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All milk must be purchased under a milk supply agreement
All milk must be purchased under a milk supply agreement that complies with the code.
A milk supply agreement is a contract between a processor and a farmer for the supply of milk. The dairy code requires processors to:
- only buy milk under a milk supply agreement, and
- ensure the agreement complies with all the contractual and pricing requirements.
While the code sets out minimum standards for milk supply agreements, it does not prevent the parties from agreeing to include other terms in the agreement, provided those terms are consistent with the code and not otherwise unlawful.
The ACCC strongly recommends processors seek legal advice to ensure they have complied with all the code’s requirements.
Processors should also take particular care to ensure that their milk supply agreements do not include any unfair contract terms under the Australian Consumer Law.
Exclusive and non-exclusive agreements
Under the code, a milk supply agreement may be either exclusive or non-exclusive.
The milk supply agreement must clearly specify whether it is an exclusive or non-exclusive agreement.
Where a processor offers to enter into an exclusive supply agreement in particular circumstances, the code requires a processor to publish a non-exclusive version of any exclusive milk supply agreement, which is available to farmers in the same circumstances.
Exclusive agreements
The code defines an ‘exclusive supply agreement’ as a milk supply agreement that prohibits the farmer supplying milk to another processor.
If an agreement expressly provides that a farmer is not allowed to supply milk to any other processors, it will be an exclusive agreement.
Non-exclusive agreements
In contrast, an agreement that permits a farmer to supply more than one processor will be a non-exclusive agreement.
Single document requirement
Under the code, all milk supply agreements must consist of a single document.
In the dairy industry it is common for milk supply agreements to consist of multiple parts. For example, a single document 'milk supply agreement' might consist of:
- a document setting out the terms and conditions for milk supply
- a supplier handbook
- a pricing letter, and
- any other policies or manuals that farmers must adhere to under the agreement.
The single document rule applies to all agreements entered into by a processor, as well as all standard form agreements published on a processor’s website.
The ACCC considers the single document requirement helps farmers by:
- making it easier to compare agreements between different processors
- improving visibility and certainty over all the terms of their milk supply agreement.
If a milk supply agreement consists of multiple parts, the ACCC considers that all parts of the agreement should be:
- clearly identified
- incorporated into the milk supply agreement.
For example, by being annexed or attached to the milk supply agreement.
Example 1
The Northern Dairy Company’s standard form milk supply agreement provides that the farmer is bound by:
- the terms and conditions set out in the milk supply agreement, and
- the supplier handbook contained at Attachment 1 to the agreement.
The Northern Dairy Company publishes the document on their website as a single downloadable file. The file contains both the terms and conditions and Attachment 1 to the agreement.
The ACCC considers that the Northern Dairy Company has satisfied the single document requirement.
Example 2
The Southern Dairy Company’s standard form milk supply agreement provides that the farmer is bound by:
- the terms and conditions set out in the milk supply agreement
- Annexure A, being the supplier handbook dated 1 June 2023, and
- Annexure B, being the pricing letter dated 1 June 2023.
Each of the documents are published in separate parts on the Southern Dairy Company’s website.
The ACCC considers that the Southern Dairy Company has satisfied the single document requirement because the annexures are clearly identifiable and incorporated into the agreement, even though they are not contained in a single downloadable file.
The ACCC considers that all parts of the milk supply agreement must comply with and are subject to the requirements set out in the code.
Example
Once a farmer enters an agreement with a processor, the processor cannot unilaterally vary the terms set out in the relevant supplier handbook or manual, except where allowed by the code.
Processors should also be aware of their record keeping obligations under the code.
Processors have an obligation to keep copies of all versions of:
- all milk supply agreements on their website
- any agreements entered into with farmers
- any supplier handbooks or pricing letters that form part of their agreements.
Plain English
Milk supply agreements must be written in plain English or include a plain English overview of the agreement.
The ACCC considers a document is written in ‘plain English’ if it clearly conveys its message to its intended audience.
This means the agreement must be written in terms dairy farmers would be familiar with but should generally avoid legal jargon.
Unwritten milk supply agreements, variations and terminations
The code allows a farmer and processor to enter:
- a written milk supply agreement, or
- an unwritten agreement - for example, a verbal agreement.
All milk supply agreements, both written and verbal, must comply with the code.
If an agreement – or a variation to or termination of an agreement – is not in writing, the processor must:
- send a written record of the agreement, variation or termination to the farmer within 30 days, and
- provided the supply period under the agreement is 90 days or longer, take all reasonable efforts to obtain a written acknowledgement from the farmer that the written record is complete and accurate.
The written record of an unwritten agreement must cover all the matters that the code requires to be specified in written milk supply agreements.
‘All reasonable efforts’ is not defined in the code. Reasonable efforts will depend on the circumstances of the relationship between the processor and farmer. For example, a processor may need to:
- attempt to follow up with a farmer multiple times if written acknowledgement has not been provided
- try different channels of communication - such as phone, email or post - to contact the farmer
- provide farmers with easy and accessible options for providing a written acknowledgement, such as by email.
Record keeping requirements
Farmers and processors have record keeping obligations under the code.
Farmers and processors must keep originals or copies of all versions of key documents for at least 6 years after the milk supply agreement ends.
Both processors and farmers must keep records of:
- all written and unwritten milk supply agreements, including any additional parts of a milk supply agreement - such as relevant versions of supplier handbooks and pricing letters
- any written and unwritten variations to a milk supply agreement, and
- any written or unwritten terminations of a milk supply agreement.
In addition, processors must keep records of:
- notices relating to the rejection of a farmer’s milk
- milk statements provided to a farmer
- notices relating to a unilateral prospective step-down
- notices of any changes to fees charged by a processor
- where the supply period under an agreement is longer than three years, any notices from a farmer that they wish to extend the agreement.
The ACCC has the power to conduct compliance checks on processors and farmers’ records.
Dispute resolution
Under the code, processors must:
- include an internal complaint handling procedure in their milk supply agreements
- include the option for mediation in their agreement
- publish a report on disputes each year.
The code contains detailed internal dispute resolution processes, mediation and arbitration frameworks.
If a dispute arises, farmers and processors must first attempt to resolve the dispute through the processor’s internal complaints handling procedure before proceeding to mediation or arbitration.
Dispute resolution services
If you believe that a person is not complying with their obligations under the dairy code you should contact the ACCC. However, the ACCC cannot provide legal advice on the code or assist parties to resolve individual disputes.
If you need help resolving a dispute, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can provide assistance and information on options.