With the long-awaited launch of Government’s dairy contracts consultation, Hannah Binns explores industry’s aspirations for reforms and measures dairy processors would like to see to achieve a level playing field.
UK dairy farmers have been urged to speak up for a more effective dairy supply chain, with fairer terms for farmers, in their response to the Government’s consultation on contracts.
Open until September 15, the long-awaited consultation seeks views on whether contract regulations can be introduced to ensure farmers are treated fairly, after a 2018 Grocery Code Adjudicator (GCA) review found there was an uneven distribution of power within the dairy supply chain, with farmers’ subject to uncertainty and unfair milk pricing.
It comes as the Covid-19 pandemic saw severe milk market turmoil, with farmers bearing a disproportionate amount of the cost in the supply chain due to non-negotiated contract changes, price cuts, unilateral implementation of A/B quotas, and delayed payments.
NFU Scotland milk committee chairman, Gary Mitchell, said: “This is the best opportunity since deregulation in 1994 for the dairy sector to evolve the current unfair, inefficient, short-sighted supply chain.
“The experience of Covid-19 merely underlines that risk management, efficient reactive and proactive volume management, logistics and long-term investment cannot be effectively addressed without industry coordination and cooperation.”
Branded a ‘golden opportunity for the future of the UK dairy sector’, the UK farming unions (NFU, NFU Cymru, NFU Scotland and Ulster Farmers’ Union) have identified five key areas of reform, which will form part of their consultation responses, to ensure fairness, transparency and trust for buyers and farmers.
An end to discretionary pricing, where a processor can unilaterally vary price and pass risk onto the farmer, in favour of a clear pricing mechanism, is one of the collective asks.
Michael Oakes, NFU dairy board chairman, said: “A headline milk price is of no value whatsoever if a buyer has the sole right to change it at will.
"We need to be able to share risk along the supply chain much more effectively than we currently do.
"At the moment, there is no incentive for a milk buyer to look up the supply chain to manage their risk, as they know much of it can be managed by pushing the risk down to a farm level.”
The unions also called for an improved working relationship between farmers and processors through agreed contract changes, an ability for farmers to choose between exclusive and non-exclusive contracts to adapt and take advantage of different markets, the elimination of unilateral changes and one-sided contract terms and an establishment of a structure similar to the GCA to oversee the regulation, with clear consequences for any breaches.
Speaking to Farmers Guardian about what it would like to see from the consultation, dairy processor Muller said: “What we seek from any future contract guidance is market orientation, fairness, consistency, and the latitude to create innovative solutions where it benefits the whole supply chain – our farmers, our business, and our customers.
“It is also clear that if mandatory contracts are to be introduced, they must be applied consistently across our industry with no exceptions, so that the industry can operate on a level playing field.”
Farmer-owned co-operative, First Milk, said it believed in farmers having ‘robust and fair contracts’ but warned any regulation must not ‘impede the success of our co-operative or the UK dairy industry’.
A spokesperson said: “We will be working with our farmer members, their council and board representatives, to provide a detailed response to each aspect of the consultation.”
Dairy farmers can view the consultation at consult.defra.gov.uk/agri-food-chain-directorate/contractual-relationships-in-the-uk-dairy-industry/