Dairy attitudes must change to counter brute market power

This week, I've participated in a special hearing organised by the European Parliament's Agriculture Committee on prospects for the dairy sector and the implementation of the recent "milk package" of legislation (comprising, amongst other things, the opportunity for mandatory written contracts with milk collectors, and the encouragement of producer organisations to bargain collectively for a better price.) Adverse market conditions and shady practices aren’t confined to Scotland – this is an EU-wide issue and we have to act now.

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Published in the Press and Journal 29th January 2015

It's clear that overproduction causing an imbalance between supply and demand is the main cause of milk price volatility. The House of Commons Food Committee's recent report on the milk market notes that global supply is rising by 5% a year, demand only by 2%. Moreover, this is not a one-off phenomenon, as this is the third price drop in six years. What's not clear is whether this imbalance in the market will continue: the Commission is pinning its hopes on increased demand in East Asia, with the Medium Term Outlook for dairy farmers predicting profitable, stable prices from 2016. Given recent market volatility, dairy farmers can be forgiven for being sceptical. 

What's concerning is precisely the lack of concern coming from the Commission right now. Quotas are on their way out and supply management is off the table, but even raising the intervention price (the EU average raw milk price, low as it is, is still 162% of the uselessly low intervention price) is not being considered. We need both short term relief and long term structural measures to fix a broken market, and it's concerning the latter that the "Milk Package" comes in. 

Member States have the right to make written contracts between farmers and processors compulsory, of minimum duration, and with prices fixed. The UK has instead gone for a Voluntary Code of Practice covering much of the same ground, in addition to the creation of the Groceries Code Adjudicator, but the framework is full of holes: the Voluntary Code covers processors but not retailers, the GCA covers direct relationships with retailers (only 3% of the market) but not indirect relationships, and neither critically focuses on price formation and the balance of power in the supply chain. 

That's why the Milk Package also promotes the formation of Producer Organisations for the planning of production and concentration of supply, and POs are allowed to collectively negotiate for contract terms, including price. While farmers have in the past proved reluctant to operate collectively, in the ruthless world of the modern supply chain where brute market power counts for everything, attitudes may have to change. 

It’s not acceptable for our farmers to be paid less than the cost of production, and collective action might be our best option.