Commodity Watch - SEMEX Dairy Conference

Commodity Watch - Written by Senior Policy Officer Chris Osborne

Last week, a UFU delegation attended the 29th Semex Dairy Conference in Glasgow.  Coinciding with the Prime Ministers “Meaningful Vote” on her proposals on the deal to see us leave the EU, it was fitting that the theme for the two-day event was “Agents for Change”.

This annual event brings together political, economic, veterinary, husbandry and technical expertise. Speakers this year included Jukka Likitalo, head of Eucolait, Charlie Perotti, Production Director at Fonterra, Ash Amirahmadi, CEO of Arla Foods (UK) and Sue McCloskey, owner of Fair Oaks farm, who provided a view from the USA.  This impressive array of speakers looked at the impact of change in dairying with a global focus. 

However, it was the keynote session on the first day which highlighted where change could happen in the local dairy sector, namely through the pending DEFRA consultation on Mandatory Milk Contracts.  Speakers during this session were DEFRA Minister George Eustace MP, NFU President Minette Batters and leading dairy market analyst Chris Walkland.

In his speech, Mr Eustice acknowledged the long held view of many in the industry by saying that dairy farmers have been price takers for too long and that it was too easy for processors to drop prices.  Essentially a nod to the perils of discretionary pricing.   Minette Batters defended the unions’ stance in response to criticism from Chris Walkland who called on farmers to resist the urge to scrap discretionary pricing.  He was critical of the farming unions’ position, pointing to too much focus on the relationship between processors and farmers rather than the bigger picture.  The NFU President replied by stating that the NFU was taking a ‘whole supply chain approach’.  However, significantly, Mr Walkland did cede that “there are terms and conditions that need addressing.”

A Farmers Weekly Readers Poll this week asked the question whether or not UK milk contracts needed to be reformed and the results came back with 74% in favour and 26% against.

In terms of next steps, with DEFRA likely to use the Agriculture Bill to implement reform, progress will only be seen once the Brexit picture becomes clearer.  George Eustice has stated that he has been negotiating with the devolved regions over what the reforms would look like.

The dairy industry is unique in how milk is priced. In other sectors, prices are agreed at the outset and any subsequent changes are made either by mutual agreement or by using an agreed process/mechanism.  This does not happen in the dairy sector, in fact they only find out what the pence per litre they will be paid after the milk has been produced, then collected and processed by their processor, often 3 weeks into the following month.  In fact, too many producers do not know how their base price is calculated.

In Northern Ireland there needs to be an open discussion on how milk is priced.  The motivation behind this body of work on contracts is not about driving up prices, rather introducing much needed transparency in milk pricing.  For too long, dairy farmers have been price takers and this is an opportunity for this to change and this consultation will open this debate and allow all parties to have their say.