Producer Organisations may save our dairy farmers

This week saw the release of the official figures on the impact of the Russian imports ban, and they make for grim reading. The sharpest drops in EU value are fruit, vegetables, and dairy products; cheese is down 19.4%, with butter faring slightly better at 9.5%.

It’s another blow to dairy farmers, as if the need for last month’s special hearing on prospects for the dairy sector didn’t already show that shady practices and difficult market conditions aren’t confined to Scotland. 

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Published in the Caithness Courier 11 February 2015

Overproduction is causing an imbalance between supply and demand; while the milk market’s global demand is rising 2% per year, production is rocketing ahead with an increase of 5% a year. But the Commission won’t reconsider its decision to eliminate quotas and is instead pinning its hopes on increased demand in East Asia, with the Medium Term Outlook for dairy farmers predicting profitable, stable prices from 2016.

Bear in mind that, of three significant price drops in the past six years, the most recent was due to slowing world demand, and you can see why I’m suspicious of such blind optimism.

I covered supply-chain bullying in my last column but it’s worth mentioning the commonplace ‘pay to stay’ and retrospective discounting again in the context of First Milk’s recent decision to give themselves an interest-free loan in January, when they told farmers to expect a two-week delay in payments. But what’s the alternative? If First Milk goes bust, all those farmers lose their buyer.

Voluntary measures are not enough. The NFUS has tried for years to get the milk industry to accept a formula for fair milk prices relating to market conditions but the loss-leader war between supermarkets has blown this to pieces.

So we turn to the Milk Package, which states Member States have the right to make written contracts between farmers and processors compulsory, of minimum duration, and with fixed prices. In the UK, around 85% of dairy farmers have signed up to the Voluntary Dairy Code, which allows farmers to leave a contract on three months’ notice. But the dairy code only applies to producers and processors, not retailers, and doesn’t cover prices. Only 3% of milk producers are direct suppliers to retailers, so the Groceries Code Adjudicator doesn’t have much sway either.

But, to me, the more interesting part concerns the Producer Organisations.

Producer Organisations (POs) must now be formally recognised by Member States for the planning of production and coordination of supply. In addition to this, POs can negotiate collectively for contract terms, including price. In France, almost 90% of the annual marketable volume of recognised POs is negotiated collectively. Farmers have traditionally eschewed collective action but attitudes have to change in this world of the modern supply chain and the retail juggernauts.

Formed by the producers, the PO would optimise production costs, stabilise producer prices, and respond faster to changes in the market. One example that springs to mind is Fresh Growers Ltd, best known as the PO that brought Chantenay carrots back to the UK and which now supplies over 90% of the domestic Chantenay market. By working together, they managed to access markets that would have been unavailable to individual producers.

No farmer should be paid less than the cost of production, and if collective action is our best option, then let’s go for it.