The Dairy Inquiry: Interim findings and recommendations
The Dairy Inquiry: Interim findings and recommendations
Dairy industry inquiry. • Triggered by events of April 2016 • Commissioned by Australian Gov...
The Dairy Inquiry: Interim findings and recommendations
Dairy industry inquiry. • Triggered by events of April 2016 • Commissioned by Australian Government with extensive information gathering powers. – – – –
Commenced November 2016 8 stakeholder forums – 600 attendees Mandatory information requests to 11 processors, 3 retailers Analysis of over 25,000 documents, hearings under oath involving all major processors and retailers.
1 December 2017
Dairy Inquiry
2
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
3
Bargaining power
• Major differences in bargaining power through supply chain, with farmers the weakest. • Transfer of risk occurs from retailers to processors to dairy farmers • Farmers contractual negotiations provide few options • Risk is transferred to dairy farmers, who only have limited risk management options
1 December 2017
ACCC Dairy Inquiry
4
1 December 2017
ACCC Dairy Inquiry
5
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
6
Farmgate milk prices • Farmers have limited visibility into price setting • Actual prices can vary significantly from announced prices • Processors best placed to manage risk, but contracts transfer risk to farmers • In export regions, price linked to global trends, but not in other regions.
1 December 2017
ACCC Dairy Inquiry
7
Prices – announced and actual
1 December 2017
ACCC Dairy Inquiry
8
Global and domestic prices
1 December 2017
ACCC Dairy Inquiry
9
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
10
Competition • Competition is regional • 95% of milk sourced from less than 300km • Exclusivity a trade-off for guaranteeing to take all milk • Swaps and trades could limit competition, but no strong evidence of this occurring 1 December 2017
ACCC Dairy Inquiry
11
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
12
Wholesale & retail competition • Strong competition at wholesale level, including from imports • Competition at retail has delivered lower consumer prices for drinking milk, cheddar cheese. • Processors tend to specialise, and have limited capacity to diversify product range
1 December 2017
ACCC Dairy inquiry
13
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
14
Profit margins • Profit margins largely reflect bargaining power. • Supermarket margins on home-brand products are low but positive, but much higher on branded products • Processor margins on $1 milk/$6 cheese minimal, but much higher on branded products • No obvious direct impact of $1 milk on farmgate prices
• Farmgate prices reflective of farmers weak bargaining power. 1 December 2017
ACCC Dairy Inquiry
15
1 December 2017
ACCC Dairy Inquiry
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1 December 2017
ACCC Dairy Inquiry
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1 December 2017
ACCC Dairy Inquiry
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1 December 2017
ACCC Dairy Inquiry
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Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
20
Contracts • Contracts are favourable to processors and exacerbate farmers poor bargaining power. • Many farmers have a poor understanding of contract terms and conditions
• UCT laws have the potential to address some contract terms • A dispute resolution process is required 1 December 2017
ACCC Dairy Inquiry
21
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
22
Collective bargaining • Some groups have been successful, but usually have unique circumstances • Perishability of milk makes boycotts unfeasible
• Collective bargaining does not offer a broad remedy to the systemic bargaining power imbalances in dairy.
1 December 2017
ACCC Dairy Inquiry
23
Bargaining power and risk allocation Farmgate milk prices Competition in regional markets
Wholesale and retail competition Supply chain profit margins Contracting practices
Collective bargaining Recommendations
1 December 2017
ACCC Dairy Inquiry
24
Recommendations • Processors and farmers should enter into written contracts • Contracts should be simplified and consolidated • Contracts should not contain terms which restrict switching/competition • Processors should provide increased information clarifying prices offered • A mandatory Code of Conduct for the dairy industry should be considered. 1 December 2017
