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Mandatory dairy contracts deliver stability for Spain

The UK industry could learn from the Spanish if it implements mandatory contracts in the dairy sector.

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Mandatory dairy contracts deliver stability for Spain

Spanish mandatory contracts have helped reduce volatility for producers – and processors exercising best practice had nothing to fear if they were introduced in the UK.

 

NFU dairy board chairman Michael Oakes said there had been initial hesitance in Spain at their introduction from processors and producers, but the outcome had been generally positive.

 

Comparison

 

AHDB has compared prices in Spain before and after the introduction of mandatory contracts. Prior to compulsory contracts, Spanish farmgate prices were slightly more volatile than the EU-28, with a range of £8/100kg (€9/100kg) compared to £7/100kg (€7.8/100kg) in the EU as a whole.


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But Spanish prices were much less volatile when contracts were in place, not falling as far during the downturn – with average prices in Spain over the full cycle 3 per cent higher than the average.

 

Mr Oakes said: “It is not a stick to beat the processors over the head with; it has developed a better relationship and more stability.”

 

He said currently a processor could go into the marketplace, negotiate a bad deal and farmers paid the price for it. But there was a mechanism for Spanish Government to ask questions of anyone selling milk below the cost of production.

 

Volatility

 

He criticised comments from Dairy UK chairman Paul Vernon suggesting mandatory contracts created more volatility and that processors needed price discretion to make a profit.

 

But Mr Oakes emphasised his members needed to make a profit too.

 

“At the minute, farmers share all the pain of price discretion,” he said.

 

“We will have to take some of the risk on volumes and they will have to take some of the risk on price.”

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