Although cooperatives and processors have offered a raft of price increases for dairy farmers this month, industry representatives say the position of UK dairy farmers remains invidious. Though the price increases recognise the increasing value of the dairy sector, in the time it has taken for the positive results to trickle back down the supply chain production costs have soared to all-time highs. image expired

The NFU has said that paying farmers below the cost of production for their milk is jeopardising the future of the industry and have raised concerns about Tesco’s widely publicised price-cutting venture. Tesco will slash the price of milk amongst other fresh produce, which many in the industry fear will further affect farmers’ margins and possibly start a supermarket price war, resulting in a race to the bottom; a similar situation to that faced by Australian producers at the beginning of the year.

Speaking ahead of the South-West Dairy Event, held today in Bath, Mansell Raymond, head of the NFU’s dairy board, said the industry was “At a cross-roads.” Whilst the present value of milk has been acknowledged by all in the supply chain, meaningful price increases for farmers have yet to materialise; many farmers therefore support the introduction of more flexible contracts aimed at making the supply chain more equitable once EU milk quotas end in 2015.

2015 may seem a long way off for British milk producers, who are still amongst the worst paid in Europe, receiving on average 27 pence per litre for their product. This is four pence less than the average of 31ppl for the EU-27, and is in spite of milk’s increased profitability and the latest NFU data, which shows the UK’s milk output in August was the highest recorded in six years.

Mr Raymond said, "The news of price rises has been welcomed by farmers whose own costs of production have increased significantly and look set to be at all time high levels for the winter of 2011/12. However, while headline price rises seem significant changes to pricing schedules by some companies mean many farmers will fail to realise headline prices unless they hit new and existing top bands for quality or constituents.

"Our industry is at a crossroads. The European Commission, European Parliament, Defra Minister Jim Paice and an Efra Select Committee all say contracts need to change. We need to give farmers the confidence to invest in the future and, in order for this to happen, meaningful price rises need to come through this autumn. I fear that for many producers the net increase will be a disappointment."

Farmers locked into unfair contracts

He said fundamental change is needed within the supply chain and took a swipe at current unfair practices, "My message to processors is farmers deserve balanced contracts and now is the time to offer them. If ever there was a clear call to action to dairy farmers it is this. The NFU has fought long and hard for improvements to milk supply contracts to redress the balance of power in favour of farmers.

"It simply isn’t acceptable for key conditions like a farmer’s pricing schedule to be changed, without due consultation and agreement, or without releasing them from the notice period of the contract. If I sign any other contract with tie in periods I expect the key terms in that contract to last at least as long as my notice period. That gives equal protection to buyer and seller.

"As things stand, farmers have no means of protest and cannot go to other buyers when their own makes adverse changes to key contractual terms and conditions. This practice is known as ‘buyers’ discretion’, I call it unfair."

The union has made a point of supporting widespread roll-out of more equitable contracts, which are more in touch with the retail market and input costs at dairy and livestock events this year. Paul Griffith, chairman of the NFU’s South-West Regional Dairy Board, said, "We must see a shift away from buyers having the discretion to make fundamental changes to business terms, such as price and pricing schedules, without proper consultation or transparency."

The union will send a delegation of dairy farmers to Westminster next month to discuss the issue with MPs and one to Brussels on fact-finding tour to examine the EU Commission Dairy Package.