The Dairy Code of Conduct requires processors to ensure that their milk supply agreements consist of a single document, and are either written in plain English or include a plain English overview.
The Code allows parties to enter into milk supply agreements using non-written (for example, verbal) means. However, processors must ensure that a written record of the agreement is prepared and take all reasonable steps to seek acknowledgement from a farmer that the written record is accurate.
The Dairy Code of Conduct requires that all written milk supply agreements, and all written records of verbal milk supply agreements, consist of a single document. This ensures that:
- both parties are clear about the rights and obligations under the agreement
- parties’ rights and obligations cannot be unilaterally varied by amending secondary materials (for example, a milk supply handbook).
The ACCC considers that the requirement to have a single document is likely to be satisfied if the milk supply agreement:
- is provided in its entirety to the farmer at the same point in time (for example, in one piece of correspondence)
- does not seek to incorporate other documents by reference alone (for example, documents that the processor purports to be able to amend without following processes set out in the agreement).
Milk supply handbooks
If processors wish to use a ‘milk supply handbook’ as part of their milk supply agreement, the ACCC considers this practice is likely to comply with single document requirement in the Code if:
- the agreement expressly incorporates the handbook, and
- a copy of the relevant handbook is annexed or attached as part of the written agreement or written record of a verbal agreement, such as being included in an email from the processor to the farmer containing a copy of the executed agreement.
A handbook that is incorporated into an agreement in this way must also comply with the Code.
If a milk supply agreement incorporates a milk supply handbook in this way, that milk supply handbook can only be varied in accordance with the Code and the terms of the agreement. This means that, if a processor publishes an updated or new milk supply handbook on its website, farmers with existing milk supply agreements will not be affected.
Existing suppliers will only be affected if milk supply agreements are subsequently varied in accordance with Code provisions to incorporate the changes.
The Code limits the extent to which a milk supply agreement can include a clause that allows a processor to unilaterally vary the agreement. In many circumstances, updating a milk supply handbook that forms part of an existing agreement will require agreement of all parties to the milk supply agreement.
A processor may wish to update farmers about prices by way of pricing letters sent during the season. The Code does not specifically prohibit this. However, processors who wish to adopt this practice must comply with the Code.
This means that:
- The agreement must contain a minimum price, as defined in the Code.
- Pricing letters cannot allow the processor to unilaterally pay less than that minimum price, or to unilaterally reduce the minimum price payable, for milk that has already been supplied under the agreement.
- Pricing letters cannot allow the processor to unilaterally reduce the minimum price payable for milk to be supplied in the future. This can only occur through a variation to the milk supply agreement when exceptional circumstances exist and the Code’s requirements have been followed.
- The processor must act in good faith at all times, and ensure they comply with any other relevant legislation (such as the provisions contained in the Australian Consumer Law).
In a number of circumstances the Dairy Code of Conduct will require a processor and, in limited circumstances, a farmer to provide an agreement or variation in ‘plain English’, or provide a plain English overview of the agreement or variation.
The Code does not define plain English.
The ACCC considers plain English, in the context of the Code, refers to documents being written in a style that readily conveys its message to its audience, typically dairy farmers.
Consequently, a plain English document may still use dairy industry terms that a dairy farmer would readily understand but that an ordinary layperson may not. A plain English document should avoid legal jargon that its audience, in this case dairy farmers, would not readily understand.
Processors should seek professional advice on whether their plain English documents are compliant with the Code.
The Code allows parties to enter into milk supply agreements using either written or non-written (for example, verbal) means.
All agreements, written or verbal, must comply with the Code. A typical unwritten agreement may contain less detail than a typical written agreement, and may therefore raise more concerns from the point of view of good commercial practice and risk management. However, even a less detailed unwritten agreement must comply with the Code.
The Code requires processors to provide a written record of an unwritten milk supply agreement, an unwritten variation of a milk supply agreement or an unwritten termination of a milk supply agreement no later than 30 days after the relevant agreement, variation or termination was made.
If the supply period is longer than 90 days, the processor must also make all reasonable efforts to obtain from the farmer a written acknowledgement that the record is a complete and accurate record of the unwritten agreement, variation or termination.
‘All reasonable efforts’ is not defined in the Code. What will constitute all reasonable efforts will depend on the specific circumstances of the processor and farmer relationship.
The ACCC considers processors should facilitate easy written acknowledgement by all farmers — for example, by providing options for response by mail, email and fax. It may also require one or more follow-up attempts if written acknowledgement is not provided in the first instance.
Processors should seek legal advice on whether their processes of making all reasonable efforts to obtain written acknowledgement are compliant with the Code.