The dairy industry Voluntary Code of Best Practice (vCoP) signed by NFU Scotland, the NFU of England and Wales and Dairy UK at the end of August, is now being circulated to the industry.  

The vCoP looks to address long standing contractual issues between milk purchasers and producers.  Although the vCoP is voluntary, all parties are expected to abide by the requirements of good practice outlined in the code.

NFU Scotland Milk Committee Vice Chairman Rory Christie said:

“This is a hugely important piece of work for the dairy sector and NFU Scotland has been at the heart of negotiations.  While the vCoP does not include all that NFUS wanted, we believe there is more than enough in it to bring positive and substantial improvements to current dairy contracts.

“Now that the document is in circulation, we look forward to a more positive approach to contractual arrangements to commence with the code being used to significantly improve trust and transparency between milk producer and processors.  Dairy farmers expect and deserve nothing less.

“This is a positive development and it is in all parties interests that this works.  Through our dairy farming members and Dairy Farmers Together, we will be actively monitoring the uptake of the code and its effect.

“It is important to note that there is a review process which includes an annual review and, from day one, there is the ability for parties to highlight any concerns around the code’s operation.  While we are fully committed to the code, we will also ensure that positive elements of the EU Dairy Regulation continue to be scrutinised and that a legislative approach remains an option if the voluntary route fails to deliver the required improvements.

“These are both things for another day.  Just now, lets focus on the fact that the vCoP is a significant step forward for the sector that must take the whole dairy industry forward.”

Notes to Editors

The following is a summary of the main points in the voluntary code of best practice.  A copy is available on request.

Base Milk Price

• The vCoP ensures that contracts must clearly set out the base price and/or the pricing mechanism.
• The vCoP allows either agreed, negotiated price setting or prices set at the purchasers’ discretion.
• Purchasers’ discretion to set prices remains, but is now tempered by a minimum 30 day notice of a price drop and a 3 month ‘early exit’ clause following any price change.   Co-ops are exempt from the ‘early exit’ clause but only on condition that the co-op can demonstrate that it has governance procedures in place to ensure that the co-op is under the control of its producer members.   NFUS and NFU have been given the responsibility to establish co-op good governance practice.
• Producer Groups can agree to extend the minimum early termination period provided that such a change is through a process of negotiation with a democratically accountable Producer Group.

Pricing Adjustments

• The base price paid for milk will usually be subject to adjustments such as milk quality bonuses/penalties, seasonality incentives/penalties, imposed production/management standards or bonuses for continuity of supply.   The vCoP states that no changes to the adjustments can be made without at least 30 days’ written notice and a 3 month ‘early exit’ clause is available following any adjustment change.
• Co-ops are exempt from the ‘early exit’ clause on condition that the co-op can demonstrate that it has governance procedures in place to ensure that the co-op is under the control of its producer members.

Variation of Contract Terms

• Under the vCoP any change in contract terms not specifically agreed with the producer requires a minimum 30-day notice period.   The 3-month ‘early exit’ clause will apply following any change in contract terms not specifically agreed with the producer.
• Co-ops are exempt from the ‘early exit’ clause on condition that the co-op can demonstrate that it has governance procedures in place to ensure that the co-op is under the control of its producer members.

Non Exclusivity

• Contracts must allow a producer to supply milk to other purchasers where the producer expands his production and the first purchaser does not want to purchase the additional milk under the same terms and conditions.

Standard notice to terminate contracts

• The notice period required to resign a contract should not exceed 15 months or the notice period required from the purchaser where this is shorter.   It should not normally be less than 3 months and should not be limited to notice served on particular dates, which can have the effect of extending the notice period.
• The notice period to resign contracts should not be confused with the right to resign contracts at 3 months’ notice in the event of a price change.

Ends

Contact Bob Carruth on 0131 472 4006