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EU Milk Group Offers Opportunity for Dairy Sector

11 November 2009
National Farmers Union

EU - National Farming Union (NFU) dairy board chairman Gwyn Jones has said that contracts are fundamental to ensuring fairness in the dairy supply chain after the European Commission High Level Group (HLG) on milk met for the second time earlier this week.

Speaking after the meeting, Mr Jones, who is also Vice Chairman of COPA Milk, said: "The creation of a High Level Group by the European Commission provides a unique opportunity to examine the structures and policy interventions that may be required at EU and member state level to provide the foundations on which the dairy sector, and especially dairy farm businesses, can thrive."

"It is significant that the Commission recognises contractual relationships between milk producers and purchasers as a fundamental factor in ensuring fairness in the dairy supply chain. There are three important reasons why many member states would welcome such an investigation. Not least, milk contracts are by far the most important documents that dairy farmers sign as they determine the business relationship between farmers and milk purchasers and they decide the price that farmers are paid for their milk", he continued.

"Second, it is vital that we start considering the role of milk contracts now so that milk producers can prepare for, and are not restricted by, the end of milk quotas in 2015. When milk quotas cease to have relevance in determining milk production, all decisions about the location of production, scale and distribution will be taken by milk buyers through the contracts they offer. While this is likely to ensure milk supply is more market orientated, it will further erode the bargaining power of milk producers and opens up the risk of further abuses of power.

"Thirdly, contracts could play an important role in managing volatility, through, for example, having the option of forward price contracts that would give producers much greater certainty about the price that might be expected at least for a proportion of their production."

Commenting on what outcomes member states wanted to see from the HLG, Mr Jones said: "Contractual relationships, and the very nature of dairy farming, varies hugely between member states. However, there are already some common ambitions for the outcomes of the HLG, particularly with regard to milk contracts. These are to:

  • Bring greater clarity and simplicity to raw milk contracts
  • Create a fairer balance in the rights and obligations between producers and purchasers.
  • Introduce more tailored milk contracts to take account of the diversity of buying and selling situations in the industry.
  • Help producers understand raw milk contracts and suggest ways in which they can be improved.

"This could be achieved by a combination of exchanging best practice between EU member states, developing a code of conduct for milk contracts, and potentially providing a basic legal framework to protect the interests of producers.

"Some member states have already started to discuss what minimum criteria a contract should have, and there is a consensus emerging that all milk contracts should contain certain obligatory conditions such as minimum durations for contracts, the need to specify the price that producers will receive, no retrospective price changes and the need for any changes to a contract (including milk prices) to be agreed mutually by both parties.

"It is right that the Commission is also considering other policy structures such as how to strengthen bargaining power of milk producers; the appropriateness of existing market instruments; the transparency of information to consumers; and innovation and research to make the sector more competitive as milk contracts must not be considered in isolation."

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