Having experienced a relatively stable period when it comes to farmgate milk prices, some dairy producers are once again facing steep price cuts as a number of processors announce big drops, pointing to high domestic milk deliveries, an uptick in volumes globally and a drop in commodity prices, with bulk cream prices taking a dive in the past few weeks.
This has, understandably, created concern among dairy producers, many of whom are coming out of a tough, dry summer which led to more feed being brought in, facing tough decisions around the proposed family farm tax and looking at significant investment needs linked to the cost of regulatory compliance.
However, this will be the first time a significant drop in milk prices happens under the oversight of the new Agricultural Supply Chain Adjudicator and the new fair dealing regulations (FDOM).
So, what’s different?
The regulations were never aimed at setting the market price or preventing fluctuations in price. Only the market should do that.
What we do expect them to achieve however, is an increase in transparency, trust and accountability across the supply chain. Producers should know what factors influence their milk price and be able to anticipate how the price will move.
This is therefore the first real “test” of the FDOM regulations and how milk buyers are complying with them.
But the regulations are only effective if producers properly engage with them.
Every contract between a producer and their first purchaser should contain a clause which sets out how suppliers can query their milk price and ask for justification of a change, even when ‘business-sensitive’ factors are involved.
If a response is not received within seven days of such a request, or a producer does not believe the response demonstrates enough ‘due regard’ to the factors set out in their contract, they may contact the new adjudicator’s office. This can be done in confidence or as a formal complaint.
A model for future regulations
There are bound to be questions over the role of the new adjudicator and the new regulations in a changing market, and we know that dairy is the “test case” when it comes to fair dealing legislation and the powers laid out under Section 29 of the 2020 Agricultural Act.
Other sectors are currently writing or awaiting the implementation of their own fair dealing regulations.
It is down to all producers, working either directly with their buyer or via producer representatives, a co-operative structure or a dairy producer organisation to make sure they work and are fit for purpose.
The NFU will continue to review dairy contracts to ensure they are compliant and highlight behaviour that goes against the intentions of the new regulations to the adjudicator. A review of the regulations, and how they are working for the industry, will take place before 2029.
