The consumer watchdog has found significant power imbalances are causing market failures in Australia's dairy industry and says new rules are needed to make it fairer.
The Australian Competition and Consumer Commission (ACCC) on Monday released the findings of a two-year investigation of the industry, saying the dominant picture "is one of significant imbalances in bargaining power at each level of the dairy supply chain".
While finding that supermarkets have used their bargaining power to cut the profit margins of milk processors, ACCC commissioner Mick Keogh said the investigation did not find evidence that $1 per litre milk had had a direct impact on prices paid to dairy farmers.
Mr Keogh said farmers were "understandably frustrated" by the pricing, introduced by Coles and Woolworths in 2011, which had no direct relationship to the costs of producing milk.
"If supermarkets agreed to increase the price of milk and processors received higher wholesale prices, processors would still not pay farmers any more than they have to secure milk," Mr Keogh said.
The ACCC has recommended a new code of conduct be established to address issues ranging from unfair supply contracts to ineffective conflict resolution processes that it says transfer risks onto farmers and invite market failures.
Mr Keogh said processors can at present impose milk prices and set terms that are "heavily weighted in their favour" and some milk supply contracts also restricted farmers' ability to change processors for a better offer.
"These issues ultimately harm dairy production efficiency and reduce the effectiveness of competition between processors," he said.
