Bach calls for extended milk contracts to stabilise prices and build trust in market

Longer-term milk supply contracts could help tackle yo-yo pricing and even out supply and demand in a sector plagued by instability and mistrust, the food and farming minister has claimed.

At the Dairy Event trade fair at Stoneleigh Park, Warwickshire last month, Lord Bach said it was “clear that the kind of contracts which predominate in the milk sector are part of its problem and, if changed, could contribute to a solution”

Echoing recent critical reports on the market by the Milk Development Council and the National Farmers’ Union, he said that short-term contracts “fuel volatility in farm-gate prices, reduce scope for differentiation, produce a mismatch between supply and demand and hinder planning in a sector that must be able to take a longer view”

His comments came after Arla Foods announced a 0.35p/l cut in the price it pays for milk from September 10. That followed a 0.35p/l cut by Robert Wiseman Dairies.

Bach claimed that longer-term contracts would provide stability and reassurance, help farmers plan and help processors become more customer focused. Both groups also needed to raise efficiency and benchmark their performance against domestic and overseas rivals, said Bach. “Comparatively few producers genuinely understand the costs of production; they need information, advice and outreach. There is a large gap in farm-level efficiency.”

Many processing plants were inefficient and suffered from under-investment, he claimed: “The sector is still too focused on the production of commodities rather than value-added or branded products and there are issues of overcapacity in some areas.”

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