The Federal Court has found Lactalis Australia Pty Ltd (Lactalis) breached the Dairy Code of Conduct by failing to meet some of its obligations in relation to the 2020-21 milk season, in court proceedings brought by the ACCC.
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Front entrance of Lactalis-Pauls factory in Rockhampton. (ABC News: Megan Hendry)

The Code commenced in 2020 to address systemic transparency issues and bargaining power imbalances between dairy farmers and processors.

“This is an important case for the ACCC as these are the first proceedings we have instituted under the Dairy Code of Conduct, and the decision is a win for dairy farmers who generally have limited bargaining power in their dealings with much larger processors,” ACCC Deputy Chair Mick Keogh said.

The Court found that Lactalis breached the Code when it failed to publish its milk supply agreements on its website by the Code’s deadline of 2pm on 1 June 2020, and instead required dairy farmers to sign-up through a web portal to receive them by email.

The Court also found that Lactalis breached the Code by publishing and entering into agreements that allowed them to unilaterally terminate the agreement in circumstances that did not amount to a material breach. In particular, Lactalis was permitted to unilaterally terminate the agreement when, in their opinion, the farmer had engaged in “public denigration” of processors, key customers or other stakeholders.

However, the Court dismissed the ACCC’s allegation that Lactalis had failed to publish genuine non-exclusive milk supply agreements by requiring farmers to supply a minimum of 90 per cent of their monthly milk production, which the ACCC alleged would have the effect of prohibiting most farmers from supplying milk to another processor. The Court found that Lactalis’ subsequent publication of this agreement met the Code’s requirement for the publication of a non-exclusive agreement.

The Court also found that Lactalis did not fail to meet the Code’s “single document” requirement, which is intended to provide a single source of farmers’ obligations, to provide farmers with certainty regarding the content of their agreement.

“Farmers need to have access to timely information when making decisions about which processor to supply milk to,” Mr Keogh said.

“In breaching the Code’s requirement to publish its milk supply agreements by the deadline, Lactalis made it harder for farmers to compare milk prices and contract terms across different processors.”

“This case should serve as a reminder to all dairy processors that failure to comply with the Code may result in ACCC enforcement action, including court proceedings, with serious consequences,” Mr Keogh said.

A hearing on relief, including penalties, will be held at a later date.

Background

Lactalis is one of Australia’s largest dairy processors and purchases milk from over 400 dairy farmers across all Australian states. The company produces a wide range of dairy products across a number of brands including Pauls, Oak, Vaalia and Ice Break.

The Dairy Code (the Competition and Consumer (Industry Codes—Dairy) Regulations 2019) came into effect on 1 January 2020. It is a mandatory industry code regulating the conduct of farmers and milk processors in their dealings with one another.

Under the Dairy Code, a processor must, by 2:00pm on 1 June each year, publish on its website one or more standard form milk supply agreements; and, for each standard form milk supply agreement, a statement setting out the circumstances in which the processor would enter into the agreement.

For every exclusive milk supply agreement a processor publishes, a processor must also offer a non-exclusive supply option to farmers.

The Dairy Code requires processors to only purchase milk under a milk supply agreement. All agreements must comply with the code by meeting a number of key requirements, including:

  • specifying a minimum price paid for the milk;
  • consisting of a single document;
  • specifying quality and quantity requirements, including testing procedures; and
  • specifying the circumstances in 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 publication obligations of the Dairy Code apply to all processors with an annual aggregated turnover of $10 million or more in the previous financial year.

Source: ACCC, 16 September 2022

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