Battle on unfair milk contracts to step up

The NFU is encouraging dairy farmers to lobby their MPs and milk buyers to ensure fairer milk contract terms and eliminate unfair commercial practices in the dairy supply chain.

NFU dairy board chairman Mansel Raymond said: I want to make this quite clear the dairy market in this country is not working, which means that dairy farmers are losing out. The British dairy industry should possess many advantages ranging from growing demand to efficient milk producers and a good climate for producing milk. Yet the industry lurches from crisis to crisis and has suffered over a decade of underinvestment and low profitability.

For dairy farmers like me, undoubtedly the biggest problem is the one-sided milk contracts that we are obliged to sign with our milk buyers. These contracts offer little to no certainty or clarity on the way milk prices are calculated, they lock dairy farmers in for long notice periods of up to eighteen months, provide no ability to supply milk to any other buyer, and have no exit clauses to get out of a contract if the price drops to an unsustainable level.

The European Commission recognises that contractual relationships between milk producers and purchasers are fundamental to ensuring fairness in the dairy supply chain, and has come forward with a package of measures, which include improvements to milk contracts, which Mr Raymond said could make a real difference to the way dairy farmers sell their milk and negotiate with milk buyers.

There are some exciting proposals on the table which would strengthen dairy farmers position in the food chain and introduce new minimum standards for milk contracts across the EU.

It is vital that farmers call on their MPs and dairy companies to take action now to eliminate unfair commercial practices and improve milk contracts.  A do nothing approach will see dairy farmers continue to be deprived of their fair share of profits in the food chain. This will lead to underinvestment, lower milk production and will mean that dairy farmers continue to leave industry at an alarming rate.

This is a unique opportunity to bring about much needed change, and dairy farmers should seize it with both hands, he added.

The Commissions proposals to improve the position of dairy farmers include:

• Allowing member states to introduce minimum legal standards for milk contracts which would include the price to be paid, volume, duration of the agreement and termination rights
• Permitting Producer Organisations to be established that allow dairy farmers to come together (subject to quantitative limits) to improve their negotiating power with dairy companies.
• Introducing greater market transparency in the dairy supply chain.

The NFU wants the Government to introduce the following measures:

• Back the EU Commissions proposals to provide a new baseline standard for milk contracts that is compulsory across all milk buyers and milk deliveries;
• Draw up a contractual code of practice backed up, if necessary, by regulation to ensure fair dealings between farmers and dairy companies. This could have a broader scope than the Commissions proposals and encompass a wider set of common contract clauses such as price variation, termination, exclusivity and assignment;
• Prepare standard template contracts as an example of best practice. The NFUs template contract would provide an excellent basis for this;
• Examine whether the operation of Rural Development Programmes can be improved to assist farmer representatives by enabling the employment of professional support for negotiation;
• Investigate the possibility for producing more transparent information on the distribution of margins and wholesale prices in the dairy supply chain.