The Dairy Code of Conduct does not prohibit exclusive agreements. It does prohibit combining exclusivity with some obligations.
The Dairy Code of Conduct prohibits milk supply agreements from including both an obligation to exclusively supply to the processor and either:
- tier pricing (where the minimum price for milk supplied after a certain volume is lower than the minimum price for milk supplied below that volume), or
- a maximum volume of milk that the farmer may supply under the agreement.
The Code does not prohibit exclusive supply agreements, only the combination of exclusive supply with either of the above two terms.
The Code requires processors to publish milk supply agreements on their websites by 1 June of each calendar year.
Where a processor offers to enter into an exclusive supply agreement in particular circumstances, the Code requires a processor to publish an option of a non-exclusive supply agreement, which it would also enter into in those particular circumstances.
For guidance on processors’ obligations during the publication period, see: Publishing obligations under the Dairy Code.
The Code does not prohibit processors from requiring farmers to provide a minimum volume of milk. The Code defines an ‘exclusive supply agreement’ as a milk supply agreement that ‘prohibits the farmer supplying milk to another processor’.
Accordingly, in most cases, the ACCC is unlikely to consider a milk supply agreement to be an ‘exclusive agreement’ solely because it requires a farmer to supply a specified minimum volume.
However, the ACCC considers that an agreement with a minimum volume obligation may be an exclusive agreement if the consequence of the minimum volume obligations is that the farmer could not be expected to ever have the capacity to supply any other party.
The ACCC understands that some farmers are concerned that the prohibition on both tier pricing and volume caps will mean that processors will no longer be obliged or incentivised to collect surplus milk produced in excess of the volume specified in the agreement. This could mean that in the absence of another processor being willing to acquire that surplus the farmer may be required to dispose of the milk.
The Code does not prohibit parties from entering into certain arrangements for the collection of surplus milk where agreements contain a maximum volume. For example, a non-exclusive milk supply agreement may still oblige a processor (provided it is at the election of the farmer) to collect surplus milk, but allow the processor to:
- pay a reduced price for surplus milk, or
- charge a fee for the collection of surplus milk.