Exclusive interview with Ag Minister: the code, the levy and a lack of leadership

In an interview with Milk Maid Marian, the federal Minister for Agriculture and Water Resources, David Littleproud, has made some extraordinary comments.

The Minister:

  1. is open to a levy on a range of dairy products (not just milk) if industry asks;
  2. believes a retail levy should be imposed until there is “market purity”, which means true competition for milk at the farmgate;
  3. says the supermarkets have a big role to play in the sustainability of Australia’s dairy industry;
  4. wants industry to come to him with ideas about how to halt the exodus of dairy farmers but says the ADF has not made any requests of him that would address farm profitability.

I hope the interview stimulates debate about how our industry has responded to the crisis over two years. Worth watching all the way to the end, so grab a cuppa.

 

 

Mandatory dairy code vote goes through

Sources have confirmed that a 7 to 6 vote in favour of a mandatory code was passed at Australian Dairy Farmers (ADF) this week.

The close result follows a campaign against the adoption of a mandatory code from the United Dairyfarmers of Victoria.

It’s a postion that appears to put the UDV in direct conflict with its own members, according to survey results presented by the ADF to a small group of farmers earlier this week.

FarmerFeedback

The UDV declined to comment on the vote result yesterday, referring Milk Maid Marian to the ADF, which has promised a response on Monday.

ADF answers questions about the dairy code

Australia’s peak dairy representative body, Australian Dairy Farmers (ADF), has not yet joined the ACCC and all but one of the state dairy bodies in calling for a mandatory code that would govern the interactions between farmers and processors.

I’m grateful to ADF’s President, Terry Richardson, for answering four questions about the ADF’s approach for Milk Maid Marian.

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Terry Richardson, ADF president

1. Does the ADF accept the ACCC’s finding that the voluntary code was not effective enough?
TR: ADF accepts the ACCC findings that the current industry Code had a positive impact on contracting practices but has been unable to secure participation by all processors, reduce risk and strengthen bargaining power for farmers, independently arbitrate complaints or penalise breaches.

When the Code was introduced, it was agreed that a review would occur twelve months of operation. This included an assessment of its strengths and weaknesses in the context of the ACCC report and industry feedback.

We were aware at the start of the code review process that the next version of the industry Code must have such procedures in place.

It is important to recognise that prior to 1 July 2017, there was no Code of Practice for Contractual Arrangements in the dairy industry, and Australian Dairy Farmers was pivotal in making this difficult yet important first step.

2. If you are still committed to the review of the voluntary code, what resources does ADF have that were unavailable to the ACCC and may have hindered its review?
TR: It is incorrect to assume that the ADIC is conducting its own review with the aim of coming to a different conclusion to the ACCC. The ACCC and ADIC reviews have different objectives.

The ADIC review is focused entirely on how the voluntary code operated, what elements were successful and what needs improving in a new Code of Practice.

We found that relatively little of the ACCC report considered the operation of the current dairy industry Code of Practice despite the shortcomings.

Our concern with the ACCC report was that in recommending a mandatory code of practice, the ACCC did not conduct an assessment against the Australian Government’s threshold test nor did it provide adequate analysis on how this new code would operate.

It is our understanding that it is difficult to amend or alter a mandatory code once it is enacted if farmers determine at some future time that they are unhappy with its operation.

It has been incorrectly assumed that continuing with the ADIC review is an indication that the Council or ADF is opposed to a mandatory code of practice. That is not true.

The ACCC report broadly discussed the different types of codes but we need to review all options and communicate to farmers the benefits and shortcomings of each.

These are significant decisions for the dairy industry and farmers should expect that ADF forms a view that is underpinned by detailed analysis

3. What steps has the ADF taken in response to the ACCC report?
TR: ADF, in conjunction with the Australian Dairy Industry Council, is using the ACCC report as a springboard to revise and strengthen the Code of Practice and act on the other recommendations contained in the report.

We are working with a legal firm who has considerable experience in working with industry codes. While this legal advice is in its early stages, we will work through number of key amendments that should be included in a new dairy industry code, including a dispute resolution mechanism and penalties procedure that would ensure compliance.

We are also using the ACCC Guide to Industry Codes of Practice to ensure a strengthened code is consistent with best practice.

4. What are the next steps and their timeframes?
TR: The introduction of a Mandatory Code would take 15-18 months, and with a federal election scheduled for the first half of 2019, this timeline could be extended as government moves into caretaker mode during an election.

Preparing a strengthened industry Code including dispute resolution procedures is the next step, and we expect this to be complete in the next couple of months.

This work is complex and ADF is proceeding one step at a time, recognising the urgency of moving this work forward.

Thank you, Terry Richardson, for explaining ADF’s approach to a dairy code!

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.

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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.

ACCC explains mandatory codes

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Since the ACCC recommended a mandatory code for the interactions between dairy farmers and processors, there’s been a lot of talk about what this might mean. To help sort the fact from the fiction, I asked the ACCC’s deputy chair, Mick Keogh, about the fundamentals.

Milk Maid Marian is really grateful to Mick for his explanation.


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Mick Keogh, deputy chair, ACCC

 

MMM: How does a mandatory code differ from a prescribed voluntary code?

MK: There are three types of industry codes – (1) a voluntary code (such as the current Dairy Code), (2) a prescribed voluntary code (such as the Food and Grocery Code), and (3) a mandatory code (such as the Horticulture code).

A voluntary code is one developed by industry which participants voluntarily agree to by becoming signatories, but which has no penalties attached to breaches, and participants can choose to opt out of at any time without disadvantage.

A prescribed voluntary code is one which participants voluntarily agree to by becoming signatories, and which can have penalties or sanctions associated with breaches by participants.

A mandatory Code is one which all the relevant industry participants are bound to abide by, and which may have penalties or sanctions if a participant breaches the code.

The key difference between a prescribed mandatory code and a prescribed voluntary code is that a prescribed voluntary code only applies to industry participants who voluntarily choose to become a signatory to the code. Signatories can choose to withdraw and cease to be bound by a voluntary code at any time (although they will still be liable for breaches that occurred while they were signatories). In contrast, a mandatory code is legally binding on all industry participants specified within the code.

Prescribed voluntary codes and mandatory codes are both developed by Government in consultation with industry participants and the public, and administered by the ACCC. The ACCC can take enforcement action against parties that a prescribed voluntary code or mandatory applies to. Remedies include injunctions, damages, non‑punitive orders and other compensatory orders. Penalties and infringement notices may apply, but are more likely in a mandatory code than a prescribed voluntary code.

Any person who suffers loss or damage due to a contravention of a prescribed voluntary code or mandatory code can also bring a court action for damages.

MMM: What are the pros and cons of each?

MK: In the context of the dairy industry, the ACCC found that a mandatory code is likely to be stronger than a voluntary code in both the coverage of its enforceability and the potential for its substantive obligations to address issues which lead to market failures. We found that dairy processors are unlikely to volunteer to be covered by a prescribed voluntary code that is strong enough to address the market failures we identified in the dairy industry.

MMM: What is the normal process involved in drafting a mandatory code?

MK: If the Government agrees to pursue the creation of a prescribed mandatory code, the process will involve several stages, including stakeholder consultation with businesses, consumers and relevant government agencies, including the ACCC.

Following consultation with the industry, the responsible department will prepare a draft Regulatory Impact Statement, which evaluates the relevant issues and problems in question, objectives of a potential code and options for addressing the identified issues. This statement would be released for public consultation before it is finalised.

Afterwards the Department with policy carriage will draft the text of the proposed code and may  seek public feedback on it.

When it is finalised, the Governor General will make a regulation prescribing the code. The code regulation will then be registered and tabled in each House of Parliament, where it can be disallowed within 15 sitting days in each House.

Treasury processes to prescribe an industry code are set out at: https://treasury.gov.au/publication/policy-guidelines-on-prescribing-industry-codes/process-and-consultation-after-a-decision-to-prescribe-an-industry-code/

MMM: How long does it typically take to put a mandatory code in place?

MK: The time it takes to put a prescribed code in place (from announcement to implementation) will depend on a range of factors.

The time can range from about a month (as was the case for the Wheat Port Code and the Sugar Code) to several years (including a transition period, for example for the Horticulture Code).

MMM: What is involved if stakeholders agree that a mandatory code needs to be revised?

MK: A prescribed mandatory code may be subject to review after it has been implemented. For example, the Sugar Code must be reviewed within 18 months of its commencement, and the Wheat Port Code must have its first review within three years of its commencement.

The review involves a public consultation process to seek feedback from a wide range of stakeholders. A review can be conducted by the Government Department with policy responsibility for the particular code or alternatively by an independent body or industry experts. The review may consider options for repealing the code or amending it.