ACCC dairy probe findings are ‘right on the money’ says Dairy Connect

Industry advocacy group Dairy Connect backed the call from the Australian Competition and Consumer Commission (ACCC) today for a mandatory code to govern dairy supply chain relationships and commercial practices, being 1 of 8 interim recommendations put forward.

The ACCC call was a key recommendation in an interim report into the national dairy industry commissioned by the federal treasurer Scott Morrison more than 12 months ago.

Dairy Connect CEO Shaughn Morgan welcomed the ACCC findings and recommendations and described the need for change to address commercial power imbalances in the industry as being ‘urgent’.

He said today’s recommendations reflected the reforms suggested by a Dairy Connect submissions to the ACCC in respect to greater transparency and clarity in processor produced contracts.

“Effectively the review pointed to the fact the dairy producers languished at the bottom of a power relationship structure dominated largely by retail supermarkets and exporters and, to a lesser extent, by milk processors,” Shaughn said.

“The ACCC said a new mandatory code should address bargaining power imbalances, improve price and production signals to farmers, stop practices that transferred risk inappropriately and enhanced the competition for farmers’ milk.

“This will be sweet music to the ears of dairy farming families around Australia today because they have borne the brunt of a commercial system not that far removed from the tenant farming relationships of past centuries.”

Shaughn Morgan supported the analysis by ACCC agriculture commissioner Mick Keogh that processors, under pressure from supermarkets and exporters, used their bargaining strength to shift commercial risks downwards onto dairy producers.

The power imbalance was evident in the nature of contracts between the processors and farmers.

These contracts involved uncertain pricing information and contract terms which deterred or prevented dairy farmers from switching to other processors offering better prices.

Shaughn Morgan said the interim review had noted that wholesale and retail milk prices had been declining in real terms since deregulation 17 years ago.

“During the past six years the retail price of branded milk had declined by 12 per cent on top of earlier losses,” he said.

“Mick Keogh found that, unlike others in the dairy supply chain, producers enjoyed no real bargaining power and limited scope to rearrange their businesses to improve their bargaining power.

“He described short form standardised processor contracts as being responsible for imbalances that reduced competition for milk and piled all the market risk back on to the dairy farm supplier.

“At the top of the pyramid, supermarkets had leveraged their buying power to drive wholesale prices down and reduce processor profits allowing the supermarkets to maintain low retail prices in response to retail competition.”

“The way forward will be with the whole of the dairy industry working collectively to ensure positive, transparent and open solutions restoring trust to all players. The ACCC interim recommendations provides the basis for this to occur and Dairy Connect will put forward ways for this to occur, Shaughn concluded.