Proposals include an option to introduce a mandatory pricing mechanism within all contracts between dairy farmers and processors.
In April, dairy farmers were hit heavily in the coronavirus lockdown, prompting the National Farmers Union (NFU) to seek a crisis meeting to save the dairy sector.
It was feared that the coronavirus pandemic could push the dairy industry towards a “national catastrophe”.
This saw the Government temporarily relax competition rules to allow the dairy industry to work together in the wake of the coronavirus pandemic.
The new consultation will see the UK Government work with the devolved administrations in Scotland, Wales and Northern Ireland, seeking views from dairy farmers and processors across the whole country on whether future regulation could be used to strengthen fairness and transparency.
The consultation is seeking to end any unfair practices across the UK’s dairy sector and will explore whether regulations could be introduced to ensure farmers are treated fairly.
Evidence of unfair practices
It said that evidence, gathered following a Groceries Code Adjudicator call in 2016, highlighted how unfair practices had persisted in the dairy industry.
This suggested unfairness in the supply chain had sometimes been caused by milk buyers having the power to set and modify the milk price in a contract, often with little notification. This led to uncertainty and pricing that could be unfair to dairy farming businesses.
Farming minister Victoria Prentis said: “It is absolutely vital that our dairy farmers are paid fairly for their high-quality produce and I am committed to cracking down on any unfair practices within the UK dairy industry.
“I welcome all views to this consultation to determine how best we can guarantee fairness across the supply chain. This will help the industry continue its vital role in feeding the nation and ensure our dairy farmers can continue to be competitive in the future.”
Scottish rural economy secretary Fergus Ewing agreed: “Milk prices can vary and are often changed at short notice for a variety of reasons, which can cause major issues for farmers in Scotland and across the UK.
“It is vital that we look at any opportunity to address any potential imbalance that exists between buyers and producers and bring our supply chains closer together.”
Welsh Government rural affairs minister Lesley Griffiths and Northern Ireland agriculture, environment and rural affairs minister Edwin Poots also backed the move, calling for fairer prices for farmers.
At the beginning of the coronavirus pandemic, industry body Dairy UK said that dairy businesses and farmers would need more support from the Government.
The news of the long-awaited Government consultation was welcomed in the industry, with the National Farmers Union (NFU) urging dairy farmers to engage in the process.
NFU dairy board chairman Michael Oakes said: “Dairy farmers want to place themselves in a more sustainable position for the long term, and dairy contracts are at the heart of this. We want to see flexible and innovative regulation that not only delivers fair terms for farmers but an equitable balancing of risk between farmers and buyers.
“At times when the market is under pressure, milk buyers often have the discretion to change contract terms and pricing mechanisms, even to introduce retrospective penalties and price cuts without negotiation. A headline milk price is of no value whatsoever if a buyer has the sole right to change it at will. We need to be able to share risk along the supply chain much more effectively than we currently do.”
Dr Judith Bryans, chief executive of Dairy UK, said: “Ultimately the best outcome for both processors and farmers will be a decision based on the totality of the evidence provided, and not one based only on emotion.
“While ready and keen to respond, we’re mindful that the sector is still working its way through the ongoing COVID-19 pandemic; that, as a nation, we continue to move quickly towards the end of the Brexit transition period; and that we will see a step change in agricultural and environmental policies not seen for generations. There is already a lot on the plates of food businesses, to which regulation of contracts could significantly add, if introduced.
“Nonetheless, we are looking forward to having constructive and evidence-based discussions with our members, our colleagues within farming representative organisations and Government as we respond to this consultation.”