ACCC Launches Major Review into Australian Dairy Industry

Tuesday 7 February 2017 @ 11.50 a.m. | Legal Research | Trade & Commerce

The Australian Competition and Consumer Commission (ACCC) has announced it is conducting an inquiry into the competitiveness, trading practices, and transparency of the Australian dairy industry.

The new inquiry will assess how farm gate milk prices are calculated, contract practices and the relationship between farmers and processors with the ACCC preparing to hear directly from farmers.

Background to the Inquiry

This Inquiry has arisen due to a number of issues. In April and May 2016 Murray Goulburn Co-operative Co Limited (Murray Goulburn) and Fonterra Australia Pty Ltd (Fonterra Australia) announced significant cuts to the farmgate milk price paid to dairy farmers.

In the case of Murray Goulburn, these cuts involved both a step down in the price and the partial "claw back" of payments made throughout the season. Separate to the Inquiry, the ACCC is investigating this conduct to examine whether Murray Goulburn and Fonterra Australia have engaged in false, misleading or unconscionable conduct in breach of the Competition and Consumer Act 2010 (Cth) (the Act).

Terms of Reference for the Inquiry

The Terms of Reference for the Inquiry (as stated by the Treasurer in his Media Release) state that matters to be taken into consideration in the Inquiry and must include, but not be restricted to:

  • the nature of competition between processors for both the acquisition of raw milk and the supply of processed milk and dairy products;
  • the nature of retail pricing arrangements for milk and dairy products, and their impact up the supply chain;
  • the effect (direct or indirect) of domestic retail and export prices, and level of domestic and overseas demand, for Australian processed milk and dairy products on dairy producers and processors;
  • the nature of the commercial relationships between dairy producers and acquirers of raw milk and the impact of corporate structures adopted (including cooperative structures) upon those relationships;
  • the mechanisms used by acquirers of raw milk to determine prices paid when acquiring raw milk and the transparency of those mechanisms;
  • the availability, transparency and accessibility of market price information, and its effectiveness for forecasting movements in farm gate milk prices;
  • the terms on which raw milk is acquired from dairy producers and the means by which such terms are agreed;
  • the allocation of commercial risk across the dairy supply chain;
  • the role of collective bargaining in the dairy industry and its effectiveness;
  • the existence of, or potential for, anti-competitive conduct and the possible impacts of any such conduct on businesses within the dairy supply chain; and
  • any other factors affecting farm profitability.

Consultation Forums

It is envisaged that during March-May 2017 public forums and hearings will be held for dairy farmers and during November 2017, a final report is to be released. Dairy farmers and others working in the industry are invited to share their views on these issues directly with ACCC Commissioners.

Commenting on the forums, ACCC Agriculture Commissioner Mick Keogh said:

“We are interested in hearing from farmers on a range of topics, including options for selling milk in different regions, the transparency of how farm gate milk prices are calculated, and contracting practices in the industry. We are attending major dairy production regions in each state. I look forward to meeting farmers and hearing their views. If there are farmers who cannot attend but want to have their say, I’d encourage them to call or email us.”

Potential Outcomes from the Inquiry

The outcome of the Inquiry may lead to a range of outcomes, such as:

  • opportunities for the ACCC to make recommendations and/or to work collaboratively with governments and industry to develop solutions to any competition or other trading problems;
  • ACCC action to address any behaviour in the industry that raises concerns under the Act; and
  • improved transparency about competition and trading practices in the supply chain.

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Sources:

Dairy Inquiry - ACCC Release

ACCC releases issues paper for inquiry into the Australian dairy industry - ACCC Media Release

Agriculture Minister Barnaby Joyce announces ACCC investigation into Australian dairy industry - abc.net.au

ACCC hosting forums nationally to hear from dairy farmers - ACCC Media Release

Competition watchdog seeks farmer testimony on milk prices and trade practices in the dairy industry - abc.net.au

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