The head of one of Australia’s biggest dairy processors has given qualified support to a mandatory dairy code.
In its final dairy inquiry report, the Australian Competition and Consumer Commission recommended a mandatory dairy code.
“A mandatory code of conduct would address problems arising from the large imbalance in bargaining power and information that exists between dairy farmers and processors,” ACCC Commissioner Mick Keogh said.
“Currently, processors can impose milk prices and other terms of milk supply contract terms that are heavily weighted in their favour.”
But Saputo Dairy Australia chief executive Lino Saputo said while a code made sense, it would depend on cost.
“There’s no reason why it shouldn’t be mandatory, and enforced and imposed on all processors, large and small,” Mr Saputo said.
“My concern is related to the implementation of the code itself and how onerous it would be.
“It should be mandatory, to the degree the cost of implementation is not onerous.”
Asked what he meant by onerous, Mr Saputo replied:
“If the regulatory oversight of the code was expensive and it cost too much money, it kind of defeats the purpose of the code.”
He said he’d also like to see what kind of regulatory oversight would be included in the code and who would pay.
“Those things are uncertain, right now, that’s why we said we believe it should not be followed up until such time we understand what the cost is,” he said.
But he said, if managed effectively, it would put all processors on a level playing field.
“It creates transparency, it makes things clear, it makes things fair, and – as a matter of fact – I would add one thing to the code, which is making step-downs illegal," he said.
“That gives protection to suppliers that the opening price is going to be, at worst, the minimum.”
He deflected criticism the current SDA supplier handbook mentioned step-downs.
“The handbook that is out there we have adopted from the former Murray Goulburn system,” Mr Saputo said.
“We only took over in May and we didn’t have enough time to be able to align the system between Warrnambool Cheese and Butter and Murray Goulburn.”
He said an advisory committee was looking at pricing policy and programs and in any new system, there would be no provision for step-downs.
He said he wasn’t out of step with the processing sector, which has opposed a mandatory code.
“I think leaders need to lead and I think this is a leadership position,” he said.
But Australian Dairy Products Federation president Grant Crothers said it was an oxymoron to support a mandatory code, with no administration or compliance costs.
“A mandatory code will lead to administration and compliance costs,” Mr Crothers said.
“It’s a lurch to regulation that the industry has been moving away from over that last 25 years.”
He said there was also a question of what was, and what was not, included in a mandatory code.
“The processing sector have significant concerns that the state dairy farmer organisations see the content quite differently to what has been indicated by the ACCC,” he said.
An Australian Dairy Farmers spokesman said the organisation was currently seeking clarification on whether Mr Saputo expressed support for a legislated mandatory code of practice, enforced by the ACCC, or a code of practice which would be enforced solely by industry.
ADF president Terry Richardson has previously said the organisation agreed with the recommendation to establish an independent mediator, as an important safeguard of farmers’ interests.
“It is vital that we have a mechanism to ensure farmers are protected in any disputes and this will form a central part of the current Code of Practice review process,” Mr Richardson said.
“We recognise that there is some support for a mandatory code.
“However, we established the Code for the very reason that we could bring all of industry together in the one room to have an agreed set of values for processor contracts.”
The ACCC explored ways to address these concerns and found the existing provisions of the Competition and Consumer Act (2010), the dairy industry’s voluntary code of conduct, or a prescribed voluntary code would be inadequate.
“A mandatory code would improve the quality of information and price signals available to dairy farmers, enable fairer allocation of risk and enhance competition by removing switching barriers. While introducing a code won’t fully correct the bargaining power imbalance, it will reduce some of the negative consequences,” Mr Keogh said.