NFU shocked by Dairy UK’s assessment of milk market
© Tim Scrivener The NFU has reacted with disbelief to a strikingly positive analysis of the UK dairy industry by Dairy UK.
The organisation, which brands itself the “voice of the dairy industry”, claimed UK dairy markets are efficient, have a fair supply chain and that there is a high level of transparency between producers and processors.
See also: More dairy ups than downs as volatility continues in 2017
The assessment was made by Dairy UK as part of its recommendations to the government’s consultation to extend the remit of the grocery code adjudicator (GCA).
Dairy UK also suggested the GCA should not regulate on the basis of the voluntary code, to which Dairy UK is a co-signatory.
‘Vast lack of awareness’
The comments came as a shock to Michael Oakes, chairman of the NFU Dairy Board, as well as the farmers he represents, and he said it showed “a vast lack of awareness of the issues in the supply chain”.
The following are Mr Oakes’ responses to the Dairy UK assessment of the milk market:
The market
What Dairy UK said:
“UK dairy markets are operating efficiently. They are not dysfunctional, distorted or operating outside European norms.
“In most regions of the UK, the market for raw milk is competitive without any one purchaser being able to exercise market dominance.
“As a result there are no instances of milk purchasers being able to set prices that are in opposition to the prevailing market trend.”
Michael Oakes’ response:
“Last October the NFU released a statement that more than £200m had been lost in the UK dairy supply chain between April and October 2016. We have seen record wholesale prices for cream and butter in recent months, yet farmgate prices have been extremely slow to react.
“More recently, according to the AHDB’s milk price calculator, farm prices in the UK are not currently reflecting the true market value of cream in butterfat payments.
“Between April and December 2016, all dairy commodity markets rose, but it was the butterfat side that showed the biggest increase.
“During this period, cream values in the UK rose from £800/t to £1,800/t. In gross terms, this is equivalent to fat values rising from 2p/% butterfat in April to 4.5p/% butterfat by the end of the year – a 125% uplift.
“Despite this, a number of farmgate prices continue to have the same payment for butterfat in December as they had April.
“This clearly shows the UK dairy market is not working efficiently.”
Volatility and transparency
What Dairy UK said:
“Price volatility is an inherent feature of deregulated agricultural commodity markets.
“Globally the degree of price volatility experienced in the UK is entirely consistent with other EU member states and other major milk-producing countries.
“There is also a high level of price transparency consistent with the needs of competing companies to protect commercially sensitive information.”
Michael Oakes’ response:
“While the NFU agrees with Dairy UK that price volatility is a feature of more open global dairy markets, we believe that there is far more than can be done within the supply chain to support farmers to manage volatility.
“In the last market downturn we have seen dairy farmers in Ireland being offered various initiatives such as fixed-term fixed price volume contracts and Milkflex loans.
“In New Zealand, dairy farmers could access the Guaranteed Milk Price scheme to manage some volatility.
“We have seen very few UK milk buyers offer any such initiative and I do hope they have learned from this long market downturn.
“Dairy farmers are hungry for these options and will work with their milk buyers in developing them.
“I’m also surprised to hear that Dairy UK believes there is sufficient market transparency.
“This is a key area for the NFU – to help develop more volatility management tools we need more trust and transparency in the supply chain, and this is based on correct, audited market data.
“In America, there is legislation that requires the collection and auditing of market data and in the EU market data has improved with the EU Milk Market Observatory.”
The voluntary code of practice
What Dairy UK said:
“Regulating on the basis of the voluntary code of practice would expose companies to insecurity in milk supply that would deter investment.
“Giving the GCA any role in regulating contractual relationships would create the risk that the GCA would become the focal point for price disputes throughout the industry.”
Michael Oakes’ response:
“These comments show a complete misunderstanding of the aim of the voluntary code, something that Dairy UK is a co-signatory of.”
“Back in 2012, on the back of the EU Dairy Package, the NFU, NFUS and Dairy UK agreed a voluntary code of practice.
“It sought to address contract issues in a way that worked for producers and processors.
“While adherence to the code is voluntary, it sets out minimum good practice and is meant to be adopted in full.
“There is a complete, possibly intentional, misunderstanding that the code requires three months’ notice: This is only the case if:
- Pricing is at ‘buyer’s discretion’ and changed with no discussion/negotiation with farmers or their democratically elected representatives.
- Contract terms are varied with no discussion/negotiation with farmers or their democratically elected representatives.
“Clearly, if milk buyers work with a democratically elected group, such as Dairy Crest Direct, they can agree variation terms that are acceptable to both farmers and the milk buyer.
“Many milk buyers have clearly stated to the NFU that they will only abide by the code if all milk buyers are signed up to the terms within it.
“This clearly leads to the need for mandatory minimum contract terms that would ensure every dairy farmer is offered a fair, equitable milk contract.
“With the changes the UK dairy industry will need to face as we leave Europe, we need to work together for the best solutions for dairy farmers, processors, manufacturers and consumers. Collaboration is key and comments such as the above are unhelpful.”