Medina Dairy pricing change shows need for contract reform

A milk buyer has introduced discretionary pricing on the eve of government reforms that are aiming to outlaw the practice altogether.

Medina Dairy, which is supplied by 156 producers in the south of England, Yorkshire and South Wales has drawn criticism from producers and the NFU for ditching its basket price mechanism.

See also: Poll: Dairy farmers, are you in favour of upcoming milk contract reform?

Producers of Watson’s Dairy and Buckley’s Dairy’s processing operations, acquired by Medina in 2004 and 2007, respectively, were given just three weeks’ notice of the changes while retaining a 12-month notice period.

NFU fallout 

The move was a prime example of why Defra’s proposed dairy contract reform was necessary, according NFU dairy board chairman Michael Oakes.

“This case has generated quite a few phone calls, which goes to show that we need to reform contracts and do things in a fairer way,” said Mr Oakes.

The NFU chairman and Arla dairy farmer added that according to the existing Medina contract, the change was permitted.

“These guys have had no choice, no negotiation and hardly any warning,” he said, adding that NFU representatives would be in contact with the processor to discuss the decision.

Producer reaction

Producers contacted Farmers Weekly  to express their disappointment that Medina had chosen to end its basket pricing mechanism.

The contract was a step backward for the processor and his business, according to Doncaster dairy farmer Martin Drake.

“From today, the earliest I could leave my contract is 1 April 2020, but I only received three weeks’ notice of a big change to my contract.”

“This new contract really means all of the power is with the processor.

“What redress do we have?”

“There is absolutely nothing I can do if there is a 10p/litre cut next week. This sort of contract is going to be detrimental to our business,” added Mr Drake, who farms 170 cows in South Yorkshire.

Processor response

Medina, which currently pays a liquid milk price of between 27.77p/litre and 28.28p/litre for March, defended its decision.

It said discretionary pricing would allow the business to respond more efficiently to rapidly changing market conditions.

It also cited a number of problems with its basket pricing mechanism in recent years, including having to remove Dairy Crest when it sold its liquid business to Muller in 2015.

Other reasons included Arla changing its pricing to a manufacturing litre and becoming less relevant in a UK context and the mechanism leading to unnecessary supplier notices being served each time it needed updating.

Medina commercial director Terry Ziton stated that the milk buyer felt now was the right time to take control of setting its own standard litre price. 

“We remain fully committed to providing all our supplying farmers a fair and competitive milk price,” he added.

Defra has stated it is still committed to contract reform despite the resignation of farming minister George Eustice, however, no change is expected until after Brexit is settled.