Fair dairy regs to be tested as dairy imposes backdated price cuts

Legislation introduced in the summer to create a fairer, more transparent and accountable dairy supply chain is about to be tested.

Welsh milk processor Llaeth Cymreig – Welsh Milk, based at Nantegryd, Capel Dewi, has served its suppliers with notice that its agreed milk price will be slashed by 6p to 34p/litre, retrospectively from 1 September.

The move has been questioned by industry stakeholders, who say it could be in breach of the Fair Dealings Obligations (Milk) Regulations 2024, which came into force in July this year.

The unforeseen retrospective price cut, which could cost some farmers about £30,000 a month, will be reflected in their upcoming payment, the processor said.

See also: Falling milk prices leave UK dairy sector under pressure

Difficult decision

Suppliers have also been told that from 1 October, their monthly milk price will be set in line with actual market returns until the industry regains greater stability.

In a letter, company directors Huw Thomas and Jaci Evans said: “We know this news is incredibly hard to receive. As farmers ourselves, we fully understand the impact this will have.

“Please know this decision wasn’t taken lightly.”

They added that they have absorbed the market pressures for as long as possible and had hoped to maintain a stable price, but are realigning to reflect true market returns.

Fair dealings

There is, however, concern that this may breach the Fair Dealings Obligations (Milk) Regulations 2024.

While the regulation applies universally to all new contracts used for purchasing milk from a producer, those who think their processor isn’t complying with the regulations can complain to the Agricultural Supply Chain Adjudicator (Asca).

If the Asca finds the processor in breach of the regulations, a fine of up to 1% of its turnover may be imposed.

Due regard

When it comes to changing the price paid, processors must pay “due regard” to the pricing schedule and cannot make changes retrospectively.

Processors are also unable to modify the future method of setting milk prices without negotiation.

NFU dairy board chair Paul Tomkins said: “The big question is if they have paid ‘due regard’, have they set out the factors impacting price explicitly, and can they justify it. I don’t think they have.

“This is a small processor, but we’re seeing it elsewhere in the country. We need to call out bad practice.

“This will be a big challenge to the regulations regarding milk pricing, and it is important we use the regulations to interrogate if price movements are justified.

“We can’t control global commodities, but we have to make sure changes are proportionate,” he added.

Legal advice

Mark Jones, partner and supply chain expert at law firm Gordons, added:

“The devil will be in the detail and a lot of it will depend on individual contracts. However, processors shouldn’t be able to change price retrospectively.”

He added that as the price has only moved dramatically in the past few months, “it is possible there are lots of breaches of the regulations across the country”.

NFU Cymru has advised affected members to take legal advice through NFU CallFirst on 0370 845 8458.

Farmers can also complain to the Agricultural Supply Chain Adjudicator (ASCA), led by Richard Thompson, who enforces the UK’s Fair Dealing Obligations (Milk) Regulations 2024.

Llaeth Cymreig have been approached for comment.