A consultation seeking to end any unfair practices across the UK’s dairy sector has been praised by a leading lawyer who works closely with farmers.

The consultation, launched by Government on 24 June, is seeking views from dairy farmers and processors on whether future regulation could be used to strengthen fairness and transparency in the industry.

Amy Peacey, a senior associate on the commercial team at national law firm Clarke Willmott LLP, said the consultation is a great opportunity for farmers to change the future of the UK dairy sector, and is encouraging people to engage.

“This is a chance for farmers to engage directly with the Government on matters which could have great consequence on their futures. The outcome of the consultation could mean a more effective dairy supply chain and fairer terms for farmers,” said Amy.

Recent press coverage has focused on the possible future regulation of certain aspects of the dairy industry and the pros and cons of establishing a regime of mandatory dairy contracts. Opinion is divided, with farming unions and the Groceries Code Adjudicator on one side pressing for urgent reform of the existing system and on the other, Dairy UK (which represents approximately 85% of milk processors in the UK), resisting change and arguing that greater regulation would result in increased market volatility and a reduction in competition.

“Milk contracts are a bit of a battle ground. There appears to be a pattern of unfair or unclear terms and conditions in contracts between the milk producers (farmers) and the milk processors and their customers,” continued Amy.

“In particular, issues have arisen when a processor has unilaterally decided to vary the terms of an existing contract with very little notice. Faced with a significant price change or alteration of the supply terms, farmers have reported difficulty in terminating their contracts within a reasonable period. The perception in some quarters is that dairy farmers, especially, are too much at risk and subject to unfair contract terms.”

“COVID-19 has also highlighted the difficulties sometimes faced by dairy farmers, most notably in relation to sudden price changes which has been apparent over the last few months.”

In the UK there is legislation to help prevent consumers being taken advantage of, but there are few such statutory protections for business to business contracts which determine the relationship between farm and milk processors. The Unfair Contract Terms Act 1977 does apply to clauses which seek to limit or exclude liability in a business to business contract, but in general, it is up to the contracting parties to understand the terms and conditions to which they are agreeing. 

“For small producers, any attempt to resist changes to contractual terms proposed by large scale processing companies and/or their supermarket clients can seem something of a David and Goliath struggle,” said Amy.

“Several countries have already introduced regulations in an attempt to stabilise markets and address imbalances which are apparent in the dairy supply chain. In the European Union, thirteen member states including France and Spain have introduced laws on compulsory written milk contracts between farmers and processors.”

In 2018, following an industry wide review by the Groceries Code Adjudicator, it was found that there is an uneven distribution of power within the dairy sector.  This review has led Defra and the Government to announce that they would launch a consultation on contract regulation aimed at improving fairness in the dairy supply chain.

Proposals include an option to introduce a mandatory pricing mechanism within all contracts between dairy farmers and processors which would ensure the price paid for milk produced by the farmer is formally agreed within the contract, and that contract negotiations take place in a clear and transparent way.

Michael Oakes, NFU dairy board chairman, has said “The NFU has been working with all the UK farming unions to improve dairy contracts, and we will be consulting widely with our members through our website and in virtual meetings to get a range of views that will form the basis of our submission to government. Farmers can either contact us directly from today or respond to the consultation individually. This is a once in a lifetime opportunity to build a better future for the UK dairy sector.”

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.

For further information about this and commercial/contractual matters generally please contact Amy at Amy.Peacey@clarkewillmott.com or on 0345 209 1329