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More details of UK dairy code of practice emerge

04 January 2013

In October 2012, dairy industry press sources released further details of the UK dairy code of practice. The voluntary code includes:

  • a requirement to give 30 days’ notice of change to a farmer's price or other contractual terms;
  • a provision allowing farmers to terminate contracts with 1 month’s notice when buyers change a farmer’s price or other contractual terms;
  • encouragement for processors to engage with producers via democratically accountable and representative producer groups;
  • provisions allowing producers to supply alternative buyers for additional volumes if they wish to expand production, and the contracted buyer refuses to take these additional volumes.

It has been agreed to review the operation of the code after 12 months. The UK government will use this review in deciding on how to implement the EU milk package.

The release of details of the UK code coincided with the entry into force of the EU’s ‘Milk Package’. EU Agriculture Commissioner Dacian Cioloş stressed how important it was that producers now ‘take advantage of this new regulatory framework to get better organized and thus to carry real clout in the food chain’.

The EU package ‘provides for written contracts between milk producers and processors and for the possibility to negotiate contract terms collectively via producer organizations. It also sets out new specific EU rules for inter-branch [interprofessional] organizations, allowing actors in the dairy supply chain to dialogue and carry out certain activities.’ In addition, the package includes ‘a series of transparency-enhancing measures’. The Milk Package is to apply until mid 2020, with the EC reporting on its implementation in 2014 and 2018. The reporting will focus on ‘the effect of these measures on milk producers and milk production in disadvantaged regions’.

In October, the discount retailer Aldi announced that it would increase the prices it pays for milk to support suppliers in paying more to farmers.

Press reports from Bord Bia, the Irish Food Board, indicated that Spanish milk producers remain under pressure from high input costs, with this contributing to a 6% under-utilisation of Spain’s national milk quota of 6.36 million tonnes. National milk demand in Spain is equivalent to 9.5 million tonnes, while it imports ‘400,000t of bulk liquid milk (mainly French), [and] 150,000t of powdered milk, with the rest consisting of imports of cheeses (mainly German)’.

The report notes that demand in Spain for cheese is growing strongly (+2.2% in 2011), as is demand for enriched and functional dairy products. It adds that ‘Spain has a lower than average farm gate milk price at less than 30c/litre, and probably one of the most expensive production systems, with a daily ration cost of €7/cow, due to strong reliance on cereal based feeds’, prices of which have been rising sharply and now represent ‘more than 67% of production costs’. The report observes that Spanish retailers are using milk as a loss leader to attract customers.

Editorial comment

Contrasting trends in the UK and Spanish dairy sectors would appear to highlight the importance of taking up Agriculture Commissioner Cioloş’ call for dairy producers to ‘take advantage of this new regulatory framework to get better organized and thus to carry real clout in the food chain’. It seems unlikely that the timing of the announcement of the details of the UK code of practice and of Aldi’s new pricing policy was a coincidence. In the UK, farmer mobilisation and public campaigning, as well as the prospect of formal regulation of milk sector relations, appear to have stimulated intensified dialogue along the supply chain and greater sensitivity to farmers’ pricing concerns. This has of course been assisted by increases in global dairy product prices.

From an ACP perspective, the experience of strengthening the public policy framework with a view to encouraging improved dialogue along supply chains that are characterised by considerable power inequalities, would appear to be relevant across a growing number of sectors, not just the dairy sector. In certain ACP regions, a strengthening of the regulatory framework for the import of skimmed-milk powders could potentially play a role in promoting improved dialogue between milk producers and dairy processors to the benefit of the long-term structural development of the local dairy sector.


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