THE VOLUNTARY code on milk contracts ‘isn’t working and needs changed’, according to experts taking part in a NFU Scotland roadshow aimed at making a consensus view to a government think tank looking at new legislation.

NFU Scotland’s Gary Mitchell told the meeting that government acknowledged that there was a need to improve stability in the dairy supply chain by addressing bargaining power, plus contract terms such as exclusivity, trust and transparency.

According to NFU England’s Michael Oakes, chairman of its milk committee: “The voluntary code on milk contracts was brought in, in 2012 – but contracts have remained a bone of contention ever since. The problem is the word ‘voluntary’.”

Speaking at an, at times fractious meeting in Castle Douglas – where there is a heavy concentration of large herd milk producers – he said that while a contract was one of the most important pieces of paper that a dairy farmer owned, many of them left farmers ‘exposed’ because of fine detail.

Problem areas included buyers having sole discretion, exclusivity, long notice periods, one-sided contract terms and the ability to impose unilateral change. “Most processors do not abuse these clauses – so why are they still included in many contracts?” he said.

“Our intention is to place dairy farmers in a stronger position to develop a professional relationship with processors so that we can be innovative and competitive.”

His colleague, Nina Winter – the NFU’s legal adviser – said contracts were key legal instruments, but many of them had too many variables totally outwith producer control. “As a lawyer, this makes me very nervous and some contracts are hiding demons in the detail,” she told the meeting. “For instance, in some contracts I have seen you still have a legal obligation to supply the processor, even if it goes bust or if you die.”

Transparency was a key area, she pointed out and especially so on price structures. While she said it was not a case of ‘one size fits all’ on milk contracts, any variables in the pricing structure should be clear on how they work.

A joint document which will be put forward by all UK NFU administrations to the government consultation, is aimed at moving all of the risk away from primary producers. producers can also make individual presentation to the think-tank. A well set-up legislative structure would mean that processors and, in turn, retailers would also be part of the risk-bearing process – “At the moment, producers are acting as a risk management tool for processors,” said Ms Winter.

However, the fact that spreading risk also meant spreading responsibility for ‘supply management’ back to farmers, was not universally approved of at the Castle Douglas meeting.

One of the area’s biggest producers, Ronnie Wilson, said that what really needed fixing was the relationship between the processor and retailer. “If we go along with being part of supply management, then it’s just a form of quotas coming in by the back door. Will it change the price and if it doesn’t, then why should we press for change?”

However, fellow producer, Rory Christie, from along the coast at Port William, said: “Why would you not want to change the terms of your contract for the better. This won’t deliver overnight, but longer term it will give us some control back and allow us to change the dynamics of the milk industry.

“This is about giving you basic rights to protect you from abuse. Do not give away this opportunity,” he urged.

Why we need change ...

NFU Scotland's Gary Mitchell, who attended all of the meetings around Scotland, said they had been well attended and provoked some 'great and positive discussion.'

"One of the key findings at the meetings was that some farmers were sceptical of what was on the table. I hope we have allayed their fears on a lot of issues. It's an increasingly challenging market out there and what we aim to do is bring a new baseline from which the industry can go forward, be profitable and innovative – for all in the production chain," he said.

"We're not wanting to change every contract, but what we do want to make clear is that there are base lines that should be in place to protect producers from some of the more exacting contracts," he told The SF.

While he accepted that 'volume control' could be an issue, it was undeniable that the industry was now being led by demand, rather than supply. A tighter contract which gave some control back to producers could only be in their best interests, he said.

Mr Mitchell also pointed out that once the UK leaves the EU, there would be no intervention market available to producers here, which made it all the more important that security of contract, plus flexibility, would needed to rise to that challenge.