Report labelled ‘benign’

December 07, 2017

The ACCC does not believe an end to $1/litre supermarket milk will benefit any dairy farmers, with extra profit expected to be absorbed by supermarkets and processors.

Australian dairy farmers need more power, simpler contracts and a mandatory industry-wide code of conduct, according to the competition watchdog.

But the Australian Competition and Consumer Commission’s interim report into the dairy industry, compiled in the wake of the milk price crisis, has received mixed reviews, with some members of the industry welcoming it, while others have labelled it ‘‘benign’’.

The watchdog believes a mandatory code could address bargaining power imbalances, improve price and production signals, stop practices that transfer risk inappropriately and enhance competition for farmers’ milk.

But some in the industry said they believed it was a simplistic solution.

ACCC chief executive Mick Keogh said the report, released last Thursday, was about focusing on the ‘‘weakest bargaining positing in the supply chain’’ and ensuring farms were not forced to take on undue levels of risk.

UDV president Adam Jenkins was left with mixed feelings about the report, labelling it ‘‘benign’’ and said he was surprised not to see more solutions proposed.

‘‘There’s nothing significant that we didn’t understand was an issue,’’ Mr Jenkins said.

‘‘We’re looking for solutions right across the whole supply charge; we can’t solve all that if there’s no solutions put forward.

‘‘We know processors have their hands tied by the huge power sitting in the duopoly ... I hope we’ll have more processors standing beside us.’’

Contract terms were a key point of discussion within the report, with the ACCC stating farmers found them difficult to interpret, understand and compare.

The ACCC recommended processors be more transparent about their milk prices, including providing online calculators to allow farmers to more accurately predict their income.

Although the industry’s current voluntary code was found to improve contract terms in milk supply arrangements, the ACCC said the code was ‘‘unlikely’’ to address issues as it was not enforceable and had no negative consequences for those who choose not to participate or comply.

Fonterra Australia, a signatory to the voluntary code of conduct, said it acknowledged change was required in the industry.

‘‘We’re providing greater transparency on the impacts of market movements into milk price and our farm price risk management offer has been in place for the past four seasons,’’ a Fonterra spokesperson said.

Farmers hoping to see an end to $1/litre private label milk were also dealt a blow by the report, with the ACCC saying it does not believe an increase in the retail prices would necessarily benefit farmers, instead predicting that extra profit would be captured by the major supermarkets and processors.

Australian Dairy Farmers president Terry Richardson said the scheme was not sustainable long-term.

‘‘Our concern has always been that selling milk as a loss leader, at the rear of the supermarket, at price points cheaper than water, is a strategy that is not in the long-term interest of this industry,’’ Mr Richardson said.

‘‘Once money departs the supply chain, it is never returned.’’

The ACCC’s interim report makes eight recommendations and will seek feedback until January 31.

The final report is due to be released in April.

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