The ACCC has instituted Federal Court proceedings against Lactalis Australia for alleged breaches of the Dairy Code of Conduct.

This is the first time the ACCC has commenced proceedings for alleged breaches of the Code.

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 a wide range of dairy products across brands including Pauls, Oak, Vaalia, and Ice Break.

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

All the allegations against Lactalis relate to milk supply agreements offered to dairy farmers in 2020; more recent agreements published on Lactalis’ website on 1 June 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 publicly available on its website by the deadline of 2pm on 1 June 2020 as required by the Code. Instead it required farmers to sign up to a mailing list to receive a copy of the agreements. 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 per cent of their monthly production volume, which the ACCC alleges would prohibit most farmers from supplying milk to another processor.

It is also alleged that 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 most 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, 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 1 June 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.

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