Contract farming: global standards or market forces? The case of the Australian dairy industry

Abstract

This article investigates why the international contract farming guidelines by the International Institute for the Unification of Private Law, the Food and Agriculture Organization, and the International Fund for Agricultural Development have not been viewed as constructively as they should have been in regulating a contract farming sector in a developed country—namely, the dairy industry in Australia. In 2016, the dairy industry was very adversely affected by an ill-fated competition for milk supply by two of the biggest milk processors in Victoria. On a falling international milk market and a stockpile of milk products in China, the two processors engaged in a strategy of increasing the milk price to attract milk producers. Not surprisingly, the fallout was felt by the contract farmers and drove many to entirely abandon the industry. This article traces the developments of the partial collapse of the dairy industry and the eventual collapse of Murray Goulburn, one of the main milk processors in Australia, and it arrives at the conclusion that the system of milk pricing within the Australian industry, coupled with poor management and the inactivity of the government, was a hindrance in establishing sound practices in this particular contract farming sector.