The Senate Standing Committee for the Scrutiny of Delegated Legislation, which examines legislation for potential issues, said the current law surrounding the code failed to properly define the term "in good faith".
The code, which was introduced on January 1, requires processors and dairy farmers to deal with each other in good faith or be fined up to $21 000 for small businesses or $63 000 for larger processors.
But committee chair Concetta Fierravanti-Wells told Federal Agriculture Minister David Littleproud in February the committee believed the definition of the term was not clear enough in the legislation.
“The committee is concerned that the instrument imposes significant civil penalties for failing to comply with a term that is not defined in written law,” she said.
But Mr Littleproud has argued the code is specifically drafted to allow the term to be fluid and informed by changing interpretations in common law and giving a set definition would "unduly restrict permitting conduct that may be considered ‘not in good faith'.”
He said financial penalties were also crucial to the success of the dairy code, telling the committee that without consequences, trust in the industry would be eroded.
“Without civil penalties being attached to a failure to comply with the ‘obligation to deal in good faith’ provisions, I believe that the dairy code will not be effective in curtailing the egregious and bad faith behaviours the government is seeking to prevent re-occurring in the dairy industry, nor would it restore industry confidence that there will be good faith concepts incorporated into their ongoing business relationships,” he said.
The committee and representatives from the Department of Agriculture are expected to meet when parliament resumes this week.
The code of conduct was a key recommendation of the Australian Competition and Consumer Commission’s dairy inquiry, which found significant imbalances in bargaining power at each level of the dairy supply chain.
It is designed to provide farmers greater certainty and bargaining power and also prohibits retrospective price ‘step downs’ by processors, bans exclusive supply arrangements deemed detrimental to dairy farmers, establishes dispute resolution processes, increases the powers of the competition watchdog and introduces civil penalties.
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