Australia’s largest dairy processor, Saputo, has come out in support of a mandatory code of conduct for the industry and called for milk price step-downs to be illegal.
Earlier this year the Australian Competition and Consumer Commission (ACCC) recommended a mandatory code to address a large imbalance in bargaining power between farmers and processors.
It found that farmers’ ability to secure an appropriate share of profits depended on their bargaining power, and that most had little power and limited scope to reposition their businesses.
Dairy processors have previously said a voluntary code with an independent mediator was all that was required to safeguard farmers’ interests.
That has been disputed by the New South Wales and South Australian dairy lobby groups.
Just last week Saputo said it did not support a mandatory code, but chief executive and chairman Lino Saputo Junior, talking to farmers across Victoria over the past week, has changed his mind.
“I’d like to see it implemented by the industry players, whether that’s suppliers or processors, through ADIC or other associations,” Mr Saputo Jnr said.
“Our suppliers are telling us this is something they want to have in place.”
Saputo is the first dairy processor to back the ACCC’s recommendation for a mandatory code, but Mr Saputo Jnr said it would depend on cost.
“The only thing I’m concerned about is the implementation; how onerous will it be in terms of the cost structure,” he said.
“One of the elements here definitely has to be that it is regulated without cost because ultimately if the cost goes up, it’s going to create pressure in terms of pricing to suppliers.
“As long as it’s a system that doesn’t cost too much to organise and implement, we’re 100 per cent in agreement with this code being mandatory.”
Dairy lobby groups split over code
NSW lobby group Dairy Connect has called on other processors to also back a mandatory code of conduct immediately.
Its farmers’ group president Graham Forbes said with Saputo throwing its support behind a mandatory code, other processors had little choice now but to do the same.
“It’s just great that we’ve got the largest processor in the country supporting the mandatory code,” he said.
“It’s just tremendous news. I’m just a bit shell-shocked at the moment because last week we weren’t getting that sort of message.
“The recommendations by the ACCC aren’t onerous and I don’t think they’re going to put a huge cost burden at all on the industry.
“We’re just after a level playing field, things like we’re going to have collective bargaining, the ability to negotiate our supply agreements, and be able to have arbitration within those supply agreements and not be locked in indefinitely out of the marketplace.”
The majority of state-based dairy farm lobby groups support a mandatory code, except for United Dairyfarmers of Victoria (UDV).
UDV president Adam Jenkins said the group was running a cost-benefit analysis on a mandatory code.
“We want to have a full investigation and a cost-benefit analysis on what a mandatory code looks like for our industry,” he said.
“It’s remiss of us to go down and say we support a code when we really don’t understand the costs or benefits.”
The UDV is concerned about a mandatory code of conduct passing costs on to farmers.
National dairy lobby group Australian Dairy Farmers, which is yet to support the mandatory code, said it was seeking clarification on whether Mr Saputo had “expressed support for a legislated mandatory code of practice enforced by the ACCC, or a code of practice which would be enforced solely by industry”.
Step-downs ‘should be illegal’
Mr Saputo Jnr said he would take the mandatory code a step forward and make milk price step-downs illegal.
“I think that that would make all dairy players responsible with their opening price and give a great indication to suppliers to be able to build their budgets around our opening price,” he said.
“It’s incumbent on us, the folks who are leading the industry, to make sure we are responsible and we are ethical and we are giving the right information to suppliers.”
However, Saputo’s supplier handbook includes a provision for step-downs stating: “The opening price may also be varied during the season as a result of price increases … or decreases.”
“We have adopted the supplier handbook we inherited following the Murray-Goulburn acquisition while we review our overall approach to pricing,” Mr Saputo Jnr said.
“Over the next year our supplier relations and pricing policy committee, comprising both Warrnambool Cheese and Butter and Saputo Dairy Australia suppliers as well as Saputo management, will work to provide an integrated range of pricing programs available to every supplier under one handbook.
“We will be evaluating best practices in order to ensure the best possible outcome for our combined supplier base, in line with the principles in the voluntary code of conduct. This includes there being no step-downs.”
By: Isabella Pittaway, Kim Honan
Source: ABC Rural