For most dairy farmers, their contract to sell milk is the single most important document in their business, shaping their relationship with their milk buyer.
Unfair milk contracts have been a concern for the dairy sector for many years. Many of the Union's calls are from farmers with issues that ultimately relate to their milk contract. With the lack of processing in Scotland and reduced options regarding business purchasers, dairy farmers in Scotland experience many vulnerabilities.
After more than a decade of campaigning by the NFU Scotland and other UK farming unions to expose unfair practices in the dairy supply chain,
The Fair Dealing Obligations (Milk) Regulations 2024 has now completed its passage through the UK Parliament and is now in force.
The regulations provide an implementation period to allow for a managed transition.
All contracts between a farmer and their milk buyer will need to be updated, negotiated, and brought into compliance with the code.
The key dates to be aware of are:
- 9th July 2024 – All new milk contracts issued after this date must comply with the new Regulations.
- 9th July 2025 - All existing contracts that are already in place between farmers and their milk purchasers must be compliant with the code.
What does the legislation cover?
The main areas the legislation will cover include:
Price
This legislation will not set the price nor introduce minimum prices. Price will continue to be market-led, but this legislation will introduce greater transparency for the farmer. For example, if the contract contains a variable price, mechanisms must be in place to ensure that price can only move in reference to the agreed-upon factors set out in the contract.
Variation
All variations to the contract must be agreed by both parties. This means that milk buyers cannot enforce changes without prior agreement from the individual farmer or their representative organisation. This will not apply where the purchaser has an internal democratic structure, as defined in the regulations, for example, a co-op, or where the farmer is a member of a producer organisation (PO) because these bodies have their own structures agreeing on variations to contracts.
Farmer representation
The regulations allow farmer-owned structures such as co-ops and Producer Organisations (POs) to have greater flexibility in terms of the contracts they can negotiate with the milk buyer. The fact that these organisations negotiate on behalf of a number of farmers increases their bargaining power, which should put them in a stronger negotiating position than individual farmers. The regulations will also likely make these structures more attractive to processors, as it would be easier than negotiating with each individual farmer.
Exclusivity
Exclusive contracts (where a farmer must send every single litre they produce to a processor) are still permitted. However, they are prohibited where the milk contract is for a fixed volume, it will also not be possible to have tiered pricing in an exclusive contract.
Notice periods
The legislation sets out maximum notice periods to be given by the farmer and minimum notice periods to be given by the processor for contracts of more than 12 months. The regulation also allows a farmer to terminate more swiftly in certain circumstances, such as when a milk buyer misses payments for milk or becomes insolvent. There are several other areas covered in the regulations, such as dispute resolution, force majeure, and the introduction of cooling-off periods.
The regulations also include an enforcement regime, which allow the Secretary of State to impose substantial financial penalties to entities who make any breaches.
On these pages, you can find:
- More information about the ASCA and office, including contact details, what you can complain to the Secretary of State, and what happens if you make a complaint or are complained about.
- A complaint form that needs to be filled in and submitted if you wish to make a relevant complaint.
- Statutory Guidance to FDOM24, covering matters that will be taken into account when deciding any civil penalty or compensation payable if there has been a breach of the Regulations, as well as rights to make representations during the complaints process and the right to appeal to the First-tier tribunal if you are unhappy with the outcome of the complaint.
Next Steps
We are developing further detailed legal guidance and will work to support members in the coming months as the industry transitions to new compliant milk contracts.