Application of the Dairy Code and exemptions

The Dairy Code of Conduct came into effect on 1 January 2020. All milk supply agreements created, varied or renewed after this date are subject to the code. The Code applies to dealings between a dairy farmer and any corporation that purchases milk directly from them, including supermarkets, milk brokers, and cooperatives (which have a limited exemption in relation to open-ended agreements). The Code may apply to collective bargaining arrangements in some circumstances.

Agreements entered into before 1 January 2020

The Code does not apply to milk supply agreements that were entered into before 1 January 2020, unless that contract is varied or renewed.

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.

All contracts, no matter when they were entered into, must be compliant with the Code from 1 January 2021. From 1 January 2021, a processor will breach the Code if any of their milk supply agreements (regardless of when they were entered into) do not comply with the Code.

Before 1 January 2021, farmers and processors should work together to vary existing agreements to be Code compliant or agree to terminate any non-compliant agreement. If the parties cannot agree to terminate or vary the existing contract, each party should seek legal advice on their options from 1 January 2021 to ensure compliance with the Code.

Also from 1 January 2021, both farmers and processors should be aware that they may breach the pecuniary penalty provisions of the Code if they unilaterally terminate a milk supply agreement (regardless of when they entered into the agreement) other than as specifically provided for by the agreement.

Small businesses

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.

Supermarkets

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.

Cooperatives

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.

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.

Relevantly, the Code defines 'processor' to mean corporations (or certain other persons) that purchase, or that may purchase, milk from farmers 'whether or not the corporation processes the milk'. The Code gives as an example, 'Some cooperatives and milk brokers [that] purchase milk from farmers but don’t process milk'.

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.

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.

For the purposes of some obligations, the supply period is treated as if it is 90 days or longer. 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

Collective bargaining is an arrangement where two or more businesses (including farmers) come together to negotiate with another party, such as a processor, over terms, conditions and 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 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, three times the value of any benefit obtained by the corporation or (if the value of the benefit cannot be determined) 10 per cent of annual turnover.

Collective bargaining and compliance with the Code

In some circumstances a collective bargaining arrangement may be required to comply with the Code. For example, if a collective bargaining agreement involves the collective bargaining entity purchasing milk from farmers in the first instance to then pool and sell to a processor.

Accordingly, parties should seek legal advice about the application of the Code and the Competition and Consumer Act 2010 to their collective bargaining arrangements.

Examples

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:

  • 1 January 2021
  • when the contract is renewed or varied.

More information

Dairy code of conduct

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