The UK Government will consult on dairy contract regulation this summer – so what is this all about? Policy Manager George Jamieson explains.

The UK Government recognises that food producers are vulnerable to ‘imbalance of power, poor contract terms, leading to lack of trust and transparency in the supply chain’. In response, it will consult – probably mid-summer - on statutory requirements for dairy contracts and we want your views.

NFUS are to hold meetings across Scotland in early July to promote, inform, listen and discuss the views of dairy farmers to guide both our submission and our discussions with processors, retailers and governments on contracts.

Solutions on contractual matters are long overdue.

Contracts are critical for dairy farmers and processors to ensure pricing and volume mechanisms and all related terms between farmers and processors are fit for purpose, agreed through free negotiation and can be varied subject to agreement.

For dairy farmers, as much as 90% of their income is from the market rather than direct support and while global trends will dictate the direction of travel on milk price, the milk contract terms and pricing mechanisms set the price and volume incentives and penalties.

For processors, milk is their biggest cost hence more certainty on price and production is also valuable.

This consultation will benefit from positive engagement by all parts of the dairy chain as the ambition is for the sector to agree fair, transparent and progressive standards that all must commit to.

It is worth reminding ourselves that this planned consultation is the UK Government reacting to the independent recommendations from the Grocery Code Adjudicator and recognises the failure of the 2012 voluntary Code of Practice covering dairy contracts.

The ever-present issues for our dairy farming members are milk price and margins, milk volumes and sustainability of dairy farming businesses. Some more venerable Union members may remember that dairy prices provided the motivation for the Union being formed in 1913. This initiative on contracts can be the catalyst to address these key priorities.

Unagreed price changes are an instant trigger to start the phone and emails going, from farmers, processors and the press.

The debate on milk production volumes is also persistent and heated.  Recent price variations imposed by some processors, reacting to ‘over supply’, is a good example of where contract terms can be improved to benefit all.

Production can me managed if there is agreed pricing mechanisms; proactive milk supply management and proactive communication.  It is not rocket science.

A consistent high priority for us and our fellow Unions has been the weak position farmers have in the dairy supply chain.  Put simply, all too often our customers dictate the price we are paid for our milk.

As primary producers of a raw product, we depend on the processing and retail businesses to add value and market dairy based products. We benefit from efficient, competitive supply chains, but those supply chains also need a sustainable, reliable supply of milk.  

Contractual arrangements could be the solution, but we need and welcome your views.