A unit of dairy giant Saputo has agreed to amend the terms of its contracts with dairy farmers, in the wake of calls by the ACCC for a mandatory code of conduct to level the playing field between dairy farmers and milk processors.
Warrnambool Cheese and Butter Factory Company Holdings Limited has fixed the terms of its supply agreements that allowed it to unilaterally vary the price paid to dairy farmers for milk, among other terms, and that hit farmers with a penalty if they exited the agreements early, the ACCC said Monday.
The agreements also placed restrictions on farmers selling their farmers and required farmers to indemnify WCB for loss which could be avoided or mitigated by WCB, the ACCC said.
Saputo said the ACCC’s “main concern” was with the contract termination fee.
The dairy giant said that while it did not think the contract terms were unfair, it had cooperated with the ACCC and agreed to changes in its terms that would affect over 100 suppliers, 21 of which were potentially impacted by the terms flagged by the ACCC.
“WCB highly values its milk suppliers and considers these relationships as essential to the success of its business,” Saputo said.
In a recent report on the dairy industry, the ACCC said power imbalances in the dairy industry supply chain had led to “numerous market failures”, and called for mandatory code of conduct.
Practices have not evolved to reflect the fact that the interests of processors, now mostly corporations and not farmer-based co-ops, and farmers are no longer closely aligned, the ACCC said.
“A mandatory code will assist this transition, by clearly setting out the rights and obligations of farmers and processors,” the ACCC said.
The imbalance in power results in practices that leave farmers shouldering a disproportionate amount of risk and ultimately weakens competition between processors, the ACCC found.
“These include complex and poorly timed pricing information, and contract terms which deter switching. These features add to uncertainty of farm income and make it difficult for farmers to identify and act when it is in their interests to switch to a competitive offer from another processor,” the ACCC said.
The ACCC said processors would lose some bargaining power as a result of the code being implemented and that processors opposed the move.
Cat Fredenburgh
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