The Dairy Code (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 (MSAs) and reports on disputes on their website before 2 pm on 1 June (Australian Capital Territory time).
The Code does not prohibit exclusive MSAs, although it does prohibit combining exclusivity with some obligations.
All standard form MSAs must:
- comply with the Code were the processor to enter into an MSA in that form — for example, MSAs must include a minimum price
- be published on the processor’s website and remain on that website for the entirety of the next financial year
- be accompanied by a statement of circumstances setting out when the processor would enter into a MSA in that form
- collectively cover all the circumstances in which the processor intends to purchase milk in the next financial year
- include a non-exclusive standard form option for each circumstance in which the processor intends to purchase milk in the next financial year
- include a statement of pricing justification
- be ‘genuine’, in that the processor must not refuse to enter into an MSA in that form if the specified circumstances accompanying the standard form MSA exist.
The Code requires processors to publish standard form MSAs on their website before 2 pm on 1 June (Australian Capital Territory time).
After that publication deadline, the processor must not remove or vary the standard form MSAs from its website before the end of the following financial year.
For example, if a processor publishes a standard form MSA on its website at 9 am on 1 June 2020, the processor must not remove that standard form MSA before 1 July 2021.
However, the Code does not prevent the processor from publishing new standard form agreements alongside the existing standard form agreements. The publication of new standard form agreements (including any new minimum prices) will not affect any agreements that have already been executed.
Publication and transparency
‘Publish’ is not defined in the Code. It has its ordinary meaning, having regard to its context and purpose.
Publication of standard form MSAs is intended to provide transparency in the dairy industry and enable farmers to identify the best MSA for their circumstances.
As such, the ACCC considers that a processor must make the standard form MSAs available to the general public, not behind a portal or other barrier. The ACCC also considers that a link to the processor’s standard form MSAs should be prominent and clearly visible on the front page of the processor’s website.
For each standard form MSA published on the processor’s website, the processor must also publish a statement setting out the circumstances in which the processor would enter into the standard form MSA (hereafter, ‘statement of circumstances’).
The Code does not state what can or cannot be included in a statement of circumstances. Processors should at least provide the necessary information that allows a farmer to understand:
- whether the standard form MSA applies to their specific circumstances (e.g. production capacity, geographical area)
- whether any other circumstances will determine whether the processor will enter into the agreement (e.g. whether the processor has already met their supply requirements for the coming financial year).
Cover the circumstances
The Code requires processors to publish as many standard form MSAs and statements of circumstances as necessary to cover all the circumstances in which the processor intends to purchase milk in the coming financial year.
The ACCC considers that in order to satisfy this requirement processors must make a genuine attempt to catalogue all new MSAs that they intend to enter into in the coming financial year and publish an appropriate standard form MSA and statement of circumstances for each of those MSAs.
The ACCC considers that the processor must assess its intentions as of the publication deadline on 1 June. If a processor’s circumstances change such that it intends to enter into MSAs that it genuinely did not intend to enter into on 1 June, it is unlikely the processor would have breached the Code for failing to publish those MSAs by the publication date.
A processor’s intentions may also change in response to a farmer approaching the processor to negotiate a specific MSA for their circumstances. The Code expressly states that the above publication requirements do not prevent a processor from entering into a MSA that is not in a standard form published on the processor’s website.
Must be genuine
If a processor publishes a standard form MSA on its website and that MSA is accompanied by a statement of circumstances in which it would enter into that MSA, then a processor will contravene the Code if it refuses to enter into that MSA with a farmer when the specified circumstances accompanying the MSA exist.
The Code does not prohibit exclusive MSAs, and processors may include exclusive standard form MSAs as part of their standard form MSAs published by 1 June.
However, if a processor does publish an exclusive standard form MSA with an accompanying statement of circumstances, then the processor must also publish a non-exclusive standard form MSA covering the same circumstances.
This means for every statement of circumstances published before 2 pm on 1 June, a processor must publish either:
- a non-exclusive standard form MSA, or
- both an exclusive and non-exclusive MSA.
Exclusive and non-exclusive MSAs that cover the same circumstances do not need to be on the same terms or have the same minimum price. All published standard form MSAs must, if entered into in the form published, comply with the Code.
For more information on what constitutes exclusive supply within the meaning of the Dairy Code, see: Exclusivity under the Dairy Code.
Exclusive dealing is prohibited if it has the purpose, effect or likely effect of substantially lessening competition.
If a processor wishes to enter into exclusive MSAs, it should seek legal advice on whether doing so may breach Australia’s competition laws in the Competition and Consumer Act 2010 (Cth).
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.
For more information on exclusive dealing, see: Exclusive dealing.
The Code requires that any standard form MSA published on a processor’s website must include a statement of the processor’s justification for any minimum price specified in the standard form MSA.
A statement of price justification must be included in all standard form MSAs published on the processor’s website, including those published after the 1 June publication date.
The Code does not define ‘justification’. It has its ordinary meaning, having regard to its context and purpose.
The explanatory memorandum for the Code states that a statement of justification ‘may include the factors that lead to the consideration of the prices offered but does not need to include commercial-in-confidence material such as algorithms of the specific level of weighting factors such as a currency’s hedged value that may contribute to generate the offered price.’
Processors should consider the following key issues before the publication deadline of 2 pm on 1 June (ACT time).
- What are all the circumstances in which you intend to purchase milk in the coming financial year? For each of these sets of circumstances, have you published at least one standard form MSA on your website?
- Are these sets of circumstances sufficiently specific that, if they were satisfied, you would be willing to enter into an MSA with any farmer who wished to do so?
- For each specified circumstance, have you published either a non-exclusive standard form MSA, or both an exclusive and non-exclusive MSA?
- Does each standard form MSA include a statement of justification for each minimum price specified in that MSA?
By 1 June, a processor who is party to a MSA must publish a report for the first reporting period (1 January 2020 to 30 April 2020), and each later reporting period (12 months beginning on 1 May in a year), setting out:
- the number of disputes arising under or in connection with their MSAs that were the subject of mediation or arbitration that started or ended in the reporting period
- information about the nature of these disputes
- the number of mediations or arbitrations conducted
- the average time taken to resolve these disputes
- the outcomes of these disputes.
The report must not name or otherwise specifically identify farmers or any other person involved in a dispute. Processors must also comply with any confidentiality requirements relating to information disclosed or obtained in the complaint or dispute resolution process.
The Code does not provide an exemption on this reporting obligation for processors whose MSAs were not subject to disputes.