The government has launched the consultation after looking at the issue for two years, since a review of supply chain fairness by the Grocery Code Adjudicator found an uneven distribution of power within the dairy supply chain.

Evidence gathered during the Groceries Code Adjudicator Call for Evidence in 2016 highlighted how unfair practices have persisted in the dairy industry. This consultation will explore whether regulations could be introduced to ensure farmers are treated fairly.

This evidence suggests unfairness in the supply chain has sometimes been caused by milk buyers having the power to set and modify the milk price in a contract, often with little notification. This leads to uncertainty and pricing that can be unfair to dairy farming businesses.

Proposals include an option to introduce a mandatory pricing mechanism within all contracts between dairy farmers and processors.

This would ensure the price paid for milk produced by the farmer is formally agreed within the contract, and that contract negotiations take place in a clear and transparent way.

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NFU dairy board chairman Michael Oakes ( pictured) 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.

“During the Covid-19 pandemic, we have seen a significant number of cases where farmers have borne a disproportionate amount of the cost in the supply chain, as the risks within the market place were shunted down to farm level at an alarming pace.

“As we leave the EU, the UK dairy market needs to be commercially focused, innovative and resilient in order to tackle the challenges and opportunities that the change will bring. At times when the market is under pressure, milk buyers often have the discretion to change contracts 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. At the moment, there is no incentive for a milk buyer to look up the supply chain to manage their risk, as they know much of it can be managed by pushing the risk down to a farm level.  

“The NFU has been working with all the UK farming unions to improve dairy contracts, and we will be consulting widely with our members through our website and in virtual meetings to get a range of views that will form the basis of our submission to government. Farmers can either contact us directly from today or respond to the consultation individually. This is a once in a lifetime opportunity to build a better future for the UK dairy sector.”

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.”