Introduction of a baseline for milk supply contracts has been flagged by Australian Competition and Consumer Commissions (ACCC) Agricultural Commissioner Mick Keogh.
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He was speaking at the annual Dairy Australia Situation and Outlook breakfast, in Melbourne.
“In some respects, the really competitive environment processors have operated in, over the last 15 years, has almost been a race to the bottom,” Mr Keogh said.
Each new competitor brought a new variant, as to how they operated.
“Other processors, then, sometimes incorporate that in their mode of operation.”
“There is a sense amongst some, and I don’t want to generalise, that it would be good to have a baseline agreement in place.”
Dairy Australia analyst Norman Repacholi asked if that could be characterised as a competitive outcome.
Mr Keogh said while competitive forces always applied, there might be conjecture as to agreement on what was appropriate and what wasn’t.
He agreed such a baseline could remain competitive, “as long as it is in the parameters of the competition law, as long as it not resulting in substantial lessening of competition.”
The ACCC believed it would get a very good, and clear, understanding of the nature of contractual arrangements between supermarkets and processors.
“Rest assured, the powers given to the ACCC as part of this inquiry, certainly allow a pretty forensic examination of those arrangements, how they operate, the extent they have an impact on competition, and what that might mean, into the future.
“It will be looked at, in detail.”
Mr Keogh said milk swaps were also under scrutiny.
“They are being tested in detail, at the moment,” Mr Keogh said.
“It’s claimed swap arrangements, between processors, result in those processors agreeing not to take on each others supply, so, in other words, the swaps agreement entails and implicit or explicit agreement not to compete for each others supply.
“That’s something that raises quite strong concerns.”
The voluntary nature of the Code of Conduct was defended by Australian Dairy Farmers acting chair Terry Richardson.
He told the breakfast the code would allow producers and processors to move forward with confidence.
Mr Richardson said it was also intended to clear up confusion over pricing and contracts.
The code’s power lay in its intent.
“We could work together, that we would work seriously about rebuilding the trust, we all spoke of; all of us agreed that was the important component.
“It demonstrates all of us mean what we say, when we put our signature to that code.
“That carries a lot more weight, than if we were coerced by legislation.”
The code was the first thing towards rebuilding trust.
