FARM LEADERS are confident that dairy producers‘ increased costs of 1.5p/litre can be passed back up the supply chain, despite a warning from the Office of Fair Trading.

The OFT has sent a letter to FARMERS WEEKLY which said that recent reports about efforts to increase prices had been read with “interest and concern”.

The letter said it was important to sound a warning note about agreements that increased prices because price-fixing agreements were among the most serious breaches of competition law.

Gwyn Jones, NFU dairy board chairman, said everyone had always known that concrete agreement regarding milk price was prohibited.

But he added: “This does not preclude the NFU or anyone else from entering into negotiations or discussions to highlight the need for a long-term economic solution – an incentive, if you like, so we can achieve a sustainable and profitable dairy sector by paying a fair price to producers.”

Mr Jones said he saw the letter as a shot across the bows.

“I don‘t think that this is any reason for people to start running for cover,” he said. “We all know where we stand with the OFT.”

David Handley, chairman of Farmers For Action, stressed that the issue was not about price-fixing but about highlighting producers‘ need to invoice for increased costs.

“We‘ve gone into great detail of what [our] cost increases have been and warned that unless they can be recovered the industry will go into demise,” he said.

Retail issues had never been discussed, he added.

“We‘ve no intention of price fixing and I would stand up in court and say that,” he said.

Mr Handley said after reading the letter he had talked to the OFT by telephone and had been reassured by the answers he had received.

“I‘m a lot more at ease now,” he said. “There is no justification under competition law why this cannot happen.

“If there is anybody out there who is going to use the OFT as an excuse for this not to happen, I will be on the phone to the OFT to talk about arranging a meeting so we can iron it all out.”

Mark Kram, the OFT‘s head of news, said he stood by the letter and the comments in there.

“We are not saying anybody has done anything wrong, but it is important to sound a warning note.”