LAMB producers and lot feeders are expected to analyse forward supply contracts more closely after unfair contract reforms were legislated late last year.
Sheep Central has been told some forward lamb supply contracts previously offered to producers favoured processors on delivery date compliance, breach conditions and risk clauses.
However, from 9 November last year, changes to the Australian Consumer Law increase penalties and prohibit businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.
The Australian Competition and Consumer Commission has said the changes will allow courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts. Previously, a court could only declare specific terms of a contract unfair and therefore void.
Reports of forward lamb contracts of 600c/kg in early 2024 are becoming more numerous, although some agents are reporting processors are already paying 700-750c/kg in southern saleyards as quality heavy and trade lambs become scarce and restocker/feedlotter confidence in the market and season increases. Meat and Livestock Australia’s National Livestock Reporting Service said new season lambs sold to a top of $227 in Hamilton today, with most new season lambs to the trade making 630-730c/kg cwt.
The National Farmers Federation this week released a Market Pricing Transparency issues paper that recommended the Australian Government and the ACCC strengthen legislation and regulation to ensure contracts in agricultural supply chains are fair, transparent and enforceable.
The issues paper said this strengthening should include clear terms on pricing, delivery schedules, and dispute resolution mechanisms, to ensure clarity and surety in the relationship between farmers and purchasers of goods. These changes should be additional to the unfair contract terms reforms recently implemented, the NFF report said.
Sheep Central has been told some forward contracts previously offered to producers have clauses that minimise the processors risk in regard to contract breaches, but offer inadequate protection for producers if processors decline to accept stock for slaughter on the date originally agreed. In some cases this meant a delayed delivery date caused lambs to gain weight outside the original contract range or cut permanent teeth and fall outside the lamb classification.
A producer and lamb finisher told Sheep Central that processors have been able to push back the delivery date of lambs at contracted at an agreed price without consultation while the company continued to buy cheaper lambs in saleyards.
This meant producers had lost “significant amounts of money” by lambs growing outside grid specifications and without compensation for the increased costs of keeping lambs on feed until delivery was accepted, the producer said.
“This also creates cash flow issues and disputes between feed suppliers and producers.”
The producer said the previous forward lamb contracts have been “one way.”
“If I have to give them the lambs at that time or suffer a financial penalty they should also suffer a financial penalty at the time they can’t take them.”
In some cases, clauses that stipulate that stock ownership does not pass the processor until lambs had been slaughtered allowed processors to ship stock back to the producer when the works suffered an operational breakdown.
The producer said there is not widespread awareness of the recent unfair contract reforms and “the proof would be in the pudding” on whether processors had updated forward contract terms accordingly.
Forward contracts take competition out of the market – VFF
Victorian Farmers Federation Livestock Council president Scott Young said forward contracts take competition out of the market and had heard reports of producers being disadvantaged. He also struggled with producers taking a contract for supply on a date without agreeing on a price.
“It just takes competition out of the market and puts all the control with the processors and the supermarkets, because they are guaranteed supply so why do they need to chase markets and prices when they know they’ve got those stock coming in.”
Mr Young said lamb producers had raised issues with forward contract terms that meant producers were locked in at a formerly agreed price but later kill date, adding extra cost and risk as lambs grew heavier and ate more feed.
“If there is an extension of contract there should an opportunity for growers to be paid for the additional feeding cost.
“We need to be able to factor in that some animals are going to get too heavy and ‘break out’ (cut permanent teeth) and ensure that they are not penalised for something that is being imposed on them,” he said.
“There would be penalties if the farmer did not get their lambs up to scratch.”
Pressures on farmers at boiling point – NFF
NFF president David Jochinke said the pressures on farmers were reaching boiling point, with an AUSVEG survey earlier this year showing 34 percent of vegetable growers were considering leaving the industry and a livestock market crash not reflected in supermarket prices.
“For decades we’ve seen our supply chains gradually tighten to the point where we’re now one of the most tightly consolidated supply chains on the planet.
“Many farmers have only one customer to buy their products, and only a handful of places to buy their inputs,” he said.
“That puts not just farmers, but consumers, at a huge disadvantage.
“There’s no transparency,” Mr Jochinke said.
“We can see what people pay at the checkout, and we know what we’re getting at the farm gate – but who clips the ticket in the middle is hidden from view.”
An NFF survey of more than 1600 farmers in September found that the market power of supermarkets and processors was the top issue concerning those in the sector.
“We’ve seen this slow creep of consolidation take hold of our supply chains and we’re now in this really precarious position.
“We need to make sure the rules are there to level the playing field because it’s currently tilted heavily against the farmer,” Mr Jochinke.
Ideas put forward in the NFF issues paper include:
mandatory price reporting and disclosure;
increased powers for the ACCC to access supply chain data;
further reforms to unfair contract terms;
improving whistleblower protections and access to justice; and,
greater uptake of collective bargaining.
Unfair contract laws should motivate businesses – ACCC
The unfair contract law changes will allow courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts.
The maximum financial penalties for businesses under the new unfair contract terms law are the greater of:
three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this; or
if a court cannot determine the benefit, 30 percent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
The changes apply to standard form contracts made or renewed on or after 9 November 2023 and/or a term of a standard form contract that is varied or added on or after 9 November 2023.
Where a term of a contract is varied or added on or after 9 November 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.
The definition of a small business contract has also changed. The protections will cover businesses with 100 or fewer employees or that make less than $10 million in annual turnover and will apply irrespective of the value of the contract.
Late last year ACCC deputy chair Mick Keogh said the changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms.
“There was previously little motivation for businesses to comply with the law, despite the ACCC’s compliance and enforcement actions.
“We strongly urge businesses to review their contracts now to ensure they comply.”
The ACCC said standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of consumer or small business customers. However, these contracts are largely imposed on a ‘take it or leave it’ basis and are usually drafted to the advantage of the party offering them.
“The test for whether a contract term is unfair has not changed.
“However, businesses now could potentially face substantial penalties for contravening the law,” Mr Keogh said.
“While some of the changes won’t apply to contracts until they are renewed, or a new contract is entered into, businesses should be proactive in reviewing their standard form contracts now.”
ACCC tips for businesses to consider when reviewing their contracts:
- Consider both points of view: if you think a term is necessary to protect your business’s legitimate interest, consider the term from the other party’s point of view.
- Include counter-balancing terms: check that your contract has appropriate counter-balancing terms. For example, if you consider that your business reasonably needs the ability to unilaterally change the product or service being provided under the contract, does the contract also allow your customers to exit the contract without penalty when this occurs?
- Avoid broad terms: don’t have terms that are as broad as possible. Make sure terms are only as broad as reasonably necessary to protect your business’s legitimate interests.
- Meet your obligations under the Australian Consumer Law: don’t have terms that seek to avoid your business’s obligations under the Australian Consumer Law. For example, don’t include terms that seek to limit your customers’ consumer guarantees rights, or terms that seek to disclaim any representations your business may have made outside of the contract.
- Be clear: Use clear and simple language in your contracts.
- Be transparent: ensure key terms are clearly drawn to the attention of your customers during the sign-up process, and any renewal process.
The changes will also expand the coverage of the unfair contract term laws to apply to more small business contracts than before. The threshold for small business contracts will increase to apply to small business that employ fewer than 100 persons or have an annual turnover of less than $10 million.
Other key changes include the removal of the contract value threshold and clarifying other aspects of the laws, such as more clearly defining ‘standard form contracts’.
Businesses can view information about changes to the unfair contract terms laws on the ACCC’s website.