ACCC delivers a ladder for dairy farmers

All I could think as I scrolled through the interim ACCC dairy report was “Wow!”. Any fears farmers had that the ACCC would fail to understand the intricacies of our industry have been well and truly put to bed. This report proves the regulator gets it.

“…the problems we have identified in this inquiry emanate from the inherent bargaining power imbalances in the industry, particularly between processors and farmers.”
– p. 22, ACCC Dairy Inquiry Interim Report

While there are more than 200 pages of very interesting information, the really important section deals with the regulator’s eight recommendations:

1. Processors and farmers should enter into written contracts for milk supply that are signed by the farmer.

2. All processors should simplify their contracts where possible, including by minimising the number of documents and clearly indicating which documents contain terms and conditions of milk supply.

3. Milk supply contracts should not include terms which unreasonably restrict farmers from switching between processors.

4. The industry should establish a process whereby an independent body can administer mediation and act as a binding arbitrator or expert in relation to contractual disputes between farmers and processors.

5. Farmers should ensure they have properly considered the legal and financial implications of contracts with processors.

6. Processors should publish information identifying how their pricing offers apply to individual farm production characteristics to enable better farm income forecasts.

7. The Voluntary Dairy Code should be strengthened
Notwithstanding Recommendation 8, the Voluntary Code will continue to operate for at least the short-to-medium term. The following amendments should be made:
(a) processors to include a comprehensive dispute resolution process in their milk supply agreements, including where this relates to compliance with the Voluntary Code itself
(b) processors to provide timely price and other contract information before requiring farmers to make a decision about renewing a contract.
(c) with regard to section 6 of the Voluntary Code, removal of the incumbent processor’s first right of refusal regarding a farmer’s supply of milk to an alternative processor.

8. A mandatory code of conduct within the Competition and Consumer Act 2010 should be considered for the dairy industry.

It’ll take time to digest the report properly and I’m betting that some of the details will be hotly debated over the next few weeks. That’s a good thing.

This ACCC inquiry is not a whitewash. The system is broken and such a strong report offers us a way to climb out of the deep hole we’re in towards the light.

How do I know buying branded milk will mean better prices for farmers?

“I am concerned about the welfare of Dairy farmers and the ‘$2 dollar’ milk available at supermarkets. I just want to know which milk benefits the farmers the most and not overseas owned companies who are not passing on the money to farmers. I have been paying the extra buying Dairy Farmers, only to find out that they are owned by a Japanese company!…We are happy to pay extra if we know a fair proportion of the money is going to farmers.”

A fellow called Peter sent me this message in the wee hours and raised a really good point – one that was echoed by CC & Ruby’s question the other day, so I’ve decided to address this thorny issue head-on.

Almost all dairy farmers send our milk to large processing companies because Australia’s stringent dairy food safety laws make it very expensive and difficult to supply consumers directly.

Our farm supplies the Murray Goulburn Cooperative, which is owned purely by the farmers who supply it. If you buy Murray Goulburn’s Devondale dairy foods, you know 100% of the profits are being returned to dairy farmers. The wonderful thing about MG is that because it’s owned by farmers for farmers and processes around 35% of Australia’s milk, it tends to set a farmgate price benchmark for the other processors.

On the other hand, it doesn’t pick up milk from right around Australia, concentrating on the biggest milk-producing state of Victoria. If you’re a dairy farmer in northern NSW, for example, you don’t have the option of supplying the Co-op and are more likely to supply a privately-owned processor. These privately-owned processors sell dairy foods under their own brand names or package homebrand milk under contract to the supermarkets.

When Coles and Woolies embarked on their milk war, it hit the processors hard pretty much straight away because brand name milk sales fell.

The Coles spin doctors said it wouldn’t affect farmers because they deal with the processors, not the farmers. This defies common sense. If a multinational supermarket controlling a huge chunk of retail sales decides to cut its prices below a sustainable level (Coles denies this too but Woolies has gone on record saying $1 per litre is not sustainable), putting its multinational food processor supplier to in turn lower its own costs, how do you expect that processor to respond? By sourcing the raw milk more cheaply of course! And guess what? It buys from small family businesses (98% of Australian dairy farms are family owned and operated) who have the least bargaining power of all.

No, I can’t guarantee that if Peter buys Dairy Farmer branded milk rather than private label, farmers will be better off. On the other hand, it is guaranteed that if Peter buys unsustainably priced milk, someone else will have to pay. That will almost certainly be a farmer and her family in the short term. In the medium term, it will be her cows and the environment and, over the longer term, it will be milk drinkers because there’s no such thing as a free lunch.