New EU dairy package regulations, which were voted through the European Parliament today, will give dairy farmers more bargaining power after milk quotas come to an end in 2015, according to the parliament.

The European Parliament said the new legislation will enable farmers' organisations to negotiate raw milk prices on behalf of their farmer member without risk of being penalised under EU competition law. Under the new laws, member States will be able to decide individually on whether or not they impose milk contracts on farmers and processors. MEPs also established rules on how contracts should be drawn up; if made compulsory, the contracts will have to be drawn up before delivery and must state the price, payments periods and arrangements for collecting and delivering the milk.

Member States may also stipulate a minimum duration of at least six months for these contracts; MEPs who have negotiated the new legislation strongly recommended that member states introduce a minimum duration. Indications show the UK government is unlikely to establish contracts.

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The parliament also included provisos to the rules allowing POs to negotiate with processors, which it said would ensure fair competition. The volume of raw milk covered by negotiations between producers' organisation and processors or collectors may not exceed 3.5 per cent of total EU output. Nor may it exceed either 33per cent of overall national production or 45 per cent in states where total production is below 500,000 tonnes. There may be further amendments to the law based on the results of two reports on dairy farming in less-favoured areas which the parliament has commissioned.

Opinions on new dairy package

The new legislation has polarised opinions. Scottish MEP Alyn Smith said that the new rules, which had initially been promising, had been “watered down”. Mr Smith said that contracts were needed to provide clarity for producers and that failing to establish contracts risks perpetuating an inequitable system.

However, parliamentary rapporteur James Nicholson said, "This legislation will strengthen the bargaining power of dairy farmers. Producer organisations should help farmers to organise themselves better and strengthen their position in the supply chain, especially in Member States where a system of co-operatives is limited or even non-existent, so that they can achieve the best possible price for their milk."

Although the legislations states that milk price in a contract must be pre-arranged and can only vary according to a number of factors, which will benefit UK producers, as prices can currently vary at the discretion of the buyer, the Dairy Package does not guarantee minimum terms in contracts across the European Single Market.

NFU and Copa Cogeca dairyboard chair Mansell Raymond was highly critical of the package’s ability to protect struggling dariy farmers in the UK. Mr Raymond pointed out that aspects of the new legislation go against recommendations made by the European Higher Level Group of experts, for delivering a better functioning market place for milk and dairy products in the EU.

He said, “In the UK, Defra is favouring a voluntary approach to dairy contracts, via a code of practice. The NFU is fully engaged in this process, but the status quo of combining long notice periods with complete buyer’s discretion, with no option for farmers to leave the contract earlier if agreement on price change is not met, is an important line in the sand for the NFU and its members. If the voluntary code doesn’t deliver a more balanced distribution of risk and reward, it is important Defra steps up and implements this legislation in the UK.”

Mr Raymond said current UK contracts, which place farmers at a marked disadvantage, are unsustainable. He produced examples of contracts which stipulate farmers must give 12 or more months’ notice before quitting the contract, yet allow the processor to change the price at will and without notice.

He lamented, “This isn’t a contract it’s exploitation. The commission package establishes rules to address this and we believe no farmer in the UK should be subjected to this type of commercial relationship in the future.” The European Commission’s initial package stated that milk price in a contract should be fixed or vary only according to pre-established market indicators or other factors

In France, farmers are banding together to form cooperatives ahead of the end of quotas, as they feel that only collective action will they be able to use their combined bargaining power to secure fairer deals with large processors and retailers.

Speaking at the Oxford Farming Conference last month, Australian organic dairy farmer and respected agriculturalist Terry Hehir recommended farmers join together to increase their influence and protect their interests from large corporations, which Mr Hehir said would seek to exploit individual farmers.  Mr Hehir said, “Farmer cooperatives are the only logical structure to address the power imbalance as agriculture journeys further down the path of domination [by multinational corporations].”    

The Dairy Package will now go before the European Council, who must endorse it in order for it to come into force.

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