Dairy producers must look past headline milk prices and read the fine print in their contracts, the NFU has warned.
As UK milk production continues to fall and the number of farmers keeps shrinking, some processors are beginning to offer new contracts in order to safeguard their output.
The headline price that contracts are sold against will fluctuate, often lagging behind when market prices rise and matching the market more quickly when it drops.
This makes knowing the smaller details and clauses within contracts of vital importance, putting producers in the best possible position to deal with contracts that are often “unjust, unfair and unbalanced”, NFU chief dairy adviser, Sian Davies told Farmers Weekly.
“If you are offered a higher milk price you are probably going to take it and not consider the contract’s other terms and conditions,” she said.
“It is vital that farmers understand the other terms of the contract and are happy with them.”
These include clauses such as 12-month notice periods, exclusivity rules and penalties and bonuses for constituent levels, Ms Davies added.
But Nick Holt-Martyn, principal consultant at The Dairy Group, said most producers would not enjoy the luxury of multiple contract offers and, for them, headline price is everything.
“Prices may be creeping up by a penny or two but the reality is many producers are still struggling to make ends meet,” Mr Holt-Martyn said.
“They will be looking to their headline price, the track record of buyers, and how they’ve respected their suppliers in the past three or four years.
“But the reality is, dependent on where your farm is, there’s rarely more than one processor you can feasibly sell your milk to anyway”.