High Level Group urges EU to address dairy power imbalance

The High Level Group on Milk (HLG) was formed in October after farm gate prices reached historic lows, and now as prices recover, it has presented seven key recommendations on how the sector should be reformed.

Many of these proposals seek to correct an imbalance in the bargaining power between farmers and processors that the HLG said is caused by a low concentration of supply.

The report said: “This imbalance can lead to unfair commercial practices, in particular farmers not knowing what price they will receive for their milk when delivered.”​

Formal contracts ​

At the top of the list of proposals is therefore a call for enhanced formal written contracts between producers and processors. The HLG urged the Commission to encourage the use of contracts that set out in advance terms including price, volume, timing, and duration. It said member states could make the use of such contracts compulsory.

The European Dairy Association (EDA), which represents processors, disagreed with this last point, claiming that contract guidance would be helpful but that making a single set of contracts mandatory would be inappropriate given that breadth of different organisational set-ups and contractual relationships.

EDA secretary general, Joop Kleibeuker, told DairyReporter.com that giving member states the opportunity to make written contracts compulsory is a regressive step that moves away from the common market.

Bargaining power ​

Another key proposal aiming to correct a mismatch in power relates to the bargaining power of producers. The HLG invited the Commission to consider a legislative proposal to allow farmer organisations to negotiate jointly their contract terms with a dairy.

This was another controversial point. The EDA warned that “producer organisations that only act as selling agents should not be granted a block exemption from competition rules.”​

Giving its overall assessment of the HLG report, the EDA said it supported many of the recommendations, especially those related to innovation and the role of market measures and futures in maintaining price stability.

Processor reaction ​

However, the EDA said extreme price volatility, including excessively high prices, should be investigated further and a greater emphasis should be placed the dairy sector as a whole. Kleibeuker said: “We should be thinking about how to grow the whole pie before deciding how to divide it up.”​

Dacian Ciolos, EU Commissioner for Agriculture and Rural Development, promised to study the HLG report in detail with a view to presenting legislative proposals before the end of the year. He said: “My main aim is that we consider medium to long term measures which address the lessons learned from last year's crisis aimed at better structuring the sector as a whole.”​