NFU comment: Time to re-focus on dairy contracts

Seeing the news last week that Australia is set to bring in new legislation to tackle unfair contracts '“ something that could well help a dairy sector that like ours is under intense price pressure '“ and I am forced to reflect on the current situation here.
Paul Tompkins is a North East representative on the NFU national Dairy BoardPaul Tompkins is a North East representative on the NFU national Dairy Board
Paul Tompkins is a North East representative on the NFU national Dairy Board

We are now four years on from the launch of the voluntary Dairy Industry Code of Best Practice on Contractual Relationships – or voluntary code for short. The code was designed to achieve fairer treatment for dairy farmers and has been adopted by some of the country’s biggest processors including Dairy Crest and Muller. But while it covers most of the milk produced in the UK, it does not cover the majority of farmers – with so many still supplying into smaller processors.

Before the launch of the code farmers faced many unfair practices including retrospective price cuts, unilateral changes to contract terms with no notice and even clauses requiring them to continue supplying when the company was insolvent!

Hide Ad
Hide Ad

Since the launch, we have seen a number of positive moves by processors, but contractual problems still remain, with many unfairly weighted against the farmer. Just recently we have had issues with ‘fixed term’ contracts that are new to the mix. Unfamiliar with this approach, some farmers signed up without realising that the contract ran out after 12 months and then found themselves without a home for their milk at a time when prices were rock bottom and no one was taking on new suppliers.

Other issues include ‘exclusivity’ and very restricted notice periods that leave farmers unable to take advantage of a rising market.

It is certainly interesting to see the Aussies grasping the nettle and bringing in legislation to give contractual protection to small businesses. The new unfair contracts law comes into force in November and will give the courts the power to strike out any unfair contract terms.

Our own dairy farmers need to take care when considering a new contract. Over recent months we have seen milk production falling, this has tightened supply and processors are once again beginning to recruit new suppliers.

Hide Ad
Hide Ad

Reviewing the impact of the voluntary code, it’s easy to be critical and say it did nothing to prevent the recent crash in farmgate prices. But we must remember the code was never about price – it was about fairness, openness and having contractual mechanics in place that give farmers some certainty and some flexibility.

The code was agreed at a time when the government was talking about the possibility of regulation as part of the EU’s package of emergency dairy measures. As we now look ahead to a future outside the EU, we must focus once again on the best way of achieving a fair supply chain for our small family farming businesses.

One answer has to be dairy farmers working together and being proactive when it comes to checking the content of any contracts offered to them.

The NFU already offers initial advice for farmers on contracts but we are looking to do more and will be launching a ‘top tips’ guide at the forthcoming UK Dairy Day to highlight good practice and potential ‘bear traps’ to watch out for. Working with our legal team, we’re asking the question whether the current framework is delivering fairer and better contracts for dairy farmers, but something tells me there is still some way to go.

Paul Tompkins is a North East representative on the NFU national Dairy Board.

Related topics: