Producer organisations are central to gaining more bargaining power for milk producers, but what are they, how will they work and how can farmers join up? NFU dairy adviser Luke Ryder explains

What is a producer organisation?

Producer organisations are a collective of like-minded farmers who wish to join together, seek official PO recognition and collectively market and negotiate on behalf of their product. The fundamental aim is to concentrate the supply of milk to help to increase the farmer’s bargaining position.

Other aims of POs can include improving product quality, business and environmental performance, provision of skills and training. The strengths of POs are ultimately strong cooperation between farmers, a stronger market presence, better product quality, more efficient practices and an enhanced business performance through group purchasing and marketing.

Producer organisations are not a new concept – similar to cooperatives a number of examples have been established with the help of EU funding in the fresh produce sector. It is worth adding that DEFRA and farm minister Jim Paice recently announced that £5m worth of new funding will be made available so farmers can collaborate and to support business-led innovation. While it still remains largely unclear how farmers will be able to apply for this funding, it is clear dairy POs are meant to be at the front of the queue in accessing it.

How could it work in practice?

A dairy farmer, contracted to a processor, could resign and use the notice period to join a PO. With sufficient members the PO then employs professional financial negotiators to sell the milk. This could be through negotiation with the processors or it could be directly with the retailers themselves. The retailer would then negotiate with a processor to collect and process the milk.

Why now?

The EU Commission Dairy Package which was agreed in January 2012 sets out the clear need for EU dairy farmers to strengthen their negotiating position in the market place. Other sectors have POs and indeed, even before the EU dairy package, the UK dairy supply chain saw successful and less-than-successful attempts to set up POs.

So why the sudden emphasis now? The agreed legislation allows farmers to collectively come together and form POs, seeking official recognition through DEFRA. A PO or association of POs could now represent up to 33% of the UK domestic dairy market, or approximately 3.5% of the EU market.

For some producers, the best way to negotiate a better contract or a better price could still be collectively. POs could change the way the dairy market operates by empowering groups of farmers.

How the NFU initially aims to help form POs

The NFU will, through the provision of a producer database, guidance and staff resource, look to help the formation of POs. In direct response to the ongoing dairy crisis and the challenge to redress the balance in dairy contracts and milk price negotiations, the NFU has recently issued a Dairy and Producer Register Form. It is critical that dairy farmers who are interested in exploring the options a PO represents fill in this form.

The form is not a questionnaire, petition or appeal to signal discontent. Its purpose is to allow for the collection of dairy farmers’ contact and milk buyer details (members and non-members alike) in an independent database. The purpose of the database will be to help groups of farmers interested in forming a PO. The information will be shared with third parties – subject to data protection.

The NFU has started this process on behalf of all dairy farmers and we require the help of all stakeholders and their members to see it becomes a success. The process of collecting forms is likely to roll on through the autumn.

• By signing the form you are not committing to join a PO and it does not prejudice in any way your existing contractual relationship – unless confidentiality prevents you from disclosing the name of your milk buyer.

• The NFU will only pass information from the database to vetted individuals or organisations, and only for the purpose of interest in a PO.

When could the producer groups become a reality?

The first POs could be in place as early as spring 2013. But right now we need to get dairy farmers to submit their names to compile the database – it is vitally important to get the critical mass of producers we need.

Join the PO database

A copy of the form can be downloaded from the NFU website.

For more on milk price cuts

See our dedicated page on the milk price crisis