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Consider contract terms, not just price when signing new milk contracts

Farmers urged to seek legal advice before signing on the dotted line


Alex   Black

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Alex   Black
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Consider contract terms, not just price when signing new milk contracts #teamdairy

Dairy farmers need to consider notice periods, variations in terms and quality requirements – not just headline pricing when signing contracts, according to NFU dairy adviser Sian Davies.


It came as Muller producers considered a new contract from the processor, with sign-up expected before April 21.


While the price may be what initially attracts a supplier, Ms Davies said it should not be the main motivation to change buyer.


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Top tips

  • Read the contract; do not just sign on the dotted line
  • Ask questions if you do not understand
  • Check the contract carefully for hidden ’traps’ in the small print
  • Get independent advice

“Some milk buyers have even been known to offer a special price as to ensure new supply,” she said.


“Because price, and the pricing schedule, can change monthly it should not be the main reason to move contract.”

 

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She advised producers to ask for a rolling five-year milk price and a comparison with the Defra rolling average or other milk buyers. If the supplier will not provide this, AHDB Dairy can.


Ms Davies added most of the queries NFU had received this year were surrounding the notice period and variation clause and producers needed to understand the procedures involved.


“Clearly when signing a new contract farmers may not be thinking about ending the contract but there are some fairly long notice periods, up to 18 months, which farmers need to be aware of.

 

Variation


“Furthermore, many contracts allow milk buyers to vary contract terms with no discussion or negotiation with supplying farmers.”


Producers also needed to consider the milk quality requirements, if they were over the legal requirements and understand why and whether it was an evergreen contract or fixed term.


As every farmer’s situation is different, producers need to consider how different terms in the contract would affect their business and look for individual legal advice.


For farmers who were unhappy with the contract offered, they would need to speak with the buyer or with a producer group if possible, as other farmers will probably have the same concerns.


“This will give you some ability to negotiate better terms with your milk buyer," added Ms Davies.


"If all else fails it may be better that you look for a new contract with a different milk buyer.”


She also highlighted the voluntary code which sets out ‘good minimum practice’ in milk contracts as a starting point and said all dairy farmers should ‘at least request’ a code-compliant contract.

In February, NFU launched a contract checking service for farmers looking for legal advice on contract issues. More information can be found here

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