June 15, 2012

UK Minister criticises milk processors on unjustified milk prices slashing

UK Farming Minister Jim Pace criticised the milk industry leaders, as the recent cuts some processors have made to farm-gate prices are hard to justify, leaving farmers at risk of going out of business.

Indicative of supermarket price wars, last month major commercial processors Robert Wiseman, Arla, Muller and Dairy Crest cut prices by GBP0.02  (US$0.03)a litre on their fresh-milk contracts. Plymouth-based farmer-owned co-operative Milk Link followed, cutting its payments to farmers by GBP0.015 (US$0.02) per litre.

Paice will insist at the Diary UK annual dinner that a voluntary code of practice on contracts is established to oversee a fair relationship between farmers and processors. He will say: "The dairy industry is important to Britain's rural economy and the manner of recent cuts to farm-gate milk prices has been a real concern for many people.

"However, in a volatile market everybody knows prices will go up and down. The key is for us to build trust and transparency, so that farmers and processors can work together and take advantage of the huge business opportunities both here and abroad. "A voluntary code of practice will mean people having to do things slightly differently - but it will ultimately benefit the industry as a whole - and I implore all sides to make a final push and agree a workable compromise."

MPs on the powerful rural affairs Select Committee last year warned milk prices remain below the average cost of production, and feared more farmers would go to the wall - which would have knock-on effects for landscapes, tourism and consumers. They called on the Government to ensure that dairy farmers are offered detailed written contracts by processors. And Paice will say that farmers should have the power to break contracts if a price change is out of kilter with market conditions.

George Eustice, Conservative MP for Camborne and Redruth, who sits on the committee, called for set prices and a clear formula.

He said, "There are still far too many anti-competitive practices by processors in the dairy sector and we need the competition authorities to look more closely at bad practices throughout the supply chain rather than focusing solely on how much competition there is between retailers at the end.

"All too often, farmers find themselves contractually obliged to send all of their production to one processor, but with totally inadequate guarantees about the price they can expect.

"Many farmers end up exploited and find that processors are quick to cut prices but slow to increase them when the market moves in the other direction."