Code of conduct vs contracts

CoC

The newly released Code of Practice has been promoted as industry working together to restore trust and confidence. It’s a step in the right direction but, as it stands, the Code brings little comfort for three reasons:

  1. Apart from a few tweaks around the edges, it preserves the status quo;
  2. Other than being labelled “very naughty”, there are no penalties for flaunting it; and
  3. It doesn’t apply anyway when processors demand new suppliers sign an individual contract. Easy!

Welcome improvements achieved by the code
Don’t get me wrong: the tweaks achieved by the code are welcome and important, especially these:

  • “Any downward changes to such adjustments (or adjustment calculations) cannot be made unless the dairy farmer has been given 30 days’ written notice…”
    In the heat of May 2016, Fonterra initially gave us minus 5 days’ notice. Thirty days would have allowed farmers to make better decisions under far less pressure.
  • “A farmer is entitled to all accrued loyalty and other payments where they have supplied to the end of a contract term, irrespective of whether they remain a supplier post a contract expiry.”
    This will make a difference because, while it effectively continues to reinforce at least a one-year term, farmers are free to switch processors afterwards without missing out on payments that could otherwise take months to arrive.
  • “Where a farmer has a contract with a processor and wishes to expand their production and a processor does not want to purchase the additional milk under the same contractual terms and conditions, the contract between the farmer and processor must allow the dairy farmer to supply the additional milk to other processors.
    This clause will apply if the primary processor is prepared to take milk in addition to the contracted volume at a lower price.”
    This aims to prevent the dreadful Tier 1 vs Tier 2 milk situation seen in fresh milk states like NSW for those on standard form contracts.

Sadly, none of this will stop a savage price drop again and farmers are still pretty much forced to sell all their milk to a single customer for a full year without any guarantee of the price they will be paid.

It’s sad but true that, even with the improvements made by the Code, dairy farmers are at a horrendously unfair disadvantage to the processors who buy our milk.

A Code with no bite
The first thing I should say is that it is clearly not within the power of dairy farmer representatives to mandate this Code. Only our politicians can make laws.

It does mean, though, the that Code is something of a toothless, arthritic tabby at best. In fact, the worst that can happen to any processor who breaches the code is that suppliers can leave (if they can find new homes for their milk) and the processor is labelled a very naughty boy.

Frankly, the shameless behaviour on display over the past 18 months shows it’s pretty clear plenty of processors don’t give a damn what we think of them.

In a piece published by the Stock & Land, UDV President Adam Jenkins said:

“But it’s up to us, as dairy farmers, to take ownership and hold the processors to honouring all the provisions.”

Sounds great. Unfortunately, we just don’t have the power to do that. After all, that’s why a Code was developed in the first place!

Code vs contracts
The Code only applies to “standard form contracts” (those which are the same or similar for all suppliers) rather than the increasingly-common individual contracts.

Burra Foods CEO Grant Crothers spells it out neatly for suppliers in his June 27 blog post:

Mr Crothers is on record now saying that his contracts comply with the Code. I’m not a lawyer, so I can’t comment on whether the clause below contravenes the Code’s insistence that “…no changes should ever be made retrospectively…” but can well understand why some dairy farmers are concerned it does.

Burra42.jpg

At any rate, simply moving from standard form to individual contracts provides an easy work around for processors not keen on meeting the terms of the Code.

The Code provides a starting point
While the Code is not the solution to all our woes, at least we now have a list of basic expectations regarding the way processors treat farmers. But I couldn’t put it better than Adam Jenkins himself, when he wrote: “…while the code is in itself a great achievement of the dairy industry, the real challenge will be ensuring that it is enforced”.

The Code is a foundation for other measures that will restore confidence to invest. Let’s hope there’s another few rounds in the locker to come.

 

3 thoughts on “Code of conduct vs contracts

  1. Another excellent article Marian. The system, almost in spite of the Code, requires producers to have their own individual contract with all the threats/ uncertainties they include.

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