Dairy industry looks at ways to tackle volatility at The Dairy Show

Mandatory contracts, which would pave the way for buyers to have to specify a price for an agreed period of time, along with futures schemes to help producers manage risk would all have roles to play in the future, the event heard.

Mr Oakes added the union believed Defra could use the Common Market Organisation regulation in a flexible and non-prescriptive way to benefit the whole sector.

Sharing risk

He said: “We need to share the risks on volume and they need to share the risks on prices. It is not a case of fixing prices, but sharing margins more fairly and equitably.”

Patty Clayton, AHDB senior dairy analyst, spoke about the potential role of futures in the sector in the light of the twin challenges of price volatility and market transparency.

Ms Clayton suggested dairy farmers should consider hedging milk prices, saying this might be useful for producers putting in a large investment or carrying out detailed forward planning.

While accepting it was not accessible to all and taking into account brokerage costs, she said it had been successfully used by co-operatives in Ireland and a limited number of processors, which ‘had a better ability to use the futures market to lock in margins’.

She added: “The tool is not geared to getting the highest prices, but to ensure you have the adequate margins necessary.”

Nuffield scholar and Somerset mixed farmer Richard Counsell also used the event to launch the Stable index insurance platform, which he said would help milk producers protect businesses from price volatility.

Working in 15 countries, it protects commodities that are not traded on an exchange.

He said the dairy insurance would be based around Defra’s farmgate milk price and was open to all farmers producing any quantity.