George Eustice, minister for the Department for Environment Food and Rural Affairs (Defra), announced his aim to implement compulsory milk contracts in February to replace the current voluntary contract code. The move was part of the Government’s review of the Groceries Code Adjudicator’s role.
The Government looks set to introduce regulated contracts between farmers and processors under the EU Common Market Organisation Regulation (CMO), which must be done before the proposed Brexit 2020 transition period.
Defra has been working with the devolved administrations on how the regulation could be implemented. It has declared its aim to consult with the industry – not on whether there should be regulation, but on how to implement CMO requirements. The consultation is expected to launch shortly.
In a paper issued at a Dairy UK breakfast summit in London on 23 November, the trade body warned: “Introducing any regulation under the CMO has the potential to reduce flexibility in contracts between farmers and processors in a way that will be detrimental to both.”
It claimed Article 148 of the CMO was largely what made it restrictive, as it required contracts to be based either on fixed prices or a formula.
Volatile milk prices
At the Dairy UK summit, representatives from Arla UK, Crediton Dairy, First Milk, Dale Farm, Dairy Crest and Glanbia Cheese argued milk prices were so volatile, fixed prices would be as likely to disadvantage farmers as to benefit them.
They also said a lack of robust data made formulae difficult and formulae could not account for volatility caused, for example, by weather effects or unstable markets.
Meanwhile, the four UK farming unions have backed the need for regulated contracts. In a joint statement, also issued on 23 November, the dairy farmer representatives of the four unions said: “For too long, dairy farmers have shouldered too much of the risk in the dairy market and, in many cases, have been subject to unfair contract terms and trading practices.”