Industry advocacy group Dairy Connect has backed the call from the Australian Competition and Consumer Commission (ACCC) for a mandatory code to govern dairy supply chain relationships and commercial practices.
The ACCC call was one of eight recommendations made in an interim report into the national dairy industry commissioned by the federal treasurer Scott Morrison more than 12 months ago.
Dairy Connect CEO Shaughn Morgan welcomed the ACCC findings and recommendations and said there was an “urgent” need for change to address commercial power imbalances in the industry.
He said the recommendations reflected the reforms suggested by a Dairy Connect submission to the ACCC in respect to greater transparency and clarity in processor produced contracts.
“Effectively the review pointed to the fact the dairy producers languished at the bottom of a power relationship structure dominated largely by retail supermarkets and exporters and, to a lesser extent, by milk processors,” Morgan said.
“The ACCC said a new mandatory code should address bargaining power imbalances, improve price and production signals to farmers, stop practices that transferred risk inappropriately and enhanced the competition for farmers’ milk.
Morgan supported the analysis by ACCC agriculture commissioner Mick Keogh that processors, under pressure from supermarkets and exporters, used their bargaining strength to shift commercial risks downwards onto dairy producers.
The power imbalance was evident in the nature of contracts between the processors and farmers.
These contracts involved uncertain pricing information and contract terms which deterred or prevented dairy farmers from switching to other processors offering better prices.
He said the interim review noted that wholesale and retail milk prices had been declining in real terms since deregulation 17 years ago.