The ACCC has released the final report arising from its dairy inquiry, which includes the key recommendation that a mandatory code of conduct be implemented to improve contracting practices between dairy processors and farmers.
The inquiry was initiated by Treasurer Scott Morrison in response to large and retrospective reductions in milk prices imposed by two major dairy processors in April 2016. The inquiry involved investigations, consultation and data analysis over a period of 18 months.
“A mandatory code of conduct would address problems arising from the large imbalance in bargaining power and information that exists between dairy farmers and processors,” ACCC Commissioner Mick Keogh said.
“Currently, processors can impose milk prices and other terms of milk supply contract terms that are heavily weighted in their favour. Some milk supply contracts also contain terms that restrict farmers’ ability to change processors for a better offer.
“These issues ultimately harm dairy production efficiency and reduce the effectiveness of competition between processors,” Keogh said.
The ACCC explored ways to address these concerns and found the existing provisions of the Competition and Consumer Act (2010), the dairy industry’s voluntary code of conduct, or a prescribed voluntary code would be inadequate.
“A mandatory code would improve the quality of information and price signals available to dairy farmers, enable fairer allocation of risk and enhance competition by removing switching barriers. While introducing a code won’t fully correct the bargaining power imbalance, it will reduce some of the negative consequences,” Keogh said.