May 4, 2011

UK dairy market suffers from inefficiency

Although the dairy market in UK has many competitive advantages, it is still confronted with issues of under-investment and low profitability.

NFU Cymru ((National Farmers Union of Wales) deputy president Stephen James said, "The dairy market in this country is not working. The British dairy industry should possess many advantages, ranging from growing demand to efficient milk producers and a good climate for producing milk. Yet it lurches from crisis to crisis and has suffered over a decade of under-investment and low profitability."

James, who farms 500 acres of Pembrokeshire with 270 dairy cows in partnership with his wife Joyce and their son Daniel, said the biggest problem is the one-sided milk contracts that farmers have to sign with milk buyers.

"These contracts offer little to no certainty or clarity on the way milk prices is calculated, they lock dairy farmers in for long notice periods of up to 18 months, prevent us supplying milk to any other buyer, and have no exit clauses to get out of a contract if the price drops to an unsustainable level."

James said it was in the long-term interests of milk buyers to support fairer contracts because they would help to stem the flood of farmers out of milk production.

He said a package of measures outlined by the European Commission showed that the EC recognised that contractual relationships between milk producers and purchasers are fundamental to ensuring fairness, and he said they could make a real difference to the way dairy farmers sell their milk and negotiate with milk buyers. "There are some exciting proposals on the table which would strengthen dairy farmers' position in the food chain and introduce new minimum standards for milk contracts across the EU," he said.

"It is vital that farmers call on their MPs, prospective Assembly Member (AMs) and dairy companies to take action now to eliminate unfair commercial practices and improve milk contracts. This is a unique opportunity to bring about much-needed change, and dairy farmers should seize it with both hands," he said.

The EC proposals include allowing individual member states to introduce minimum standards for milk contracts and allowing groups of farmers the powers to negotiate with dairy companies.

The NFU wants the government to back the EC proposals but go further and establish a contractual code of practice to ensure fair dealings between farmers and dairy companies.

The union also wants the government to look at producing more transparent information on the distribution of margins and wholesale prices in the dairy supply chain.