New legislation on milk contracts

[Farmer1001]

Milk contracts in general (not all but most) are unique, they are biased toward the buyer and damaging for the industry. The simple ability of a milk buyer to impose price cuts on a producer with little, none or even retrospective notice is a clear example of where the power lies. But this type of 'norm' has done damage that goes way beyond the direct impact on farm, it has allowed milk buyers to become complacent and lazy, it allows them to simply pass on price cuts imposed by their customers so that ultimately it makes little difference where the 'retail' price is as any cuts can be passed down the line to the producer.

So whilst many milk buyers will protest that inposeing new contract terms is going to be shockingly bad, here's why is will be absolutely great for British dairy farming.
Let's say a milk buyer has to commit to a fixed timescale contract at a fixed price (whatever that period is), it means milk buyers will have to be hungry for new markets and new products to ensure they can cope with the milk they have committed to without the safety net of cutting prices should the market change. Indeed if they want to expand and develop then they will have to search out those new markets and opportunities - this is how the business world operates in a competitive market without the ability to simply pay your supplies less.

But this is just the tip of the potential benefit to the wider industry, because the current market has seen milk rediced to commodity status below that of water, traded on price, not merit and hung out to dry in a consumer world where the 'alternatives' are going hammer and tong to kill off the dairy industry. So on the back of milk buyers searching out new exciting markets, brands and products, we will see massive advertising to sell those products to consumers, by default this will see a return to wide scale advertising and promotion of British dairy products and British dairy farms - I mention the latter because consumers want to know more about the milk than th price, they want to know the impact it's production has on the farm, environment, the people, the economy and of course the cows. So milk buyers will champion dairy farmers in a bid to attract more consumers to their brands.

These changes are not about enforcing change on dairy farmers, it's about creating fairer contracts for producers, there will be lots of variations from all,buyers, but the major point is there will be minimum standards that don't currently exist.

There is a long way to go before contracts are changed (see link), but the commitment is there to make it happen and the NFU dairy team deserve huge credit - I am not a fan of the NFU as an org, but I am a fan of the individual who has been driving this.

https://www.gov.uk/government/news/new-measures-to-help-farmers-and-growers-in-the-food-supply-chain

 

[maen]

A milk contract must include a specified milk specified whether it be termed, seasonal or annual. And probably specified production levels. It has been to the absolute detriment of our industry that we are all currently on monthly milk price contract. No business can function efficiently without knowing what Its sale price will be. (when you write it down it seems so obsurd that we all put up with it) In fact we only have supply contracts , useless you upset management.

 

[maen]

Repost. Reread the contract!

A milk contract must include a specified milk price whether it be termed, seasonal or annual. And probably specified production levels. It has been to the absolute detriment of our industry that we are all currently on a monthly milk price contract. No business can function efficiently without knowing what Its sale price will be. (when you write it down it seems so obsurd that we all put up with it) The fact is most of us only have supply contracts, useless you upset management.

 

[TeaBread]

Short term answer has been carefully stamped on by iron shod buyers boots by including "all saleable milk from the farm" in their (our?!) contract OTHERWISE

TWO TANKS. TWO CONTRACTS .
IF BUYER DROPS PRICE HE FINDS EMPTY TANK WHEN COLLECTING. IF HE RAISED PRICE-FULL TANK.

But, hey, we were shafted a long long way back . Ive had enough of 'milk is short surely the price will get better soon' so now is time to insist on new contract or get out?

 

[betweenthelines]

If buyers have to commit to a price for a period, say 12 months they will commit to buying slightly less milk than they expect to sell-perhaps 95% of the previous year's sales (by month) and get the balance on the spot market They'll also insist on very tight contracts volume wise, with heavy penalties for under/over supply. As the market is controlled by the big three buyers, they will call the tune.

Having been in both sides of the dairy industry, I think most farmers are naive in thinking that raw milk prices are connected to retail prices. Prices for raw milk have been dropping over the last few months while RPI says butter prices have gone up! There's certainly been no drop in milk or cheese prices to consumers while Muller Arla and DC have been reducing off farm prices.

The fairest contract would be one that links raw milk price to a "basket" of UK milk, cheese and butter retail prices.

It should be remembered that about 50% of milk is sold on the liquid market, most dairy products produced in the UK are sold on the internal market and the UK as a whole is a net importer of dairy products. If processors want to move away from the "volatile world prices" the best way to do so would be to encourage UK production and reduce imports

 

[ollie989898]

As mentioned in the OP I believe the present circumstances suit buyers just fine. Just knife the price as and when knowing the supply will trickle on regardless.

There is no reason buyers should not be able to offer fixed term contracts for 24 months at least with a set price and quality standard. Only that would require them to know how to actually market stuff and fight their own corner with retailers. What possible need have they for that when they can change the price at will??

 

[Farmer1001]

A big challenge will be to get producers to wake up to a new concept of contracts that may be on the table. As much as contracts are currently a disgrace, many producers are so conditioned into thinking this is normal, indeed many don't know where their contract is letalone the terms.

 

[BELOWAVERAGE]

Milk contracts in general (not all but most) are unique, they are biased toward the buyer and damaging for the industry. The simple ability of a milk buyer to impose price cuts on a producer with little, none or even retrospective notice is a clear example of where the power lies. But this type of 'norm' has done damage that goes way beyond the direct impact on farm, it has allowed milk buyers to become complacent and lazy, it allows them to simply pass on price cuts imposed by their customers so that ultimately it makes little difference where the 'retail' price is as any cuts can be passed down the line to the producer.

So whilst many milk buyers will protest that inposeing new contract terms is going to be shockingly bad, here's why is will be absolutely great for British dairy farming.
Let's say a milk buyer has to commit to a fixed timescale contract at a fixed price (whatever that period is), it means milk buyers will have to be hungry for new markets and new products to ensure they can cope with the milk they have committed to without the safety net of cutting prices should the market change. Indeed if they want to expand and develop then they will have to search out those new markets and opportunities - this is how the business world operates in a competitive market without the ability to simply pay your supplies less.

But this is just the tip of the potential benefit to the wider industry, because the current market has seen milk rediced to commodity status below that of water, traded on price, not merit and hung out to dry in a consumer world where the 'alternatives' are going hammer and tong to kill off the dairy industry. So on the back of milk buyers searching out new exciting markets, brands and products, we will see massive advertising to sell those products to consumers, by default this will see a return to wide scale advertising and promotion of British dairy products and British dairy farms - I mention the latter because consumers want to know more about the milk than th price, they want to know the impact it's production has on the farm, environment, the people, the economy and of course the cows. So milk buyers will champion dairy farmers in a bid to attract more consumers to their brands.

These changes are not about enforcing change on dairy farmers, it's about creating fairer contracts for producers, there will be lots of variations from all,buyers, but the major point is there will be minimum standards that don't currently exist.

There is a long way to go before contracts are changed (see link), but the commitment is there to make it happen and the NFU dairy team deserve huge credit - I am not a fan of the NFU as an org, but I am a fan of the individual who has been driving this.

https://www.gov.uk/government/news/new-measures-to-help-farmers-and-growers-in-the-food-supply-chain

Looks like a step backwards to me, just trying to stitch us up good and proper.

 

[kiwi pom]

As mentioned in the OP I believe the present circumstances suit buyers just fine. Just knife the price as and when knowing the supply will trickle on regardless.

There is no reason buyers should not be able to offer fixed term contracts for 24 months at least with a set price and quality standard. Only that would require them to know how to actually market stuff and fight their own corner with retailers. What possible need have they for that when they can change the price at will??

If you were going to do fixed term would you not have to have a production limit though? Say so many litres a month and no more otherwise any one with a good fixed price would up production straight away and the buyer wouldn't have a use for it.

 

[Farmer1001]

Looks like a step backwards to me, just trying to stitch us up good and proper.

Pretty sure plenty of buyers will be happy to continue to offer you a contract allowing them to cut your price anytime they wish knowing you can do nothing about it.

 

[ollie989898]

If you were going to do fixed term would you not have to have a production limit though? Say so many litres a month and no more otherwise any one with a good fixed price would up production straight away and the buyer wouldn't have a use for it.

Of course. It would be no different to a grain contract. Fix your 2 million litres for the next 12 months at price X or dont? Oh you produced 300,000 litres more? Hope someone will take it away for good money on the spot market.

You cant have it all ways either. Spot price is 5p higher than your contract? Tough.

 

[BELOWAVERAGE]

Pretty sure plenty of buyers will be happy to continue to offer you a contract allowing them to cut your price anytime they wish knowing you can do nothing about it.

But I'm getting more than Arla pay now, and Arla are GOD they would never cut their own owners price in the persuit of profit, I'm also a free agent, can send as much or as little as I want when I want, I am also not in the same league as some on here, who seem to operate a perfect business
Looks to me like you'd be in a straight jacket, unless of course your somebody's best mate, or have deeper pockets, just out of curiosity how do you think it will pan out when things go tits up and you can't supply the contracted litres(don't tell me, insurance, more cost) or when you want to increase production(we've enough milk at the moment,give us a ring next year), just sounds like more do gooders poking their nose's in as they've no other reason to justify them selves.

PS. I've not got a 3 inch outlet either, probably means my milk won't be good enough.

 

[Kingofgrass]

But I'm getting more than Arla pay now, and Arla are GOD they would never cut their own owners price in the persuit of profit, I'm also a free agent, can send as much or as little as I want when I want, I am also not in the same league as some on here, who seem to operate a perfect business
Looks to me like you'd be in a straight jacket, unless of course your somebody's best mate, or have deeper pockets, just out of curiosity how do you think it will pan out when things go tits up and you can't supply the contracted litres(don't tell me, insurance, more cost) or when you want to increase production(we've enough milk at the moment,give us a ring next year), just sounds like more do gooders poking their nose's in as they've no other reason to justify them selves.

PS. I've not got a 3 inch outlet either, probably means my milk won't be good enough.

You can’t get insurance to cover it there not interested in it we looked into it when we forward sold

 

[Farmer1001]

But I'm getting more than Arla pay now, and Arla are GOD they would never cut their own owners price in the persuit of profit, I'm also a free agent, can send as much or as little as I want when I want, I am also not in the same league as some on here, who seem to operate a perfect business
Looks to me like you'd be in a straight jacket, unless of course your somebody's best mate, or have deeper pockets, just out of curiosity how do you think it will pan out when things go tits up and you can't supply the contracted litres(don't tell me, insurance, more cost) or when you want to increase production(we've enough milk at the moment,give us a ring next year), just sounds like more do gooders poking their nose's in as they've no other reason to justify them selves.

PS. I've not got a 3 inch outlet either, probably means my milk won't be good enough.

This isn't about making good contracts bad, it's about making sure bad contracts are a thing of the past. Some milk buyers already impose penalties for over and under production, indeed the A & B profiles were done so excess milk could be bought cheap on spot when the market crashed in 2016, and when the spot price moved above market price the A & B pricing mysteriously disappeared under the cover of "now the market has stabilised we are delighted to be able to pay the some for B milk as A"! And currently a producer who fails to fulfil a commitment due to say TB, well there is no 'force majeure' to protect that producer.

When the price crashed we saw milk buyers dropping prices to as low as 9ppl for all milk because they could, and whilst the producers were on the point of losing everything, the milk buyer was in his holiday home in Dubai!

But of course this works both ways, the milk price crash following end of quoates was because producers flooded the market and milk buyers did nothing to stop it or warn of the consequences - for the traders it made no difference how much milk was out there at what price as a trade is a,trade and the margin is best when the buying price is on the deck!

There a already milk buyers out there who offer forward fixed prices for a % of the milk produced, and it's the producer who decides how much to lock in - not the buyer. So it works.

Current legislation on contracts is bad for the industry, we can't have an industry that simply pumps milk out and then protest when the price crashes, likewise we can't have buyers holding the power to decide what they will pay for milk they have already collected.

But ultimately, the fact you don't see any serious advertising of dairy is because milk buyers don't have to. Like I said, not all contracts or buyers are bad, as such they have nothing to worry about.

 

[BELOWAVERAGE]

This isn't about making good contracts bad, it's about making sure bad contracts are a thing of the past. Some milk buyers already impose penalties for over and under production, indeed the A & B profiles were done so excess milk could be bought cheap on spot when the market crashed in 2016, and when the spot price moved above market price the A & B pricing mysteriously disappeared under the cover of "now the market has stabilised we are delighted to be able to pay the some for B milk as A"! And currently a producer who fails to fulfil a commitment due to say TB, well there is no 'force majeure' to protect that producer.

When the price crashed we saw milk buyers dropping prices to as low as 9ppl for all milk because they could, and whilst the producers were on the point of losing everything, the milk buyer was in his holiday home in Dubai!

But of course this works both ways, the milk price crash following end of quoates was because producers flooded the market and milk buyers did nothing to stop it or warn of the consequences - for the traders it made no difference how much milk was out there at what price as a trade is a,trade and the margin is best when the buying price is on the deck!

There a already milk buyers out there who offer forward fixed prices for a % of the milk produced, and it's the producer who decides how much to lock in - not the buyer. So it works.

Current legislation on contracts is bad for the industry, we can't have an industry that simply pumps milk out and then protest when the price crashes, likewise we can't have buyers holding the power to decide what they will pay for milk they have already collected.

But ultimately, the fact you don't see any serious advertising of dairy is because milk buyers don't have to. Like I said, not all contracts or buyers are bad, as such they have nothing to worry about.

I think they are too late to the party.

 

[Farmer1001]

I think they are too late to the party.

Who to what party?

 

[BELOWAVERAGE]

Who to what party?

I don't think the abuse by milk buyers happens like it used to, I also think the milk pricing is more transparent(that just might be me understanding the job better) just happen to think its sorted its self, and doesn't need messing with now.

 

[Farmer1001]

I don't think the abuse by milk buyers happens like it used to, I also think the milk pricing is more transparent(that just might be me understanding the job better) just happen to think its sorted its self, and doesn't need messing with now.

All points noted.

 

[endeavour]

@runny egg in principle seems a step forward but clever lawyers would soon cut it to shreds e.g. Declaring a guaranteed contract price for a stated volume [not quality related] say 10pppl and topping up relative to quality. But are those quality payments achievable by a majority or are the penalties aggressive and take months to get back this is more important to most. The pressure on processors t o find new outlets although laudible seems to indicate a denial of supermarket power and the world free market price of milk products.. Agreed many farmers do not know what their contract entails but this does not deny the need to make them more equitable and transparent ,although I doubt many would consider these factors being obsessed with headline price not the achievable price.

 

[Rossymons]

I've seen several milk contracts over the last couple years and all of them have been clear as day and night. They all mention what makes the price, bonuses and penalties, procedures for price movements, rights for appeal on A and B litres etc.

Are milk contracts really that complicated to understand? How hard is it for a farmer to look after his biggest customer?