Dairy Code of Conduct: Milk Supply Agreements and Minimum Price Rules

Background and commencement

The Dairy Code of Conduct is a mandatory industry code prescribed under the Competition and Consumer Act 2010. The Competition and Consumer (Industry Codes—Dairy) Regulations 2019 commenced on 1 January 2020.

The Code applies to milk supply agreements between farmers and processors in Australia. It establishes minimum requirements for these agreements to ensure fairness and transparency.

The Dairy Code was introduced in response to the 2018 ACCC Dairy Inquiry final report. The Australian Competition and Consumer Commission (ACCC) is responsible for regulating, monitoring and enforcing the Code.

Minimum price and milk supply agreements

Milk supply agreements are required to specify a minimum price for milk that satisfies the processor’s quality requirements. It is important to note that the Code does not prescribe milk prices; processors are responsible for determining the price outlined in their agreements.

Processors are obligated to make their standard form milk supply agreements publicly available. These agreements must be published before 2 pm on 1 June each year. The agreement must detail the entire price structure, including any step-ups, step-downs, or premiums that apply.

The Code prohibits retrospective price step-downs, with limited exceptions for circumstances such as exceptional events. The Australian Competition and Consumer Commission (ACCC) previously recommended against the implementation of a nationally regulated minimum farmgate milk price.

Good faith and dispute resolution

The Dairy Code of Conduct requires processors and farmers to act in good faith in their dealings with each other. This obligation applies to all interactions related to milk supply agreements.

Milk supply agreements must contain a dispute resolution clause. These clauses must provide for mediation as a means of resolving disagreements. Agreements also require processors to offer cooling-off periods for new agreements and to ensure termination provisions are reasonable and clearly disclosed to farmers.

Certain contractual clauses are restricted. Confidentiality and non-disparagement clauses cannot prevent farmers from raising concerns or complaints with the Australian Competition and Consumer Commission (ACCC).

Enforcement and penalties

The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the Dairy Code of Conduct. The ACCC can pursue civil penalties through the Federal Court for breaches of the Code. These penalties apply to specific categories of contravention, and the maximum amount is determined by penalty units, which are indexed annually.

Dairy Farmers Milk Co-operative paid an infringement notice penalty following an alleged breach of the Dairy Code. This was the first enforcement outcome under the Code. Infringement notices and court-ordered penalties are applied based on the nature of the contravention.

The ACCC provides guidance to processors outlining their obligations under the Code. This guidance is regularly updated to reflect the ACCC’s enforcement experience and to clarify requirements, including those relating to ACL misleading and deceptive conduct.