The soon to be introduced Dairy Purchasing Code, will increase transparency and fairness in the sector, according to NFU England dairy board chair, Michael Oakes.

The West Midlands dairy farmer was hopeful that, after years of negotiations and the 2020 Defra consultation, the new legislation will strengthen the dairy sector by sharing the risk more equitably between farmer, processor, and retailers.

“Right now, the farmers are burdened with more risk than the other parts of the supply chain,” argued Mr Oakes. “And I am hopeful the upcoming legislation will rebalance this. Most dairy farmers take a disproportionate level of risk.

"In the past few years, we have seen the processors and retailers continue to take a margin from milk and dairy products whilst at times the farmer has made nothing at all. We need processors to use other methods to manage risk other than cutting the farm gate price. This could be through things like different relationships with their customers or future markets.”

Speaking to The Scottish Farmer, Mr Oakes also wanted to see the new rules increase transparency. He said: “We are not talking about setting prices, although farmers and processors are free to set this if they wish. What I hope, at the end of the day, is that we will have a clear understanding of what develops and moves our milk price at a farm gate level.”

Much of these issues have been discussed for a number of years with greater ferocity to negotiations at times of low milk price. Many will remember the 2012 ‘SOS Dairy’ crisis and the resulting ‘Voluntary Code of Practice’ for dairy contracts which aimed to improve contractual relations between farmers and milk buyers.

Whilst the voluntary code was widely adopted, it only resulted in minor improvements and farmers still felt unfair trading practices took place. Then, in 2020, the government launched a consultation on regulating dairy contracts, which called for change and its response in early 2021 was that it would regulate dairy contracts under powers contained in the Agriculture Bill.

Following Defra consultation, the next step is for a ‘SI’ (Statutory Instrument) to go before Parliament. Since the powers for the regulation are already with government following the passing of the Agriculture Act, it just leaves the SI to pass through Parliament, which is slightly more simple, although it will still be voted on by MPs.

Once the legislation is passed, it expect there to be a two-year implementation period to allow farmers and dairy processors to amend contracts if needed and set up new representative bodies. It is likely, in the coming years, that most dairy farmers will need to sit down with their processor and ensure the relationship complies with the new rules.

Whilst the details are yet to be published, Mr Oakes has been given sight of the proposals and described them 'as 99% there'.

He said: “We are nearly there. I have seen it and I am happy and the Scottish representatives are happy, and so are the other devolved nations. The pricing mechanism is the obvious sticking point in all of this, but we are working our way through this as an industry.

"We cannot afford to put processors out of business, but we want to be in a better situation with better farmer representation with transparency and fairness.”

Read more: Perhaps it’s time for Scottish dairy producers to take a leaf out of the Irish industry's playbook

Dairy farmers this year had enjoyed record prices for their milk, but also record costs for their businesses. Mr Oakes was keen to point out that it was a mixed picture. He said: “Some of your readers will have had the best summer ever, if they bought their fertiliser last year and forward bought feed at prices before the spike.

"However, I know some others didn’t buy early and then suffered a drought so they have been through a very tough year. If the predictions of a market drop this coming spring are true, it mean dairy farmers will be challenged again.

"But if farmers are not given confidence of a margin then production will drop, we saw it this summer. It was the first time, since I became dairy chair six years ago, that the industry worked together to get the price up and reinstall confidence in the sector.”

The rising prices will filter down and impact consumer habits, predicted Mr Oakes. But he was confident that milk and dairy products will remain vital to feeding the nation.

“We may see a bit of downtrading from a branded milk or cheese to own label," he said. "But dairy is in 98% of houses and I don’t see that changing. It can be one of the cheapest sources of nutrients and nutrition.

"This is true of liquid milk, cheese or any dairy. You can make a lot of tasty nutritious meals with a block of Cheddar.”

There are also growing opportunities abroad, according to the dairy chair, who explained that 30-50% of Cheddar was already being exported for a higher margin than domestic sales. These high value markets are largely away from Europe which has cooled since Brexit, with many EU buyers taking UK product at a discount.

Mr Oakes added: “There is more and more export opportunities and we need to ensure processors are ready to take advantage of them. Historically, too much focus on the domestic market has curtailed our ability to take market opportunities. If these markets demand more milk, this industry has proven we have the ability to deliver, if the margin in there.”

How to square a growing dairy sector with climate change goals is a matter of where you draw the line, according to Mr Oakes. He said: “Whilst our summer was not without challenge, if you compare us to other countries in Europe, like Netherlands or Spain, at least we were able to grow some fodder.

"And we don’t have the same challenges over using phosphorus as a fertiliser. The industry’s dairy roadmap is helping up to prove our environmental credentials and carbon footprint, which is good on a global scale.”

Quick guide to Dairy Purchasing Code:

• Price: Providing more transparency to farmers on pricing and allowing flexibility and choice on options to generate milk prices;

• Notice periods: Formalising notice periods to protect farmers and to allow proper market function;

• Exclusivity: Possible options for a non-exclusive contract in some circumstances, for example, restricting exclusive contracts in combination with a volume cap, and therefore allowing a farmer to supply more than one buyer;

• Variation: Tackling one-sided contract clauses and unilateral variation, offering more fairness to contract changes and negotiation.