The Code applies to dealings between a dairy farmer and any corporation that purchases milk directly from them, including milk processors, supermarkets, milk brokers, and cooperatives. After 1 January 2021, all milk supply agreements must comply with the Code.
This is the case unless the processor meets the definition of a ‘small business entity’ in which case the majority of the Code does not apply.
All contracts, no matter when they were entered into, must comply with the Code from 1 January 2021.
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 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 Code applies to all processors that purchase milk from farmers. In many cases, this will include cooperatives.
Although the Dairy Code of Conduct does not define a cooperative, the ACCC considers that this includes entities registered, or taken to be registered, as cooperatives under the Co-operatives National Law, corresponding cooperatives laws or other State or Territory laws relating to the formation, registration and management of cooperatives.
Cooperatives and supply periods
The Code usually requires all milk supply agreements to specify the supply period, including a definite end date. However, if the processor is a cooperative and the farmer is a member of that cooperative, the parties may enter into an agreement that continues until it is terminated or the farmer ceases to be a member of the cooperative. For the purposes of some obligations, the supply period is treated as if it is 90 days or longer.
The milk supply agreement still has to comply with all other requirements in the Code, including the requirement to provide a minimum price for the entire supply period.
A processor who wishes to enter into milk supply agreements without a specified end date should seek legal advice on whether they are likely to be a cooperative for the purposes of the Code.
Collective bargaining is an arrangement where 2 or more businesses (including farmers) come together to negotiate with another party, such as a processor, over terms, conditions, or prices. A group of farmers may sometimes appoint a representative, such as an industry association, to act on its behalf in the negotiations.
Farmers who are considering entering into a collective bargaining arrangement should consider the ACCC’s Small business collective bargaining class exemption and the ACCC's Small business collective bargaining guidelines.
Potential breaches and penalties
Farmers should be conscious that without ACCC approval prior to commencing negotiations, collective bargaining risks breaching the Competition and Consumer Act 2010.
The potential penalties for breaching these provisions are significant. Maximum penalties for each contravention by a corporation are the greater of $10 million, 3 times the value of any benefit obtained by the corporation or (if the value of the benefit cannot be determined) 10% of annual turnover in the preceding 12 months.
Collective bargaining and compliance with the Code
The authorisation, notification, and class exemption processes can exempt collective bargaining group members from the competition provisions of the CCA.
However, those processes do not exempt collective bargaining group members from their obligations under the Dairy Code, including requirements around the drafting of MSAs. In addition, collective bargaining groups and processors must deal with each other in good faith.