Producer organisations – what they offer dairy farmers

Collaboration between producers and through the supply chain will become even more important once the UK leaves the EU, says NFU chief dairy advisor Sian Davies.

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“Post EU membership, the UK will support farmers in a very different way so we need to get more out of the supply chain – more from the market and less from subsidy, which also means being more competitive,” she told a producer meeting at Ardingly, West Sussex.

Producer Organisations, which represent farmers collectively in negotiations with buyers, have been available to UK dairy farmers for more than five years.

However, so far only three have been formed and one of those is under threat of derecognition by its milk buyer, Muller.

In other countries such as Germany, the PO option has been far more readily taken up and the NFU is investigating why this is the case. It is also lobbying for co-operation and encouraging farmers to get together to look at new ways of working such as POs.

See also: UK dairy farmers can look to US for ways to beat volatility

dairy cows

© Food and Drink/Rex Shutterstock

What is a producer organisation?

  • A legal body representing, marketing and negotiating on behalf of producers, sometimes simply for practical organisational reasons
  • It must be formed on the initiative of producers and recognised by the competent authority in each member state – in the UK, the RPA
  • POs are an EU legal construct, only approved for use in certain sectors. Provided they are properly constructed, they avoid some competition law issues
  • Dairy POs were made possible by the 2010 dairy aid package brought in by Commissioner Ciolos
  • No fewer than three POs can control production in a member state
  • Each PO has to represent at least 10 producers
  • Members elect a board to represent them, may employ staff to organise and market milk
  • No PO may represent more than 33% of milk in a member state
  • Farmers elect representatives to a board structure which meets the milk buyer
  • Farmers can only be a member of 1 PO

What can a PO do for its members?

  • Can take ownership of milk or work as an agency
  • Forecast and plan production, adjusting to demand, quality and quantity
  • Concentrate supply and direct marketing of milk
  • Make the most of milk contracts, negotiate contract improvements
  • POs are not a guaranteed way of getting a better milk price but could help negotiate better contracts, organise supply and predict volumes as well as group work on tackling disease or benchmarking
  • Collective purchasing, eg of inputs
  • Promotion and marketing
  • Can offer non-contract benefits such as research and develop initiatives such as innovative practices, economic competitiveness and market developments, also optimise production costs, keeping in focus environmental and animal welfare standards
  • Get technical help with better cultivation practices, production techniques, animal welfare and other husbandry issues, also improve quality/gain recognition such as special designations and protections for certain foods or produce types
  • Technical help for use of futures and other risk reduction schemes
  • Manage by-products

The NFU is also raising the issue of POs and producer representation with customers down the line, for example end users such as Costa and there is interest in knowing how producers are represented, says Ms Davies.

What are the barriers to forming a PO?

Many farmers fear loss of independence or having to share cost of production information but this is not necessarily the case, says Ms Davies.

Some fear that a PO structure will add cost but members of the Muller and Dairy Crest POs contribute less than £9 a month each. “It may add cost but the benefits of group membership could far outweigh the costs,” says Ms Davies.

“Often processors keep information tight and won’t tell producers which other farmers supply them in a local area, making it more difficult for them to come together.”

Setting up a PO can take a long time – it took the Dairy Crest group a year to get recognition from Defra, through the RPA. There is also the possibility that a buyer may refuse to recognise a PO.

Case study – fruit co-op

James Smith and his family grow more than 2,000t of apples and pears at Loddington Farm, Linton, Kent.

They supply UK retailers and processors through Avalon Growers Producer Organisation, part of marketing organisation Avalon Produce.

POs make good business sense he says, but they have to be set up properly and for the right reasons.

“It’s fundamentally good for us and there for a common purpose, we needed to concentrate supply rather than operating as so many individual growers. We have achieved a cost-plus model for three years for supplying Tesco, with a five-year plan.

“The common aim is fundamental to success. You also have to have very clear and fair rules that are implemented.

“But beware, farmers don’t always necessarily make good marketeers – you need to get the right people and be prepared to pay the right rate for them.”

The PO is a building block for further collaboration in the supply chain, not just at farm level but it enables you to have bigger conversations further up the supply chain, says Mr Smith.

“It’s not just about price, it’s about reducing volatility, giving consistency and the ability to plan.” It was important that everybody agreed the rules and stuck to them. Some growers were promiscuous and despite being in a PO where a sustainable pricing model had been agreed they would disappear round the corner if a better deal was offered.  “But the next time they wanted to get in, the door would be shut,” he said.

The PO also helped member businesses look forward and plan for the next five to 15 years.

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