A dairy industry mandatory code is essential to prevent processors from reinstating unfair terms into their contracts, according to Australian Competition and Consumer Commission deputy chairman Mick Keogh.
Mr Keogh told a Dairy Connect ‘Dairy Needs’ Panel Session in Sydney on Thursday there was nothing at present stopping processors from rewriting terms back into their contracts that the ACCC had this year forced them to remove.
But if a mandatory code was in place, the ACCC could take immediate action and there would be penalties for a breach.
Without the code, the ACCC would need to identify that the contract terms were unfair and then take the processor to court to have them changed.
The work done on identifying unfair contract terms confirmed that in the absence of a code, issues would be ongoing.
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Mr Keogh also identified the complicated nature of contracts as an ongoing issue, not just for the dairy sector but across a wide range of consumer and business sectors.
"Contracts have become more and more complicated and more opaque," he said.
"Getting plain-English, easy-to-understand contracts and one you can compare between different processors is difficult."
One of the recommendations from the ACCC inquiry into the dairy industry that had not been picked up was to have standard profiles (eg 300-cow seasonal farm) against which contracts between different processors could be compared.
Cost of code Mr Keogh said he struggled to understand the concern being expressed at mandatory code consultations about it creating increased farm costs.
This had not been the case in the horticultural industry, which had had a mandatory code for six years.
If the paperwork was already in place, it would simply be a matter of ensuring it complied with the code.
Mr Keogh also dismissed suggestions raised at code meetings that it be extended to supermarkets.
The supermarkets and their suppliers (such as the processors) were already subject to the Food and Grocery Code of Conduct, and it would not work to have two codes overlapping, he said.
The ACCC was not involved in the mandatory code consultations, which were being conducted by the federal government, but it anticipated being asked to comment on a draft of the code early next year.
Contract changes Mr Keogh said it had taken the ACCC a year to work through the contracts of major dairy processors (with some having more than a dozen different standard contracts) and then to negotiate the changes required.
Discussions were ongoing with Saputo and Bega, "but they are broadly in line with where we wanted them to be".
The changes had come about as a result of unfair contract legislation introduced in November 2016, which required standard-form contracts between large businesses and small businesses to not contain unbalanced terms.
The legislation required the ACCC to identify unfair terms that were not essential to the contract.
Mr Keogh said three main types of breaches were identified in dairy contracts.
The first was unilateral price variation clauses, particularly in multi-year contracts, that allowed a processor to impose a penalty on someone breaking a contract but also giving the processor the right to change the price offered in the contract.
Most processors had agreed to a 30-day notice provision of a change in price, allowing the farmer to exit the contract without penalty in that period.
The second breach was terms giving processors the right to make unilateral variations to conditions other than price.
Written contracts were often subject to the requirements in the supplier handbook, which could be changed by a processor whenever they wanted.
These had been deemed unfair and now changed, with a couple of processors still working through the detail on this.
The third breach was terms requiring unreasonable extended notice of termination - some up to 12 months.
"We've generally had those changed," Mr Keogh said.
The exception in Western Australia, where the notice period applied to both the supplier and the processor, so was balanced.
The other was a reworking of the contract condition that limited the ability of a supplier to lease or sell the farm while they remained a supplier.