Climate of fear exists in milk sector, claims NFU

A CLIMATE of fear exists in Britain's milk industry, with milk buyers being forced to sign confidentiality agreements so that no details of negotiations with retailers can be disclosed, a new study from the National Farmers' Union claims.

The union's Great Milk Robbery investigation into the UK dairy industry has said that the supply chain is being "kept dangerously in the dark with no milk buyer attempting to claim that farmers were getting their fair share of market returns".

Under questioning from union officials, buyers said that the price farmers received for their milk was "competitive" despite the total revenue from the manufacture of dairy commodities in 2010 being worth 322.7m more than the same period last year.

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The figure is the equivalent to 3.1p per litre but the average milk prices have increased by just 1.4ppl in the same period.

The information comes from a series of questions posed to the country's 10 major milk buyers and retailers by NFU president Peter Kendall, in which he asked why farmers are missing out on their fair share of millions of pounds in additional revenue.

"Many of the milk buyers responded at great length and I would like to thank them for their candidness and engagement," said Mr Kendall. "The answers make for interesting reading, not just because of what they do tell us, but in some cases, because of what they don't, or perhaps can't.

"I asked milk buyers if retailers were putting them under unfair pressure in negotiations. The one answer they clearly wanted to give me but couldn't was yes. I believe retailers have created a climate of fear, forcing milk buyers to sign confidentiality agreements so that no details of the negotiation can be disclosed. The balance from healthy competition into ruthless and erratic negotiations has been tipped. Worse still, this is the money that could have been returned to dairy farmers but is instead funding this situation.

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"These antics are an affront to hardworking dairy farmers and the NFU should not be alone in criticising this situation as it affects shareholders, consumers and suppliers alike."

Mr Kendall said he felt the price stalemate in the liquid market will be difficult to break unless milk buyers "stop tearing strips off each other to win business".

He said that milk buyers were still operating under old market strategies having failed to move with the times following the large scale changes to the dairy market since 2007, a fact which Mr Kendall said "isn't good enough".

"The dairy processing and manufacturing sector needs an urgent overhaul," he said. "Surely some of this should be looked at by Dairy UK? As the processors' trade association, it should be focused on its own sector, addressing this obvious market failure and showing leadership in reshaping our manufacturing strategy so that it's fit for purpose."

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The publication of the report came in the same week that the Co-operative Group announced that it will move to a dedicated milk supply scheme from August next year when its existing contracts expire.

The group is now finalising its plans with milk processors which bosses say will result in up to 350 British dairy farmers receiving a premium for supplying around 360m litres of milk to more than 4,000 Co-operative food stores from August onwards.

Tim Hurrell, managing director of The Co-operative Group's food business, said: "Under our supply model, which is still evolving, we will recruit a pool of farmers and, in partnership with our processors, we will develop long-term, transparent relationships. The foundation for this will be our own food ethical policy and the DEFRA 'milk roadmap,' with the focus on animal welfare, environmental stewardship and carbon footprint reduction."

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