Farmer Focus: Why we should copy the Spanish milk contract

One country I never thought I would visit to investigate milk contracts was Spain, but from 2012 to 2017, milk production rose 18% to almost 8bn litres.

Back in 2012, as milk prices hit a crisis point, the EU launched a milk package. Part of that was the Common Market Organisation (CMO), a mandatory milk contract which I believe was implemented by five EU countries. In the UK, we decided to negotiate a voluntary code of practice.

We also had a meeting at Inlac headquarters, which is a cross between Dairy UK and the AHDB, as it takes a levy from farmers and processors and also follows wholesale and retail prices.

See also: Revealed: Milk contracts most exposed to market volatility

Interestingly, if the shelf price drops below 60 eurocents, this triggers an investigation by the grocery code adjudicator, so sustainable prices is the main aim.

To try to summarise – in the past five years, milk price has only varied 3.5 eurocents/litre.

Most contracts are for 12 months. It was three months when first introduced, but then the Spanish government changed the law to make it 12 months.

It uses fixed prices, but also allows fixed-formula pricing (using fixed and variable costs) to be in the contract instead. All the milk is sold through co-ops or dairy producer organisations (DPOs).

Five processors handle 80% of the milk, so a lot of co-ops do not have processing facilities.

Some of the positives are that producers/DPOs have the opportunity to negotiate price. However, the farmers still need to understand milk volume and supply and demand so they produce sustainable quantities of milk to receive the best price they can.

I definitely think adopting the CMO would be a big step forward for our industry, as a mandatory contract for all processors, including co-ops.

I am very disappointed in Dairy UK’s attitude so far to copying this model. The voluntary code has failed due to the lack of uptake and that’s why George Eustice MP wants to give producers a chance to adopt something similar.

Please  – every dairy farmer – respond to the Defra milk consultation, which will hopefully be launched very soon.

If we are able to emulate the Spanish model, it could bring behavioural change to the UK supply chain and in particular address the issue of ridiculously cheap milk being sold in the middle-ground market.