Dairy contract reform

Defra’s consultation into the regulation of dairy contracts came to an end in September. With the sector still working its way through the impact of the Covid-19 pandemic, the consultation was launched in the summer amid concerns at farmers’ lack of bargaining power with contracts, leaving them bearing the brunt of very last minute cost-cutting by processers and retailers.

The demand for milk and dairy products from stockpiling and disruptive consumer behaviour during Covid-19 changed the landscape for supply and demand, with the food service sectors dropping off greatly, which, in turn, created vulnerability and risk for processors and the supply chain.

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.

Steps were previously taken to mitigate the volatility of the dairy market with the launch in 2012 of the processors’ voluntary code of practice. This was after milk price pressures came to a head, with strong views expressed that dairy farmers were entitled to far better protection.

Whilst the code was seen as a step in the right direction, unfortunately it was not taken up by all processors, with many of the smaller buyers not committing to its principles. It was largely only milk co-operatives that embraced these commitments, leaving many farmers supplying private firms still unprotected.

With the consultation now closed, responses will be analysed and taken into account by all UK administrations in considering the measures necessary to improve contractual practice in the dairy sector. Anticipated new rules to be formulated off the back of the consultation could mean the end of the “buyers discretion” clause in all farmers’ contracts, which allows processors to change the price without a notice period or negotiation.

As we are all aware, the end of the Brexit transition period is fast approaching, which will see a step change in agricultural and environmental policies not seen for generations. Whilst there is a huge amount of uncertainty overall at the future of agriculture in general, it is hoped that changes arising from the consultation will redress the balance in favour of dairy farmers and instil some much needed confidence in this area of the sector at least.

If our specialist agriculture and rural affairs team can help you, as you plan ahead, please contact Bryn Thomas at [email protected] or on 07715 060 321.