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Southern dairy farmers debate code of conduct

By Jeanette Severs

DAIRY FARMERS in the southern milk pool are concerned about how a voluntary or mandatory code of conduct would deal with market inequities. That was the feedback at a public consultation session at Warragul in late January, where the clauses of a draft code were debated.

Department of Agriculture and Water Resources assistant secretary Jo Grainger took attendees through a number of clauses and asked for honest feedback.

She stressed the minister wanted to shape a standard contract as an industry example and legislate for transparency around processors’ prices and agreements with dairy farmers.

“On one day every year, every processor will have to post online the minimum standards of its contract and its expected minimum price,” Ms Grainger said.

But some farmers are concerned if the industry actually needs a code of conduct and encouraged Minister for Agriculture and Water Resources David Littleproud to wait until after the election, rather than rush a process.

The risk is, in trying to meet the needs of farmers in the northern milk pool, those in the southern milk pool would be disadvantaged by a compulsory code of conduct.

Ms Grainger said her department would table a report to government, from the facilitated public consultations and online survey, by the end of February. This would enable farmers’ feedback, supposedly to help shape the code, to be in front of Mr Littleproud before the government adopts caretaker mode.

Farmers at Warragul stressed the Australian dairy industry was diverse, with competition strong in some sectors; but in other states dairy farmers had only one option for selling their milk.

Ms Grainger agreed but said addressing these as separate markets would make the code too broad and, ultimately, fail in its object.

“It is clear it is not two markets — export and domestic. It’s a diversity of markets depending on the region or state the dairy farmer is operating in,” she said.

“We are really conscious Victoria is the largest market in dairy.”

While a code is not the only option of the table, it is up to industry to lead on developing other options. The dichotomy, of course, is industry-representative bodies are funded by government; so would be acting in opposition to the preferred legislative view.

Milk swaps, step-downs and pricing were key areas for discussion.

Milk swaps were not considered a focus for the code; however, some dairy farmers felt there was a risk, by not addressing the issue, of collusion between processors.

Step-downs were outlawed in the proposed code, but created significant discussion about how they were defined.

Ms Grainger said the proposed code discharged Tier 2 milk pricing, common in the northern milk pool market.

Seasonal production was of key concern, with some farmers in the southern market relying heavily on the variations, especially shoulder pricing, to realise profit above cost of production.

UDV president Paul Mumford said rather than setting a minimum price, farmers in the northern and southern milk pools would prefer a mechanism in the system to see a rolling average true price.

Stu Griffin of Westbury said where processors did not need to compete, there was a risk of greater discretion about how much milk they took and what they paid for it.

Damian Murphy of Dumbalk North said there was a discretionary ‘creep’ factor to maintain prices at an average. He strongly supported an opening price rather than a minimum price.

“I can’t make a business decision on price unless I know I can calculate an income estimate,” he said.

“We need an opening price that relates to supply curves. We also want the milk price index that reflects the world price — that gives dairy farmers better information to make decisions,” said Bernard Lubitz, of Leongatha North.

Lauren Finger of Darnum suggested an online income estimator would enable farmers to use an algorithm to input their costs and compare the price differentials of various processors against their production outputs.

Contract terms, variations, exclusive supply agreements, cooling off periods, three-year bonuses, daily supply agreements, the milk supply handbook and a dairy farmer’s notification rights, were also heavily debated.

Ms Grainger advised there were some processor practices that would clearly be prevented by the code, but it was up to dairy farmers to bring their concerns forward to the ACCC.

“For example, a $2 variation should be prevented by the code,” she said.

However, the Corporations Act would oversight a code of conduct and some business and governance practices would need to be addressed through ASIC, ACCC or another arbitration process.

“It’s obvious to us, some milk pools in Australia are so finely balanced, that the processors show the whites of their eyes when we suggest variation that strengthens farmers’ rights,” Ms Grainger said.

“What we’re trying to do is produce a mechanism that delivers a better price. We think that will push competition in the market. If it looks like a race to the bottom, that appears like collusion. And you need to report that to the ACCC.”

Ms Grainger encourages every dairy farmer in Australia to provide their feedback on the proposed code at haveyoursay.agriculture.gov.au/dairy-code-conduct