NFU president Meurig Raymond said every tool available must be used to help manage volatility in the dairy sector
Speaking at NFU’s Dairy Risk Management Conference in Solihull, Mr Raymond said futures contracts were one area which needed to be considered.
“We want to see increased use and uptake of innovative, new tools that help balance the price risk between farmer, processor and end user – and dairy futures could be one answer,” he said.
“In the US they are playing a part in aiding price recovery and collaborative working across the supply chain and I believe futures provide an opportunity for both the UK and more broadly for Europe.”
Using the futures market, processors and manufacturers can ‘hedge their market risk’ and lock in a long term price for a commodity. More stability could then be offered to farmers who can ‘lock in’ a proportion of their milk at an agreed price.
Mr Raymond added it also provided transparency.
“This enables the supply chain to plan ahead, manage production and ultimately mitigate the risk presented by the peaks and troughs of supply,” he said.
“Transparency with it carries many benefits, it aides price discovery allowing different marketing arrangements to develop such as market linked formula pricing and forward contracts.”
He called on Government to regulate mandatory price reporting to provide a ‘reliable reference price’ for futures markets to settle against.
“Dairy Futures are a new concept. As such we have much work to do in developing our knowledge and capacity as an industry to understand how to best utilise this vital tool.”