But the dairy industry is unlikely to accept the findings of the Australian Competition and Consumer Commission’s final report released on Monday, which instead called for a mandatory code of conduct be implemented to improve contracting practices between dairy processors and farmers.
“Dairy farmers are understandably frustrated the retail price of milk has declined in real terms, since retailers adopted their milk pricing policies,” ACCC Commissioner Mick Keogh said in a statement.
“The price set by retailers is arbitrary and has no direct relationship to the cost of production for the supply of milk.
“In examining the impact of this on farmgate prices, however, the ACCC found almost all contracts for the supply of private label milk allows processors to pass through movements in farmgate prices to supermarkets.
“Therefore, there is no direct relationship between retail private label milk prices and farmgate prices.”
Mr Keogh said if supermarkets agreed to increase the price of milk and processors received higher wholesale prices, “processors would still not pay farmers any more than they have to secure milk”.
“Given this, the ACCC believes that increases in the supermarket price of private label milk are unlikely to increase the farmgate prices received by farmers, unless farmers have improved bargaining power in their negotiations with processors,” he said.
Mr Keogh said a mandatory code of conduct would “address problems arising from the large imbalance in bargaining power and information that exists between dairy farmers and processors”.
“Currently, processors can impose milk prices and other terms of milk supply contract terms that are heavily weighted in their favour,” he said.
“Some milk supply contracts also contain terms that restrict farmers’ ability to change processors for a better offer. These issues ultimately harm dairy production efficiency and reduce the effectiveness of competition between processors.”
Earlier this month, the ACCC approved the takeover of Murray Goulburn by Canadian dairy giant Saputo.
Saputo chief executive Lino Saputo has previously flagged the end of $1 milk, saying he didn’t “know the economics” of the deals that allow supermarkets to sell milk for less than the price of bottled water.
Last last year, Australian Dairy Farmers CEO David Inall hit out at the interim report, calling for a return to “sustainable” dairy pricing. “$1-a-litre milk is not sustainable as it takes money out of the supply chain,” he said.
“If you extract significant moneys out of a supply chain over a long period of time nationally, it just makes sense that it will impact farmers. We need to ensure a fair price for everybody.”
