Key requirements for milk supply agreements

The Dairy Code requires processors to only purchase milk under a milk supply agreement. All milk supply agreements must comply with the Code.

Milk supply agreements

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 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 by a processor, 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 the circumstances (if any) in which either party may unilaterally terminate the agreement
  • 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

A milk supply agreement may include other terms in addition to those required by the Code, provided they are lawful and consistent with the Code.

Cooling-off period

Milk supply agreements must provide a 14-day cooling-off period, during which the farmer may terminate the agreement with immediate effect without incurring any liability.

The cooling-off period must start when the parties enter into the agreement, and expire:

  • if it is a written agreement, 14 days after the parties enter into it;
  • if it is an unwritten agreement, 14 days after the processor gives the farmer a written record of the agreement.

If the agreement is terminated during the cooling-off period, the agreement continues to apply to all milk supplied under the agreement up until the date on which the termination takes effect.

Supply periods

The Code does not specify that contracts must be of a particular duration. However it does require that all milk supply agreements have a start date and definite end date (except agreements with some cooperatives).

This means, in most cases, those agreements will end on the definite end date (or before that date if terminated prior) regardless of whether the farmer has given notice.

Minimum price

The Code has a number of sections that refer to the minimum price. These include provisions in relation to step-downs and a requirement for milk supply agreements to specify the minimum price. The requirement to include a minimum price applies to all milk supply agreements.

Step-downs

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.

Variations and terminations

All milk supply agreements must specify the circumstances (if any) in which the farmer or processor may unilaterally vary or terminate the agreement.

A milk supply agreement must not allow for a processor to unilaterally vary or terminate a milk supply agreement except:

  • for variations other than prospective step downs, in the case of a change in a Commonwealth, State or Territory law, and only to the extent necessary to comply with that change.
  • for terminations, when a material breach of the agreement by the farmer is involved.

This does not prevent a processor from agreeing with a farmer to vary the agreement, for example, to increase the minimum price.

Process

The milk supply agreement must also specify how the parties can unilaterally vary or terminate the agreement. The Code does not prescribe a particular process, but requires that any unilateral variation or termination by either party:

  • be in writing; and
  • include the reason for the variation or termination and the date on which the variation or termination takes effect.

Where an agreement is terminated, it continues to apply to milk supplied under the agreement up until the date on which the termination takes effect.

Loyalty payments

A loyalty payment under the Code is any amount payable to the farmer under the agreement because the agreement is not terminated before the end of the supply period.

The Code does not prohibit loyalty payments, however it does prevent processors from offering loyalty payments that are conditional upon farmers renewing their contract with the same processor or continuing to supply milk after the original agreement ends.

If a milk supply agreement is terminated the Code requires that any loyalty payments that are detailed in the agreement be paid out to the farmer on a pro-rata basis. This will not apply if the contract is terminated because of a material breach on the part of the farmer.

More information

Dairy code of conduct

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