The introduction of the Dairy Code of Practice in 2012 has done little to positively affect the farm gate prices received by producers and is largely ineffectual in the midst of market surpluses and a lack of alternative options.
This was the conclusion of the recently published Farmers’ Union of Wales report on the dairy sector.
In addition the report highlighted that the Code can do nothing to better the prospects of producers who have been served notice.
Therefore the Union continues to reiterate that smaller producers and those in remote areas are being left vulnerable during periods of oversupply.
“The industry could see even more falls in producer numbers as processors ‘cherry-pick’ producers in a bid to reduce operational costs,” warned FUW Milk and Dairy Produce Committee Chairman Rhydian Owen.
For producers wishing to take up the option, the FUW has been a long-standing supporter of the inclusion of market-related pricing formulas within dairy contracts.
“Supporters of the formula believe it could form the foundation for prices which, while continuing to vary between contracts, nevertheless represent the true value of milk.
“This would reflect a supply and demand dynamic that UK milk prices have failed to recognise over the last decade,” added Mr Owen.
Other types of contracts, such a futures, may be of benefit to some producers; although this will depend on the individual business and the degree to which some or all of the milk is included, according to the FUW dairy report.
Mr Owen further stated that whilst the industry needs different types of contracts to cope with embedded marketplace volatility, there must also be a concurrent effort to increase transparency and proper policing in the UK supply chain.
Contracts which include mechanisms such as A and B pricing must also work for the producer when demand outstrips supply and should not be used primarily to reduce incomes in periods of oversupply.
“Proper policing should help to ensure that contracts remain fair and do not exploit primary producers. The FUW has repeatedly called for an expansion of the Groceries Adjudicator’s power to cover all dairy producers and not just the small minority on retailer aligned contracts.
“At present, retailer aligned contracts only account for about four percent of the milk produced in Wales and, as such, the majority of dairy producers are not covered by the remit of the Adjudicator.
“We would like to see a system whereby the dairy code is properly policed so that we can tell straightaway if the purchasers are cherry-picking and if they are not playing fair,” added Mr Owen.
Source – The Dairy Site