In the dock: dairy regulations and milk contracts

‘It’s bullying’: dairy farmers give their verdict on milk contracts

Our latest ‘Food Policy on Trial’ event saw us discuss the fairness of the rules governing the dairy sector – and whether they are a block on shifting to dairy systems that are fair for people, planet and animals

The image was a stark one. A young female dairy farmer alleges that she was given a matter of minutes to read and sign a contract to sell her milk, with the buyer [a processor] looking over her shoulder.

After her previous milk buyer went bust, Welsh dairy farmer Abi Reader was in a state of desperation. Her cows were continuing to produce milk, so either she signed the contract or the milk was worthless.

“The problem we’ve got is our milk goes into a tank, and immediately it needs to move,” said Reader. “It’s got to be done within 24 hours. Some contracts are 48 hours (for milk collection). But once it’s come out of that cow and it’s gone into that tank, it’s got to move. And that puts us over a barrel.”

“It’s not like other types of food which, although perishable, you could hold onto, such as eggs, or potatoes. So, if the deal isn’t quite right or for some reason someone can’t get there, you could put it in store. With milk, that doesn’t happen. The cows have to be milked everyday at the same time, that milk is coming whether you like it or not. And that makes us very vulnerable,” she said.

While the perishability of milk on-farm is not something immediately avoidable, it is other elements of the relationship between milk producers and buyers in the UK that appear to put farmers in an even more weakened position.

As Reader explains: “We’ve got exclusivity. As dairy farmers, the majority of us have to send our milk only to one processor. Then you add into that discretionary pricing, so you know that the person you’re buying has the option to change their price almost on a daily basis, if they’re not compliant with a voluntary code. If you put the two of those together, along with, say, a long notice period, then you’re really not a flexible business,” she said.

Why might change be needed?
The Food Ethics Council’s Dairy Project has been working with farmers to accelerate the shift to dairy systems that are fairer to people, planet and animals. One of the questions we have been asking is whether supply chain and contractual relationships are a block on positive change?

As part of our Food Policy on Trial series we put dairy contracts in front of a panel of guests and a public audience at the Oxford Real Farming Conference. Their job, together with the audience, was to judge if dairy regulations are fit for delivering dairy systems that are fair for people, planet and animals.

As Defra and the Devolved Administrations for the UK consider a new code of conduct governing contractual relations between buyers and sellers of milk, it is critical that the perspective of producers as well as processors and retailers is heard.

If we can’t have a fair deal for farmers, asked the discussion chair, Scottish farmer and member of the Food Ethics Council, Pete Ritchie, how can we have a fair deal for their animals and the people who work on dairy farms and the planet?

We heard from four expert witnesses:

  • Vicki Hird – Head of Farming at Sustain: the alliance for better food and farming
  • Abi Reader – Traditional mixed dairy, beef, sheep & arable farmer from Cardiff; Chair of NFU Cymru Dairy Board
  • Rebecca Mayhew – Dairy farmer, Old Hall Farm
  • Bronwen Percival – Cheese buyer for Neal’s Yard Dairy

While much of the focus, particularly in the media, has been on milk prices, the discussion heard how for farmers themselves price came second to certainty.

“It may be a bit of a shocker, but pricing isn’t as important as seeing the problem that’s coming towards you down the track,” said Reader. “If you’re expecting a certain price, but then it suddenly changes because there’s another market force in place, then you have no way to react to that.”

“Alternatively, if you have that written in your contract and it’s part of an agreement and there’s a good dialogue between yourself and the processor to say, ‘We’ve got a contract with a food service buyer that will be coming to an end shortly. There is a possibility you may see a change in your price’, then it means when I’m looking ahead to perhaps lock in prices for bedding or feed or whatever it may be, I’m thinking, ‘I might be very careful how I lock that in, so I can plan my business a bit better.’”

Rebecca Mayhew, Norfolk-based dairy farmer, said the lack of value attached to milk by processors and supermarkets was the root cause of some of the sector’s problems.

“The first thing that jumped out in my mind [when thinking about a new milk code] is that isn’t it shocking that we’re having to have this argument over fairness. How is it that we’re having to have an argument over the fact that dairy farmers should not bear the brunt of a price drop or not being able to sell milk [directly to consumers] during the Covid pandemic. Only in farming do we produce something for someone else with so little certainty of covering the cost of production,” she said.

However, for many milk buyers the pressure to be competitive on price at the expense of providing that certainty to producers appears to be beyond their control.

“Are processors caught in a global price trap? I would say yes, 100%,” said Bronwen Percival, cheese buyer for Neal’s Yard Dairy. “These are market forces that are being applied brutally rationally across the board. Of course, if a processor is hoping to compete selling to supermarkets and selling to where they need to sell their goods, obviously, they need to be in a position to be price competitive. Again, completely related to the fact that what they’re selling is a completely substitutable commodity.”

Escaping the global market trap
To escape this global commodity price trap and for producers to avoid the imbalanced relationship that exists between buyer and seller, requires stepping out of commodity markets, with for example a branded cheese product. At that point, said Bronwen, the producer is not selling a substitutable product anymore.

“Because we’re not dealing in commodities, all the cheeses that we’re buying carry their own identity to the counter and to the ultimate consumers,” she said. “Essentially, they have the value within them, they’re not substitutable. And as a result, it really inverts the power relationship very much.”

Being able to step out of commodity production, or even switch between milk buyers, is not a quick decision for most producers, who remain locked into their contracts.

“Handing in your notice could be three months, but some farmers have to give 12 months’ notice,” said Reader. “And even then, they could only give that notice on a certain day in the year. So, if you didn’t hand your notice in on that date, then you’d have to wait until the same date the next year before you could give your 12 months’ notice. It’s bullying, total bullying.”

If we [as a society] are serious about wanting to encourage more producers to build closer relationships with the public, sell direct to market and not be at the mercy of multinational milk buyers and global markets, said Bronwen, then they will need support [to adapt and learn to process and market milk or dairy products themselves].

“If we’re talking about impediments to this brave new world of decommodification to the greatest extent possible, a lack of technical support is something that’s a real impediment to that,” said Bronwen, particularly for raw milk markets. “If you’re making a raw milk cheese or if you’re selling raw milk, there’s much less support there in terms of the know-how that’s needed to do those things successfully, consistently and safely.”

Whether selling direct or selling via processors, the whole dairy sector needs a firm commitment to significantly improve standards and regulations.

Vicki Hird, head of farming at Sustain, said there was a long history of concerns that supermarkets and the grocery sector as a whole undermine farmers through various unfair practices. It was these concerns that led to the creation of the Groceries Code Adjudicator to oversee a code of practice that major food retailers have to abide by.

But there now needed to be a code to cover the whole supply chain, said Hird.

“We need statutory supply chains, codes, that are enforced and that stop abusive practices in the supply chain. We’ve got deeply held attitudes, cultures, and norms, and deeply held buyer habits, embedded supply chain practices and business models that need challenging,” she said.

There are also concerns that the lack of specific restrictions on food imports in the recent UK-Australia trade agreement are a sign that free trade will ultimately trump standards.

To avoid domestic standards being freely undercut by imports following different rules, the UK government needs to outline its “red lines” in trade negotiations, said Hird.

“Every government should be able to have measures to protect the kind of farmers that they’ve decided that they want to support through the domestic support, regulation and standards that we’ve got in this country on animal welfare, food safety etc,” said Hird.

Speaking after the session finished, Dan Crossley, executive director of the Food Ethics Council, said it was clear that the dairy sector needed better regulation.
“We urgently need properly enforced regulation to stamp out bullying and abusive practices in the dairy sector. We also need proper support to provide dairy farmers new routes to market, including direct selling, plus incentives for those wanting to transition to fairer and more ethical dairy.”