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National moves to strengthen functioning of UK dairy supply chains

28 October 2012

According to press reports, at the end of July 2012, following a sustained lobbying campaign by farmers’ organisations, UK dairies withdrew proposals for further milk price cuts. The last to withdraw the proposed price cut was Robert Wiseman Dairies, which followed similar steps by First Milk, Dairy Crest and Arla. However, the milk price cut which occurred in June 2012 remains in place, despite a 3.5% recovery in the ‘globalDairyTrade’ index at the end of July 2012.

In addition, major multiple retailers such as the Co-op, Morrisons and Asda have now all agreed to ‘pay their farmers a price that covers their costs of production’. The Co-op, for example, ‘has announced it will pay an increased premium of 2.57ppl (pence per litre) with immediate effect, rising to 4.27ppl from 1 August. This will increase the Co-operative’s farmer milk price to 29ppl with immediate effect.’

These developments followed an agreement concluded on 23 July on the principles of a ‘voluntary code of practice that will oversee the relationship between farmers and milk processors’. According to press reports, ‘the Code means that in future, contracts between farmers and dairy processors will be freely negotiated, fairer and more transparent.’

Under the code of practice, contracts with individual farmers will include:

  • a commitment to ‘maintain prices within mutually agreed parameters’;
  • a commitment to dialogue between processors, farmers and their representatives;
  • a stipulation of the specific conditions under which purchasers may use their discretion in setting farm-gate milk prices;
  • a requirement to give at least 30 days’ notice of any price changes;
  • a ban on retrospective price changes;
  • the granting of the right of milk producers to exit a contract with 3 months’ notice;
  • the granting of rights to farmers ‘to supply more than one processor where their primary milk buyer seeks to cap their production’;
  • ‘the right to automatic contractual release for producers from insolvent purchasers’.

This is seen as a first step in achieving ‘a longer-term sustainable milk price for all dairy farmers’. NFU President Peter Kendall has stressed that the code provides ‘[the] architecture we need to make sure that we don’t end up with the same dysfunctional markets’.

The UK government sees stronger producer organisations as critical in addressing current imbalances in milk supply chains, and has initiated bilateral talks with individual retailers ‘about increasing dairy industry sustainability through greater sourcing and promotion of British dairy products’. This move needs to be seen against the background of recent takeovers and corporate mergers of UK dairies by German and Danish dairy companies.

In Spain, meanwhile, 12 dairy unions have grouped together ‘to work with the industry and defend the interests of Spanish milk producers’, by addressing issues of low prices and rising input costs. This needs to be seen against the background of escalating farm closures in certain regions of Spain (notably Galicia), where milk prices have been 2 to 3 euro cents lower than the Spanish average. 

Editorial comment

Within the framework of the EU policy on strengthening the functioning of supply chains, the main developments are now taking place at the national level. Many of the elements in the UK voluntary code of practice draw on proposals initially tabled by French farmers’ organisations, although French farmers’ organisations placed greater emphasis on collective bargaining with processors (by farmers transferring their right to negotiate to a designated farmers’ organisation) and securing government approval of the proposed contracts to make them mandatory.

Elements of this evolving policy framework potentially hold lessons for ACP producers, particularly in establishing a transparent framework for contractual negotiations between individual farmers and large processors. The current experience in the UK and Spain also highlights the importance of strong producer organisations in assisting farmers in contract negotiations. 


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