Dairy contracts consultation – all you need to know

08 September 2020

A picture of cows in a milking palour

The government's consultation on contractual relationships in the UK dairy industry was in response to concerns raised that primary producers, including dairy farmers, tend to occupy positions of relative market weakness in the food supply chain.

15 September 2020

NFU calls for flexible and innovative regulation of dairy contracts

Flexible and innovative regulation of dairy contracts will help ensure the sector's sustainability and improve the way dairy farmers and processors work together, the NFU has said.

The NFU has submitted its response to the landmark government consultation on the future of dairy contracts that has presented the dairy industry with its most important conversation in a quarter of a century.

The government launched the consultation after looking at the issue for two years when a review by the Grocery Code Adjudicator found an uneven distribution of power within the dairy supply chain.

NFU dairy board chairman Michael Oakes said: “The NFU has been consulting its dairy farmer members widely over the past few years to help develop our consultation response. The consensus is that it is time to change and for the better; to change the structure of the dairy industry so it is more sustainable, progressive and improves the way farmers and processors work together.

“For far too long, dairy farmers have borne the brunt of contracts that are weighted heavily in favour of the milk buyer who can change contract terms and pricing mechanisms, and even introduce retrospective penalties and price cuts without negotiation.

“We want to see freely negotiated and flexible contracts which are tailored to the needs of both buyers and dairy farmers. Fairer contracts should increase transparency and trust, that benefits both sides, and mean that any changes need to be mutually agreed.”

NFU members: Read the NFU's summary reponse to the dairy contracts consultation here.

Key areas of the NFU's response are:

• Outlining changes to the system of ‘buyer’s discretion’ which is archaic and used very rarely in other countries or sectors of agriculture. A farmer should have transparency and influence over the mechanism which sets their price rather than it being dictated to them.

• Giving farmers the option to supply more than one milk buyer. For many farmers this will not be of interest, but for others it could become a valuable tool. Dairy farmers should be given that choice.

• Our views on how the regulation should be policed. We would like to see government consider how a structure such as the Grocery Code Adjudicator could be used which is independent and effective. The regulation needs to be backed up with strong powers, to ensure compliance and truly drive change.

Mr Oakes added: “The consultation process with our dairy farmer members and industry has raised a number of concerns which we also address in great detail as part of our consultation response.

“We recognise the good practice and collaboration which already occurs in the British dairy sector. We have spoken to a number of co-operative businesses to understand their concerns and ensure that regulation does not create any unintended consequences.

"There are many private and PLC dairy companies who operate well in partnership with their dairy farmers. We feel very strongly that regulation should only help to improve the situation of those who share our principles, not adversely impact them.

“Post-Brexit, the UK dairy market needs to be commercially focused, innovative and resilient in order to tackle the challenges and opportunities that leaving the EU will bring. We believe this vital consultation can help the industry find a successful way forward.”

15 September 2020

Consultation closes

This consultation closed on 15 September 2020. 

15 July 2020

Five key points to dairy contact reform

For most dairy farmers, their contract to sell milk is the single most important piece of paper they have for their business and shapes the relationship with their milk buyer. Unfair milk contracts have been an area of concern for the dairy sector for many years. A significant proportion of the calls that the farming unions receive are from farmers with issues which ultimately relate back to their milk contract.

In 2018, following an industry wide review of the Groceries Code Adjudicator, it found that there is an uneven distribution of power within the dairy sector. This led Defra and the Devolved Administrations to announce that they would launch a consultation on contract regulation aimed at improving fairness in the dairy supply chain.

The four UK farming unions (NFU, NFU Cymru, NFU Scotland and Ulster Farmers’ Union) are supportive of this approach and will be providing a response to the consultation. We have developed ideas over the past few years in consultation with our members which will be further enhanced over the consultation period. This includes the development of five key points for contract reform for a more transparent, fair and well-functioning dairy supply chain. 

NFU members can download the five key points for a contracts reform here.

24 June 2020

Consultation opens for responses

The NFU is urging dairy farmers to engage with the long-awaited government consultation on dairy contracts and speak up for a more effective dairy supply chain, with fairer terms for farmers.

The government has launched the consultation after looking at the issue for two years, since a review of supply chain fairness by the Grocery Code Adjudicator found an uneven distribution of power within the dairy supply chain.

The consultation launched on 24 June 2020.

NFU dairy board chairman Michael Oakes said:

“Dairy farmers want to place themselves in a more sustainable position for the long term and dairy contracts are at the heart of this. 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.

“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 market place were shunted down to farm level at an alarming pace.

“As we leave the EU, the UK dairy market needs to be commercially focused, innovative and resilient in order to tackle the challenges and opportunities that the change will bring. At times when the market is under pressure, milk buyers often have the discretion to change contracts terms and pricing mechanisms, even to introduce retrospective penalties and price cuts without negotiation. A headline milk price is of no value whatsoever if a buyer has the sole right to change it at will. We need to be able to share risk along the supply chain much more effectively than we currently do. 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.

“The NFU has been working with all the UK farming unions to improve dairy contracts, and we will be consulting widely with our members through our website and in virtual meetings to get a range of views that will form the basis of our submission to government. Farmers can either contact us directly from today or respond to the consultation individually. This is a once in a lifetime opportunity to build a better future for the UK dairy sector.”

How to have your say:

The consultation will remain open for responses until midnight on 15 September 2020. The NFU, alongside UK farming unions have been working closely together to prepare for this long-awaited consultation, which we believe is a golden opportunity for the future of the UK dairy sector. The NFU dairy team and UK farming union representatives will be engaging with members over the coming months though a series of virtual events, in national and regional meetings and webinars.

Dairy contracts regulation: Your questions answered

The NFU's advisers have put together this Q&A as a guide and an informative tool aimed at answering key questions and setting out the NFUs position on Defra’s consultation on dairy contracts reform. Click here to open the Q&A.

A step-by-step guide to the consultation questions

This step-by-step guide to the questions in the consultation provides context on the background to the questions and the key issues facing dairy farmers with their contracts. It explains each question in more detail and gives examples to help you decide on your answers. It also includes an outline NFU view on each question, although the NFU is consulting with members to develop its position further throughout the process. Click here to download the step-by-step guide.

Read more about the consultation on gov.uk.

Ask us a question about this page

Once you have submitted your query our NFU CallFirst will contact you and, if appropriate, your question will be passed on to one of our policy teams.

By completing the form with your details on this page, you are agreeing to have this information sent to the NFU for the purposes of contacting you regarding your enquiry. Please take time to read the NFU’s Privacy Policy if you require further information.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Summary

  • The NFU, alongside the UK farming unions, worked closely on its response to the consultation.
  • We produced a five point plan for contracts reform.
  • This consultation closed on 15 September 2020.