New UK dairy contract laws under scrutiny as farming unions ‘alarmed’

British farming unions have sounded the alarm over rowing back hard-fought dairy contract legislation changes designed to make the UK milk supply system fairer.

UK dairy contract laws were recently amended to make pricing terms more transparent for suppliers, allow farmers to challenge prices, and stop contract changes from being made without supplier agreement.

Exclusivity rules were also amended to allow farmers to market excess milk to third parties rather than just their contracted buyer. Until then, there had been no non-exclusive dairy supply agreements in the UK, according to former NFU dairy board chair Michael Oakes.

But food security minister Daniel Zeichner has outlined a proposed amendment to the legislation that could reverse some of the hard-fought clauses within the new legislation, farming unions said.

In a press statement, the NFU, BFU Scotland, Ulster Farmers Union and NFU Cymru explained the potential changes ‘relate to exclusivity and the unintended consequences of the tiered pricing provisions within the regulations’.

“Historically, contracts have allowed milk buyers to have complete discretion over the price paid for milk and exclusivity over all of the milk produced on a dairy farm.

“A cornerstone of the new legislation was designed to sever this control over both price and volume, allowing a dairy farmer access to a non-exclusive agreement enabling them to be able to market some of their milk elsewhere when it is not desired by the primary purchaser.

“We understand government is proposing to change this to allow for a specific interpretation of tiered pricing that encompasses both a price bonus and penalty linked to seasonal milk volumes – this would effectively allow the milk buyer to discount certain litres of a farm’s milk, even where a contract is exclusive.

“The UK farming unions have always believed that the ability for milk buyers to control both price and volumes of milk on a dairy farm should be separated. We cannot see any reason why anyone would object to a farmer being free to market their excess milk to a third party should their primary purchaser be discounting it.

“We share the Food Security Minister's desire to improve fairness in the dairy supply chain, but these proposed changes would act against the best interests of dairy farmers.  That is why we have written to him seeking further clarification and a proposed solution without delay.”

What are the tiered pricing provisions within the legislation?

Tiered pricing relates to pricing that changes depending on the volume of milk supplied. According to the legislation, where a producer has an exclusive agreement with a buyer, tiered pricing cannot be used, i.e. the price to be paid for milk cannot change if milk over a certain volume is supplied.

In the past, buyers could pay a different price for milk supplied over a particular limit while producers were banned from supplying another buyer. The new legislation however removed that prohibition, allowing producers to seek a more competitive price for excess milk outside of their exclusive contract.

The legislation also sets out payment terms and structure related to fixed and variable pricing; for example, purchasers can amend a fixed price paid to their supplier during a contract’s lifetime but both parties must agree the change and amend the contract in writing.

For variable price contracts, contracts must set out how the price is calculated including the factors that determine this and when these apply; and how often the price can be changed. When a new variable price is set out, producers can request a written explanation from the buyer, giving dairy farmers transparency over the exact reason why their milk price is being changed.