The major dairy processor Lactalis Australia has been hauled before the Federal Court on charges relating to the new Dairy Code of Conduct.
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A Lactalis factory.

The Australian Competition and Consumer Commission alleges Lactalis breached a number of provisions of the code, and, in doing so weakened the bargaining power of farmers who supply milk to them.

All of the allegations against Lactalis relate to milk supply agreements offered to dairy farmers in 2020; more recent agreements published on Lactalis’ website on 1 June 2021 are not the subject of the ACCC’s allegations.

Lactalis Australia issued a statement saying it regretted that the matter (has escalated to this point, and that the ACCC had instituted proceedings.

“Lactalis Australia believes that we fully complied with the Dairy Code of Conduct, which is currently subject to its own review by the ACCC and industry to address widespread implementation concerns.

“The issues raised by the ACCC regarding Lactalis Australia are technical, legal issues that did not adversely impact our farmers in any way,” the statement said.

“In any event, we have made all required changes to address those technicalities.”

Lactalis is one of Australia’s largest dairy processors and purchases milk from more than 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.

ACCC deputy chair Mick Keogh said the allegations made by the ACCC included that Lactalis failed to make its milk supply agreements publicly available on its website by the deadline of 2 pm on June 1, 2020, as required by the code, and instead required farmers to sign up to a mailing list to receive a copy of the agreements.

“This had the effect of reducing the transparency of the terms and conditions in Lactalis’ milk supply agreements during a critical and limited timeframe in which farmers had to weigh their supply options.

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

The ACCC also alleges Lactalis failed to publish genuine non-exclusive milk supply agreements, which is a key requirement under the code as it gives farmers more flexibility in choosing who to supply to.

Instead, Lactalis required farmers to supply a minimum of 90 per cent of their monthly production volume, which the ACCC alleges would prohibit most farmers from supplying milk to another processor.

It is also alleged that Lactalis failed to comply with the code’s “single document” requirement by failing to provide farmers with all three documents that made up Lactalis’ milk supply agreement. In a majority of cases, only one of the three documents was provided to farmers at the time the agreement was executed.

“It is very important that farmers have access to a complete record of the milk supply agreement they have signed up to. This safeguards against any subsequent changes to the agreement, and allows both parties to understand their rights and obligations,” Mr Keogh said.

In addition, Lactalis published and entered into milk supply agreements with farmers that permitted it to terminate the agreement when, in the opinion of Lactalis, the farmer had engaged in “public denigration” of processors, key customers or other stakeholders.

“The ACCC alleges this clause would allow Lactalis to terminate agreements in circumstances where there was not a material breach, when the code requires that for processors to unilaterally terminate agreements, the circumstances must involve a material breach by the farmer.

“We are continuing to assess agreements published on 1 June this year for compliance with the code,” Mr Keogh said.

“The ACCC reminds dairy processors that failure to comply with the dairy code may result in enforcement action by the ACCC and attract penalties.”

The ACCC is seeking orders including penalties, declarations, injunctions, a corrective advertising order and costs.

Arla Foods is examining how dairy farming can help improve soil biology, carbon capture, water quality and biodiversity via regenerative farming methods.

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