dairy cow

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The consultation will consider the viability of compulsory contracts between farmers and processors 

Compulsory milk supply contracts are back on the agenda after Defra and the devolved administrations announced the launch of a 12-week consultation into tackling unfair practices across the sector.

The consultation, which will run until 15 September, would explore whether regulations could be introduced to ensure farmers were treated fairly, Defra said. It follows evidence gathered during the Groceries Code Adjudicator’s original call for evidence in 2016, which highlighted how unfair practices had persisted in the dairy industry.

Unfairness in the supply chain had “sometimes been caused by milk buyers having the power to set and modify the milk price in a contract, often with little notification”, Defra said. Such a system led to “uncertainty and pricing that can be unfair to dairy farming businesses”, it added.

The issue reared its head again at the height of the coronavirus lockdown, when a number of milk processors and suppliers such as Freshways, Pensworth and Medina either cut or deferred farmer payments at short notice in response to the collapse of the foodservice and hospitality sectors.

Proposals under the consultation include an option to introduce a mandatory pricing mechanism within all contracts between dairy farmers and processors.

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This would ensure the price paid for milk produced by the farmer was formally agreed within the contract, and that contract negotiations take place in a clear and transparent way, suggested farming minister Victoria Prentis.

“It is absolutely vital that our dairy farmers are paid fairly for their high-quality produce and I am committed to cracking down on any unfair practices within the UK dairy industry,” she said.

“I welcome all views to this consultation to determine how best we can guarantee fairness across the supply chain. This will help the industry continue its vital role in feeding the nation and ensure our dairy farmers can continue to be competitive in the future.”

Proposals for compulsory contracts were first floated by now environment secretary George Eustice in 2018, after he said the sector’s existing voluntary code “had not worked”.

This ultimately led to conflict between the NFU and Dairy UK, after the industry body warned any regulation had the potential to “reduce flexibility in contracts between farmers and processors in a way that will be detrimental to both”.

Responding to the consultation launch today, NFU dairy board chairman Michael Oakes said dairy farmers wanted to “place themselves in a more sustainable position for the long term, and dairy contracts are at the heart of this”.

He added: “We want to see flexible and innovative regulation that not only delivers fair terms for farmers but an equitable balancing of risk between farmers and buyers.

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“During the Covid-19 pandemic, we have seen a significant number of cases where farmers have borne a disproportionate amount of the cost in the supply chain, as the risks within the marketplace were shunted down to farm level at an alarming pace.” 

Producers needed to be able to share risk along the supply chain much more effectively than they currently could, he said.

“At the moment, there is no incentive for a milk buyer to look up the supply chain to manage their risk, as they know much of it can be managed by pushing the risk down to a farm level.”