Dairy can’t afford a mandatory code of practice

Dairy can’t afford a mandatory code of practice


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Government efforts to stabilise and increase confidence in the dairy will only make matters worse

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The 2016 collapse of dairy processor, Murray Goulburn, due to a perfect storm of market forces and poor decision making, was a low point for our industry.

Russian imposed trade sanctions forced discounted European product to be dumped into other countries, devaluing Australian dairy exports in the process.

China, a key market for infant formula revealed a milk powder stockpile, thereby closing market access.

And our nearest trading competitor, New Zealand, had been tracking a global dairy trade down turn for some time.

Meanwhile, Murray Goulburn opened the 2015-16 milk season with a high farmgate milk price, optimistically thinking it could ride out any global factors due to product diversification.

Farmers were devastated in April 2016 by a retrospective farmgate milk price step down that required them to pay back money that had already been absorbed into farming operations. 

The ultimate price paid was the demise and sale of Australia’s largest dairy farmer milk co-operative.

Interdependency has served farmers and processors well for many decades and is a critical ingredient in ensuring a sustainable future for all participants - Grant Crothers, Australian Dairy Products Federation

While now history, it serves as important context to what is happening today and the turning point facing the industry as a whole.

Milk, because of its perishability and seasonal production, demands a symbiotic relationship through the whole supply chain from farmers to processors to the point of purchase.

This interdependency has served farmers and processors well for many decades and is a critical ingredient in ensuring a sustainable future for all participants.

These relationships have been built over time, without government intervention, through a mutual respect for delivering value across the whole dairy supply chain.

Government stability goal

Now, the federal government is trying to ‘stabilise and increase confidence’ in the dairy industry by introducing a mandatory code of conduct, a key recommendation of the Australian Competition and Consumer Commission 2018 Dairy Inquiry Report.

This is based on the ACCC’s premise of systemic market failure of the Australian dairy industry in 2016.

In fact, there was no market failure.

Rather, we can pinpoint poor decision making by the big dairy co-operative, an unfavourable exchange rate for exporters and a series of global events as the main causes.

Federal Minister for Agriculture, David Littleproud has made it known that the time has come, and he will impose a mandatory code if not convinced otherwise.

Grant Crothers

Grant Crothers

However instead of solving the issues facing the dairy industry, it will only serve to make things worse.

Compliance costs

There is no doubt that participants along the whole supply chain are facing cost, compliance and market pressures.

Domestically, energy costs continue to rise and a solution has yet to be found that will move prices down.

We are also managing the cost impositions of the health food star rating system, country of origin labelling requirements and container deposit schemes, which cannot be passed on to the consumer.

Compliance costs include accommodating state based variations to the food safety and quality standards, while compliance protocols reduce our flexibility to respond to the market environment.

Globally, we are competing on an international stage against many countries operating on either an overt or covert subsidy system.

Australian processors are also up against high tariff levels and technical trade barriers in trading with our major economic partners.

And, there are no wins for the Australian dairy industry in a free trade agreement with Europe.

Fix these first

It would be more constructive if the federal government focused on policy areas that could have a positive outcome for the sector, such as protecting the industry from the European Union’s agenda on geographical indications and tariff-free dumping of product into Australia; or renegotiating FTAs with Japan and the Trans Pacific Partnership to be more favourable to Australian dairy; or resolving the Murray Darling Basin Plan, and finding a solution to lower power prices and certainty of supply.

The ACCC’s recommendation to impose a mandatory code of practice on the industry will add additional costs to be borne by participants along a finely balanced supply chain, including cost recovery fees and penalties for non-compliance with ACCC administration requirements.

It will lead to farm sector and processor businesses alike becoming more risk averse, therefore limiting investment and stifling innovation.

Indeed, we already have a code of practice.

In July 2017, the dairy industry collectively, under the auspices of the Australian Dairy Industry Council (ADIC), introduced the voluntary Dairy Industry Code of Practice, providing guidelines for dealing in good faith in milk supply negotiations between processors and farmers.

It was always ADIC’s intent to review the Code at the 12 month anniversary and identify how to bolster it further.

Self ownership

A dairy code of practice, to which all processors and farmer bodies are obliged to sign, has the advantage of fostering industry buy-in and ownership by the signatories.

This is vital to supporting robust and sustainable changes in the sector.

It also provides greater scope for the processors and dairy farmers to establish innovative solutions that best suit the industry to resolve its own problems.

Limited regulation is needed so industry participants can pivot as market forces come into play, to provide flexibility and ensure minimal costs are imposed.

We agree the existing code of practice needs to be stronger.

All major processors support strengthening the existing code of practice. - Grant Crothers

Much work has been done by the ADIC to strengthen the code, taking into consideration the ACCC 2018 dairy inquiry findings, and to develop a robust dispute resolution mechanism that is fair, efficient and effective.

We have invested the time because we do not believe imposing a mandatory code of conduct is the best solution for the industry.

Strengthen what we have

All major processors support strengthening the existing code of practice.

The sector has an enviable track record of open dialogue and cooperation across all links of the supply chain – from paddock to plate.

The whole of supply chain approach is a legacy of the regulated co-operative industry that existed prior to deregulation in 2000 and enshrined by industry bodies such as the Gardiner Foundation and ADIC.

No other agricultural sector has such open dialogue, empathetic working relationships and levels of co-operation.

We need to focus on what is in the best interests of the whole of dairy supply chain, so value can be returned to all participants and in doing so, build a strong dairy industry for the future.

  • Grant Crothers is president of the Australian Dairy Products Federation and managing director of Burra Foods in Victoria.

The story Dairy can’t afford a mandatory code of practice first appeared on Farm Online.

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