ACCC: the cost of a mandatory code

Suddenly, we’re not talking about whether the voluntary code has worked but how much a mandatory code might cost.

Everyone (including lobby body, the Australian Dairy Farmers) was taken by surprise when the CEO of Australia’s largest dairy processor, Lino Saputo told ABC Radio his company would support a mandatory code provided that it wasn’t too expensive.

So, how much would a mandatory code cost? To hear directly from the horse’s mouth, Milk Maid Marian asked ACCC Deputy Chair Mick Keogh a few questions to help explain the costs.

MickKeogh2

ACCC Deputy Chair Mick Keogh

MMM: What are the mechanisms that a mandatory code might use to resolve disputes or breaches and how do they differ?

MK: In its Dairy Inquiry final report, the ACCC recommended the industry should establish a process for an independent body to mediate and arbitrate contractual disputes between farmers and processors (or collective bargaining groups and processors).

The ACCC recommended ADIC should be responsible for establishing the body, and as part of this process should consult closely with farmer representative groups to determine how the dispute resolution process would work.

There are examples in other agriculture industries where an industry body has successfully developed dispute resolution process. For example, Grain Trade Australia administers a dispute resolution process where decisions are made by independent arbiters (that both growers and traders agree on) and disputes can only be brought if there is an arbitration agreement in writing.

GTA publishes detailed Dispute Resolution Guidelines that set out the procedure when parties are seeking to have a dispute resolved. GTA also publishes the decisions of arbitrators on its website (removing the parties’ identities) to allow industry participants to share in the findings and possibly modify their commercial behaviours.

The establishment of an independent mediation and arbitration body is not contingent on legislating a mandatory code for the dairy industry; however the ACCC considers a mandatory code should require that contracts contain terms that provide for an effective independent dispute resolution process.

MMM: Which of these is preferred by the ACCC in the dairy industry’s case and why?

MK: The ACCC’s preference is that ADIC establish an independent body to mediate and arbitrate contractual disputes between farmers (or collective bargaining groups) and processors.

The feedback received by the ACCC indicates there is not an appropriate existing body that could facilitate an effective dispute resolution process in the dairy industry, which is why a new body should be established.

MMM: What costs would the implementation of a mandatory code potentially bring? How large are these costs? Who would bear these costs?

MK: In our final report we outlined several ways a potential code could help address the contracting and bargaining power issues we identified through the Dairy Inquiry. These include:

  • obligations on processors to give timely and transparent information about the terms on which they propose to acquire milk from farmers (including through provision of written contracts and price guidance)
  • obligations on processors not to include contract terms which unreasonably restrict farmers’ ability to switch processors
  • restrictions on processors’ ability to change key trading terms (including prohibition of retrospective price step-downs and unilateral variation of agreement terms)
  • as noted above, requirement that contracts contain an effective independent dispute resolution process.

The ACCC recognises that there is industry and farmer concern about potential cost burdens associated with a mandatory code. However, the ACCC considers the compliance costs associated with the recommended mandatory code, particularly for farmers, would not be substantial.

The ACCC would be consulted on a code proposal and would not support an excessive regulatory burden being placed on farmers.

Farmers’ regulatory responsibilities would only require them to retain signed or acknowledged copies of milk supply agreements and act in good faith in their dealings with processors (similar requirements would be placed on processors too).

For processors, the potential compliance costs could include:

  • updating their contracts so they comply with the code
  • keeping a copy of contracts signed with farmers for a minimum time period, similar to requirements in other industry codes.
  • a requirement to participate in any compliance checks the ACCC undertakes
  • that they inform themselves of the code’s requirements and update their practices to ensure they are compliant.

Records of transactions and contracts currently need to be retained for taxation purposes for seven years, so any code record keeping requirements are unlikely to add any additional administrative cost for processors.

Thank you very much, Mick Keogh, for clarifying the costs surrounding the implementation of a mandatory code.

2 thoughts on “ACCC: the cost of a mandatory code

  1. Farmers want minimum security with price
    Processors want a reasonable amount of security with milk supply
    Both are reasonable request
    So why can’t this be achieved with at least a 12 month mandatory contract

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