They write:
There’s been a lot of talk in the industry recently about the regulation of dairy contracts, and we are all eagerly anticipating a Defra consultation on this issue, which should be out shortly.
Striving to improve dairy contracts has been a big area of work for the NFU for years, but the NFU’s dairy board, alongside the dairy and legal teams, have been working especially hard on this in the last six months. We’ve been keen to develop the NFU’s position ahead of the Defra consultation coming out.
What does the NFU want on dairy contracts?
Back in 2012, the NFU was a critical part of the Dairy Contracts Voluntary Code of Practice (VCOP). At the time, then Farming Minister Jim Paice told the industry that he would regulate dairy contracts using the EU Commission’s 'dairy package' contained in the Common Market Organisation Regulation (CMO) unless the industry got together to sort contracts out without government intervention. At the time, the NFU felt that regulation under the CMO would not be the best way forward for dairy farmers, so we worked hard on and supported the VCOP.
Six years on, it's clear that while some buyers have made great strides towards fairer contracts, there is still plenty of bad practice out there amongst other buyers. The dairy market crashes over the last few years have shown just how quickly buyers will use contracts to their advantage to maintain their margins. Farmers have been on the receiving end of sharp practices which have cut their businesses to the bone.
It’s clear to the NFU that the VCOP has not created significant lasting change. And so now we have no choice but to call for the regulation of dairy contracts. We can’t go on with farmers shouldering all of the risk and buyers chopping and changing contract terms whenever it suits them.
What should regulation of dairy contracts look like?
We’re expecting that Defra will shortly consult on regulating contracts under the CMO. As most in the industry will know, the CMO provisions relating to dairy contracts are not especially inspiring at first glance; they read as prescriptive and inflexible.
But we think it’s possible for Defra to use the provisions of the CMO in a much more positive and flexible way. We think the CMO can be used as a framework, with clauses sitting below it that deliver fair and equitable contract terms. If we get the framework right at this stage, then post-Brexit we can bolt on other provisions that are needed in terms of regulating dairy contracts but which don’t fit under the current CMO framework.
So, the NFU does support the regulation of dairy contracts, but in a flexible way using the CMO provisions as a framework not a prescriptive list of what a contract should say. We’re looking at what other EU Member States have been doing as well, as many have chosen to use the CMO to regulate contracts.
When the Defra consultation launches, the NFU will talk to dairy members to get their views on how the NFU should respond. We think Defra will set a short consultation period, but we’ll try to talk to as many NFU members as we can in that time frame.
NFU dairy board chairman Michael Oakes said:
“Dairy farmers have shouldered the burden of risk in the dairy market for too long. We gave the VCOP a good shot but it’s clear that some buyers just can’t be trusted to deliver fair contract terms, and they continue to use and abuse farmers as a tool to manage their own business risk.
“So we have no choice but to call for the regulation of dairy contracts. We want to see a flexible and innovative regulation that delivers fair terms for farmers and an equitable balancing of risk between farmers and buyers. We’ve got some great ideas about what we think can work for the industry and we’ll be talking to NFU members to get their feedback.
“As we leave the EU, the UK dairy market needs to be commercially focused, innovative and competitive. We’re not going to get a properly operating dairy market while buyers live in the dark ages using unfair contracts to manage risk. It’s time for buyers to look to the future, operate as proper commercial businesses and deal with farmers fairly. That’s all we’ve ever wanted on dairy contracts – fair terms.”