The Dairy Industry Code of Conduct is an industry code regulating the conduct of farmers and milk processors in their dealings with one another. The Code came into effect on 1 January 2020.
The Dairy Industry Code of Conduct (the Code) aims to improve the clarity and transparency of trading arrangements between dairy farmers and those buying their milk.
Dairy farmers and processors must comply with the Code. Some sections of the Code do not apply when a processor is a small business entity or a dairy farmer is dealing with a processor that is a small business entity.
The Code applies to retailers, such as supermarkets, only to the extent that they purchase milk directly from farmers. The relationship between retailers and processors may be covered by the Food and Grocery Code of Conduct.
The ACCC is responsible for enforcement of the Code and investigates alleged breaches. Decisions about which matters to pursue are made in line with the ACCC’s Compliance and Enforcement Policy. Certain breaches of the Code could lead to the ACCC issuing an infringement notice or asking a court to impose a financial penalty.
The information provided on this page and related pages is of a general nature. The ACCC is not a dispute resolution body and does not provide legal advice. Individuals should obtain legal advice on the application of the Code to their circumstances.
Some sections of the Code will not apply to either a farmer or processor if a processor is a small business entity. However, all processors and farmers, regardless of size, must at all times deal with each other in good faith.
A small business entity includes a business that had an annual aggregated turnover of less than $10 million in the previous financial year.
The Code does not apply to dairy farmers and processors with a milk supply agreement that was entered into before 1 January 2020, unless that contract is varied or renewed.
All contracts, no matter when they were entered into, must be compliant with the Code from 1 January 2021.
The following table explains whether the Code applies in example situations.
|Example||Application of the Code|
|Joan is a dairy farmer who sells her milk to a processor with an annual aggregated turnover of less than $10 million.||Some parts of the Code will not apply to either Joan or the processor because the processor is a small business entity. Both parties will still be required to act in good faith.|
|John sells his milk to a retail store that is not a small business. The retail store contracts a processor to process the milk.||The Code will apply to the milk supply agreement between John and the retail store. The Code will not cover the contract between the retail store and processor.|
|James sells his milk to a processor that is not a small business, under a three-year contract, which was signed on 1 July 2019 and expires on 1 July 2022.||
The Code will apply from the earlier of:
The Code provides both processors and farmers with a number of rights and obligations. These include:
- an obligation on both farmers and processors to act in good faith
- a set of minimum disclosure requirements and protections that must be included in every milk supply agreement regulated by the Code
- a right to certain dispute resolution processes, including mediation.
Your rights and obligations under the Code are in addition to those under the Australian Consumer Law and the Competition and Consumer Act 2010.
If you are uncertain about your rights and obligations under the Code, you should consider seeking legal advice.
Farmers and processors must deal with each other in good faith at all times in relation to the supply of milk, from pre-contractual negotiations to termination of an agreement, and, in some cases, after an agreement ends.
The Dairy Code requires processors to only purchase milk under a milk supply agreement.
All milk supply agreements must comply with the Code, which means they must among other things:
- include a minimum 14-day cooling-off period
- in most cases, specify the supply period of the contract, including a final calendar date
- specify quality and quantity requirements, including testing procedures
- specify a minimum price paid for the milk
- not allow for price step-downs except for prospective step-downs in limited circumstances
- not allow for unilateral variation of a milk supply agreement, except in the case of a change in a Commonwealth, State or Territory law and only to the extent necessary to comply with that change
- specify what services the processor may or must perform, and specify the fees payable for those services for the first year of any supply period
- specify when transfer of ownership of the milk supplied occurs
- provide for payment of a portion of the loyalty payment in circumstances that a contract is terminated before the end of its supply period, if an agreement provides for a loyalty payment to a farmer
- contain a dispute resolution procedure, including an internal complaints handling procedure and mediation.
The Code requires all processors (other than those that meet the Code’s definition of a small business entity) that intend to purchase milk during the next financial year to publish standard forms of milk supply agreements on their website before 2 pm on 1 June (Australian Capital Territory time).
Written and unwritten milk supply agreements
The Code allows parties to enter into milk supply agreements using either written or non-written (for example, verbal) means.
If parties enter into a non-written agreement, the Code requires the processor to send a written record of the agreement to the farmer within 30 days of agreement. The processor must also make all reasonable efforts to obtain written acknowledgement that the written record is an accurate record of the agreement.
Both a written milk supply agreement and a written record of a milk supply agreement must:
- either be in plain English, or include a plain English overview
- be a single document.
Price step-downs and step-ups
The Code prohibits retrospective step-downs in all circumstances. There are specific requirements regarding the use of prospective step-downs that can only occur in limited exceptional, temporary circumstances.
The Code places no restrictions or obligations on either processors or farmers with respect to an increase (or ‘step-up’) in milk price, either retrospective or prospective.
As noted above, until 1 January 2021 the Code only applies to milk supply agreements entered into or varied after 1 January 2020. If a processor increases the minimum price payable under a milk supply agreement in an agreement entered into prior to 1 January 2020, that increase will not constitute a variation and therefore will not result in the Code applying to that agreement.
Exclusive milk supply agreements
The Code does not prohibit exclusive milk supply agreements. However, the Code does prohibit exclusive milk supply agreements that also include one or both of the following:
- a tiered pricing arrangement, or
- a maximum supplied volume specification.
If a processor publishes an exclusive milk supply agreement, the Code requires processors to also publish non-exclusive milk supply agreements as part of their 1 June publication deadline.
The Code applies to all processors that purchase milk from farmers. In many cases, this will include cooperatives. In some instances, a cooperative may be able to enter into milk supply agreements that do not have a final calendar date.
The Code may apply to collective bargaining arrangements depending on how the parties coordinate to collectively bargain.
Under the Code, a milk supply agreement must provide for both an internal complaints handling procedure and a mediation process. The Code also provides both processors and farmers with a right to seek to resolve a dispute via mediation using the process set out in the Code.
A milk supply agreement may also provide for an arbitration process, including by adopting the arbitration process set out in the Code.
Before resorting to mediation or arbitration, parties must first try to resolve the dispute via the processor’s internal complaints handling process.
The Code requires all processors (other than those that meet the Code’s definition of a small business entity) to publish reports on disputes on their website before 2 pm on 1 June (Australian Capital Territory time).
Contact the ASBFEO for dispute resolution and mediation services
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can provide you with information on options to resolve Dairy Code disputes with access to mediation and/or arbitration services. Visit the ASBFEO website, email firstname.lastname@example.org or call 1300 650 460.
Under the Code, farmers and processors need to keep a written record of milk supply agreement, and any variations or terminations of the agreement, as well as other specified records, for at least six years.
The Code contains penalty provisions. Not complying with a penalty provision could result in the ACCC taking court action seeking a financial penalty for the breach or issuing an infringement notice.
Persons who have suffered loss or damage as a result of contraventions of the Code may also take court action seeking other remedies, such as damages.
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