Transparent and simple contracts were the first aim of the new dairy Code of Conduct, according to Australian Dairy Farmers (ADF) interim chief executive John McQueen.
Mr McQueen, addressing delegates to the annual United Dairyfarmers of Victoria conference, said the contracts should also state the mutual obligations of farmers and processors.
“The mutual obligation is important, because often there is no such thing as a mutual obligation - it’s either, ‘this is what we are offering you, either take it or leave it',” Mr McQueen said.
“There is not much choice at all, but greater transparency will give you a better chance of dealing with that.”
The voluntary code has been drawn up by the Australian Dairy Industry Council (ADIC), with input from the ADF Australian Dairy Products Federation and dairy processors.
The code aimed to set out “recommended minimum good practice in terms of milk supply contracts”.
It was also written to comply with the small business contract laws, which were enacted last November.
Mr McQueen said several years ago the UDV got a group of 10 to 12 of Victoria’s top dairy consultants to tell it how many conditions, collectively, influenced the price of milk.
“They came up with 31 to 32 different types of conditions, which can affect the price you will be paid,” he said.
“None of you will get the price written in the newspaper – and everyone within a company will have a significant range in the price they receive, because of all those various, huge numbers of different outlooks, that can impact the price.”
He said the ADF wanted a “clear description”, in the contract, as to how the pricing notification was calculated.
“Contract must include a mechanism and formula, and how any variations to the formula are to be dealt with," he said.
“You, as a dairyfarmer, should be able to do some of these calculations yourself.
“But I know of a whole lot of dairyfarmers, who try to do it, with enormous difficulty.”
He said he was not under any illusions the issues would be fixed immediately, but, “over time,” there would be improvements.
Any adjustments must be set out clearly, with 30 days written notice for a price cut and an opportunity to get out of the contract, without penalty.
“That did not happen last year, but it is an important option, that is necessary, to try and improve the balance of fairness between a farmer and a processor,” he said.
He said loyalty payments, which tied a farmer to a particular processor, were unfair – and the easiest thing to get rid of.
“If you produce a widget, you are not forced to sell that widget, to one entity,” he said.
Notice to terminate was another serious issue, which was being addressed by the Code.
“What do you do when you haven’t got the tanker, coming to pick up tomorrow, and no one else wants to pick up your milk?," he said.
The effects test legislation, which dealt with a misuse of market power, was currently before the Senate.
“I don’t think there is any question, although Australian Competition and Consumer Commission will help us get to the bottom of this, that dollar milk has had an impact on the farmgate price in Queensland, New South Wales and Western Australia,” Mr McQueen said.
“The Victorian experience is $6 cheese – which works out at 60 cents a litre, for milk.”
He said the effects test legislation may be one way of making it fairer for farmers.
“Those that supply the company that does the deal don’t have a say, but if the effect of the deal between the company and the retailer has an adverse impact, the effects test legislation is one way of dealing with it.”