Regulation Impact Statement - Department of Agriculture and Water Resources
On 15 March 2019, the Minister for Agriculture and Water Resources announced the Government will be proceeding with a dairy industry mandatory code of conduct (the code) to help shift the balance in bargaining power back towards dairy farmers. The code will create enforceable minimum standards of conduct for business practices between farmers and processors, and is aimed at improving pricing transparency in the industry. Nine principles will be used to establish the rules of the code, including to:
- require parties to deal with each other fairly and in good faith having due regard to the other party’s legitimate business interests;
- prevent unilateral changes to agreements;
- require that annually on a set date processors publicly release a standard form agreement covering the terms of supply and a price (and if applicable a pricing mechanism for longer-term agreements) that covers the term of the agreement;
- prevent retrospective price step downs;
- prohibit prospective step downs unless in specific circumstances such as force majeure, or exceptional market circumstances or major changes in global market conditions;
- prohibit exclusive supply arrangements in combination with two-tier pricing;
- prohibit processors withholding loyalty payments if a farmer switches processors;
- introduce a dispute resolution process for matters related to contracts between farmers and processors; and
- alleged breaches of the code will be investigated by the Australian Competition and Consumer Commission with penalties available.
The Department of Agriculture and Water Resources prepared a Regulation Impact Statement (RIS), which was assessed by the Office of Best Practice Regulation as compliant with Government RIS requirements. While the RIS reflected extensive consultation and thorough analysis, it did not provide sufficient evidence of persistent market failure and the need to intervene in farmer-processor pricing relationships to be assessed as best practice. As part of its assessment, the OBPR noted that greater economic analysis should be undertaken to understand the price impacts of intervention, particularly given the risks of intervention in farmer-processor relationships.
The RIS estimates that a code following the recommendation of option 3 (a mandatory prescribed code of conduct with a targeted scope) will increase average regulatory costs across affected businesses by $0.51 million a year. However, these estimates are expected to be revised in line with the final terms of the Code.