Raw milk contracts for breakfast

A recent briefing hosted by Dairy UK in London followed up on the UK government’s stated intention to implement compulsory raw milk contracts.

If the Defra minister George Eustance’s plans go ahead, the results could see “unintended consequences, with the market and farmers less able to respond to unforeseen events,” Paul Vernon, Dairy UK chairman and chief executive of Glanbia Cheese in the UK warns. “So far, we are not happy with the government responses to date.”

The government has been communicating with the dairy sector and intends to open a consultation on the prospect of regulations, with the idea that it would be about how to implement the requirements of the EU Common Markets Organisation (CMO) regulation – but not offer possible additions or alternatives. However, there is no notice on when this should occur. Dairy UK was on hand to voice its disapproval, with several participants being dairy co-operatives and companies.

“There is a misconception that all farmers are calling for this. A few years ago, the industry did call on people to implement different contracts, which has been done, outside the discretion of the CMO,” Dr Judith Bryans, chief executive of Dairy UK and IDF president, notes. “We have discussed this with the NFU and tried to align ourselves, and we see this as bad for the industry – it’s moved on.”

John Dunlop, a director of Dale Farms in Northern Ireland and a farmer, says, “The right price is the market price, and you can’t buck the market. If we get the price wrong at Dale Farms, we could wind up busting the company. We fought for deregulation for years, so I can’t understand why they would want to re-regulate the system through these contracts.” He further notes that he is often out speaking with farmers, and in the last 12 months, not one question has been raised about contracts. “Who is driving this? It’s not our members,” he adds.

Another participant, Robert Craig of First Milk in Scotland, notes that there is a fundamental lack of understanding around the co-operative business model in government. “We work really closely with our farmers – we are a producer organisation that creates obligations, strategies and consequences for our producers.”

David Christensen, a board member of Arla Foods and a farmer as well, also notes that this move is not exactly a timely one, as Brexit is fast bearing down on the whole country, including the dairy industry. “At this time, we have no idea where we’re going to be, and tying ourselves and taking away flexibility in the market is unhelpful and counter-productive.” However, he notes that the government move is a “well-meaning one.”

Vernon further points out that the while some behaviour by purchasers of milk in the past was undesirable, there has been a step change in contracts over the past few years, with the introduction of futures markets as well. “There has been a lot of innovation over the past few years, and a return to price controls would undermine a lot of progress made,” he states.

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