In court proceedings initiated by the ACCC, the Federal Court ruled Lactalis Australia Pty Ltd (Lactalis) violated the Dairy Code of Conduct by failing to satisfy several of its responsibilities in respect to the 2020-21 milk season.
The Code went into effect in 2020 in order to address systemic transparency difficulties as well as negotiating power inequalities between dairy producers and processors.
“This is a significant case for the ACCC because these are the first proceedings we have initiated under the Dairy Code of Conduct,” ACCC Deputy Chair Mick Keogh said. “The judgement represents a victory for dairy farmers who normally have little negotiating leverage in their interactions with much bigger processors.”
Lactalis violated the Code when it failed to post its milk supply agreements on its website by the Code’s deadline of 2 p.m. on June 1, 2020, instead requiring dairy farmers to sign up via a web portal to receive them by email.
The Court also determined that Lactalis violated the Code by posting and entering into agreements that permitted them to terminate the agreement unilaterally in situations that did not constitute a significant breach. Lactalis, in instance, was given the authority to cancel the agreement unilaterally if the farmer, in their perspective, participated in “public denigration” of processors, major customers, or other stakeholders.
The Court, however, rejected the ACCC’s claim that Lactalis failed to publish true non-exclusive milk supply agreements by asking farmers to deliver a minimum of 90% of their monthly milk output, which the ACCC said would prevent most farmers from selling milk to another processor. The Court determined that Lactalis’ later publishing of this agreement satisfied the Code’s provision for non-exclusive agreement dissemination.
The Court also determined that Lactalis did not fail to fulfill the Code’s “single document” requirement, which is meant to give farmers with confidence about the nature of their agreement by providing a single source of farmers’ responsibilities.
“Farmers must have timely access to information when choose which processor to deliver milk to,” Mr Keogh added.
“Within failing to disclose its milk supply agreements by the date required by the Code, Lactalis made it more difficult for farmers to compare milk pricing and contract conditions among various processors.”
“This case should serve as a warning to all dairy processors that failure to comply with the Code may result in ACCC enforcement action, including court proceedings,” Mr Keogh said.
A hearing on relief, including fines, will take place later.
Background
Lactalis is one of Australia’s major dairy processors, buying milk from over 400 dairy farmers around the country. The firm manufactures a broad variety of dairy products under several trademarks such as Pauls, Oak, Vaalia, and Ice Break.
On January 1, 2020, the Dairy Code (the Competition and Consumer (Industry Codes—Dairy) Regulations 2019) went into force. It is a necessary industry code that governs how farmers and milk processors interact with one another.
A processor is required under the Dairy Code to post one or more standard form milk supply agreements on its website by 2:00pm on June 1st of each year, as well as a statement outlining the conditions under which the processor would engage into the agreement.
Every exclusive milk supply agreement that a processor advertises must provide a non-exclusive supply alternative for farmers.
The Dairy Code requires processors to buy milk solely via milk supply agreements. All agreements must be code compliant by satisfying a number of fundamental standards, including:
specifying a minimum price paid for milk; being a single document; specifying quality and quantity requirements, including testing procedures; and specifying the circumstances under which parties may unilaterally terminate the milk supply agreement – for processors to unilaterally terminate, the circumstances outlined must involve a’material breach’ by the farmer.
The Dairy Code’s disclosure requirements apply to all processors with an annual aggregated turnover of $10 million or more in the preceding fiscal year.
