UPDATED: ACCC alleges Lactalis Australia Dairy Code breaches

Lactalis is one of Australia’s largest dairy processors and purchases milk from more than 400 dairy farmers across all Australian states. The company produces dairy products across brands including Pauls, Oak, Vaalia and Ice Break.

The ACCC alleges Lactalis breached a number of provisions of the code and, in doing so, weakened the bargaining power of farmers who supply milk to them.

However, the company issued a statement saying it believed it fully complied with the Dairy Code of Conduct. It added the issues raised by the ACCC are technical, legal issues that did not adversely impact farmers in any way, and that it had made all required changes to address those technicalities.

All the allegations against Lactalis relate to milk supply agreements offered to dairy farmers in 2020; more recent agreements published on Lactalis’ website on June 1, 2021 are not the subject of the ACCC’s allegations.

“One of the key aims of the Dairy Code is to improve the clarity and transparency of trading arrangements between dairy farmers and the companies that buy their milk,”​ ACCC deputy chair Mick Keogh said.

The allegations made by the ACCC include that Lactalis failed to make its milk supply agreements publically available on its website by the deadline of 2pm on June 1, 2020 as required by the Code, and instead required farmers to sign up to a mailing list to receive a copy of the agreements. The ACCC said this had the effect of reducing the transparency of the terms and conditions in Lactalis’ milk supply agreements during a critical and limited timeframe in which farmers had to weigh their supply options.

“Farmers need to have access to timely information when making decisions about which processor to supply milk to,”​ Keogh said.

The ACCC also alleges Lactalis failed to publish genuine non-exclusive milk supply agreements, which is a key requirement under the Code as it gives farmers more flexibility in choosing who to supply to. Instead, Lactalis required farmers to supply a minimum of 90% of their monthly production volume, which the ACCC alleges would prohibit most farmers from supplying milk to another processor.

It is also alleged Lactalis failed to comply with the Code’s “single document” requirement by failing to provide farmers with all three documents that made up Lactalis’ milk supply agreement. In a majority of cases, only one of the three documents was provided to farmers at the time the agreement was executed.

“It is very important that farmers have access to a complete record of the milk supply agreement they have signed up to. This safeguards against any subsequent changes to the agreement, and allows both parties to understand their rights and obligations,”​ Keogh said.

In addition, the ACCC said Lactalis published and entered into milk supply agreements with farmers that permitted it to terminate the agreement when, in the opinion of Lactalis, the farmer had engaged in “public denigration” of processors, key customers or other stakeholders. The ACCC alleges this clause would allow Lactalis to terminate agreements in circumstances where there was not a material breach, when the Code requires that for processors to unilaterally terminate agreements, the circumstances must involve a material breach by the farmer.

“We are continuing to assess agreements published on June 1 this year for compliance with the Code,”​ Keogh said.

“The ACCC reminds dairy processors that failure to comply with the Dairy Code may result in enforcement action by the ACCC and attract penalties.”​

The ACCC is seeking orders including penalties, declarations, injunctions, a corrective advertising order and costs.

The Dairy Code (the Competition and Consumer (Industry Codes—Dairy) Regulations 2019) came into effect on January 1, 2020. It is a mandatory industry code regulating the conduct of farmers and milk processors in their dealings with one another.

Under the Dairy Code, a processor must, on or before 2pm on June 1 each year, publish on its website one or more standard form milk supply agreements; and, for each standard form milk supply agreement, a statement setting out the circumstances in which the processor would enter into the agreement.

For every exclusive milk supply agreement a processor publishes, a processor must also offer a non-exclusive supply option to farmers.

The Dairy Code requires processors to only purchase milk under a milk supply agreement. All agreements must comply with the Code by meeting a number of key requirements, including: specifying a minimum price paid for the milk; consisting of a single document; specifying quality and quantity requirements, including testing procedures; and specifying the circumstances in which parties may unilaterally terminate the milk supply agreement – for processors to unilaterally terminate, the circumstances outlined must involve a ‘material breach’ by the farmer.

The publication obligations of the Dairy Code apply to all processors with an annual aggregated turnover of A$10m (US$7.35m) or more in the previous financial year.

The company told Dairy Reporter Lactalis Australia regrets that the matter (Outcome of Investigation into Lactalis Australia Pty Ltd for alleged breaches of section 51ACB of the Competition and Consumer Act 2010​ and the Competition and Consumer (Industry Codes – Dairy) Regulations 2019)​ has escalated to this point, and that the ACCC has instituted proceedings.

"Lactalis Australia believes that we fully complied with the Dairy Code of Conduct, which is currently subject to its own review by the ACCC and Industry to address widespread implementation concerns,"​ the company said.

"The issues raised by the ACCC regarding Lactalis Australia are technical, legal issues that did not adversely impact our farmers in any way. In any event, we have made all required changes to address those technicalities. This matter is before the Court now and our main focus in these difficult times continues to be the wellbeing of our employees, customers, farmers and local communities."​