It’s no use crying over spilt milk as the ACCC raises the stakes for dairy processors

With the Dairy Industry Code of Conduct having commenced on 1 January 2020, the ACCC provided several warnings to dairy processors that it would be closely scrutinising their compliance with the Code.

Last month, the ACCC delivered on that promise by commencing Court proceedings against Lactalis Australia Pty Ltd for various breaches of the Code. These proceedings follow a string of other Code-related investigations by the ACCC and the deployment of some of their alternative enforcement powers against processors, including requiring undertakings and issuing infringement notices.

With these latest proceedings signalling that the ACCC’s gloves are coming off, we look back over the developments of the last 18 months and the escalating nature of the ACCC’s enforcement action over that time.

Saputo warning

The first cab off the rank was Saputo Dairy Australia. In August 2020, the ACCC announced that it had conducted investigations in relation to Saputo publishing its 2020/2021 milk supply agreements at around 3.00pm on 1 June 2020. This was significant given the strict 2.00pm deadline imposed by the Code. Fortunately for Saputo, the ACCC was satisfied, based on the evidence, that the delay was caused by a very late technical failure and Saputo managed to “get off” by signing an undertaking to make sure it meets the publishing requirements of the Code in future.

UDC infringement notice

Next up was Riddoch Trading Pty Ltd, trading as the Union Dairy Company. In October 2020, UDC was hit with an infringement notice for failing to comply with the publishing obligations under the Code and had to pay $10,500. In UDC’s case, the allegations were twofold:

  • firstly, instead of publishing its exclusive supply agreement on its website, UDC required suppliers to fill in an online form before they could access the agreement; and
  • secondly, UDC failed to publish a non-exclusive agreement as it was required to do under the Code as the result of publishing an exclusive milk supply agreement.

Brownes Dairy Infringement Notice

After somewhat of a lull, in July of this year, the ACCC announced that its next target was Brownes Foods Operations Pty Ltd (known as Brownes Dairy). Brownes Dairy was hit with two infringement notices and was required to pay $22,000. The ACCC alleged that Brownes published two standard form milk supply agreements (exclusive and exclusive A2) on its website which did not comply with the Code by:

  • not specifying a definite end date of the supply period;
  • allowing Brownes Dairy to unilaterally vary the agreement in circumstances other than those specified in the Code;
  • allowing Brownes Dairy to unilaterally vary the agreement without the variations being in writing; and
  • allowing Brownes Dairy to unilaterally reduce the minimum price for milk supplied in circumstances other than those specified in the Code.

With the benefit of knowing what was on the horizon, one can’t help but think that Brownes Dairy managed to get off fairly lightly.

Lactalis Court proceedings

Less than a month later, the ACCC commenced the proceedings against Lactalis.

The ACCC alleges that, for the 2020/2021 dairy season, Lactalis initially failed to publish its standard form milk supply agreements on its website. This allegation was made on the basis that, in order to obtain a standard form milk supply agreement, Lactalis required suppliers to submit a form on Lactalis’ website, after which an agreement would be emailed to that person. It appears this was ultimately corrected by Lactalis, more than two weeks after the original publication date of 1 June.

However, the ACCC were still not happy. It is further alleged by the ACCC that:

  • Lactalis failed to comply with the single document rule by inconsistent provisions in relation to the documents that comprised the milk supply agreement and by failing to provide suppliers with Lactalis’ handbook and quality manual at the same time as providing their milk supply agreement;
  • Lactalis’ agreements contained a unilateral termination right in favour of Lactalis that applied in circumstances that would not actually constitute a material breach, for example where the supplier engaged in public denigration of processors, key customers or other stakeholders;
  • Lactalis’ non-exclusive supply agreements were not truly non-exclusive as they contained a minimum volume requirement which meant that, in practical terms, suppliers would be prevented from supplying to another processor.

The ACCC is seeking a variety of orders from the Federal Court, including declarations in relation to the contraventions of the Code and the Competition and Consumer Act 2010 (Cth), pecuniary penalties and injunctions to prevent Lactalis from engaging in similar conduct in the future, along with orders requiring Lactalis to administer a compliance program and to email notices to farmers and publish advertisements in relation to the pecuniary penalties.

We will be closely watching the outcome of the Lactalis case and will provide an update in due course.

Key takeaway

The Government is leading another review of the Code in 2021, with an accompanying report due to be completed by 31 December 2021. In the meantime, the escalation of the ACCC’s enforcement action should serve as a warning to all dairy processors that the ACCC is watching and you are highly likely be in the firing line if you don’t toe the line.

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