 2019.
Australia is the world’s fourth-largest exporter of dairy after New Zealand, the European Union and the United States. There are 1.44 million dairy cows in Australia, with each Australian consuming an average of 99 litres of milk per year.
The Dairy Inquiry report described $1 per litre as “an arbitrary price that has no direct relationship to the cost of production for the supply of milk by farmers and processors to the supermarkets”.
The new Code will supplant the present voluntary code of conduct, which was described by dairy lobby groups as an “abject failure”, and characterised by the ACCC in its Dairy Inquiry as inadequate to address structural power imbalances and ineffectively enforced.
The Mandatory Code of Conduct
To address the ACCC’s concerns about clarity and certainty of contracts, the Code will require milk supply agreements to be written in plain English or contain a plain English summary, consist of a single document, specify supply periods and specify minimum prices.
The Code will seek to address unfair contract terms and inequitable transfer of risk to farmers by prohibiting retrospective price step-downs in all circumstances and prohibiting prospective price step-downs except in exceptional circumstances.
Further, processors will only be able to unilaterally vary milk supply agreements to the extent necessary to comply with changes in the law.
Other key requirements include:
- farmers and processors will be obligated to act in good faith in their relationships;
- establishing mediation and arbitration processes to address disputes; and
- the ACCC will be empowered to monitor compliance by farmers and processors.
Processors will be required to publicly release standard forms of agreement by 2 pm AEST on 1 June each year. These standard forms must justify the minimum prices on offer and be open to all farmers.
The Code will seek to mitigate the potential anti-competitive effects of loyalty schemes, recently investigated at length by the ACCC, by prohibiting conditions in milk supply agreements that require the farmer to supply milk to the processor after the agreement ends or agree to enter into a new milk supply agreement.
The Code will be enforced by the ACCC, which may apply to the Federal Court for orders for civil penalties for each breach of the Code of between $21,000 and $63,000.
The Code will be reviewed after one year and again after three years of operation, to see whether its intent has translated into practice.