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Dairy round up 2015

The ongoing crisis in the dairy industry dominated agriculture news this year, prompted by overproduction causing an imbalance between supply and demand. Dairy farmers were being paid less than the cost of production, farms were closing, and global supply rose by 5% a year, demand only by 2%. Something had to be done.

The Milk Package was a long-term structural measure designed to fix this broken market, and meant Member States had the right to make written contracts between farmers compulsory, of minimum duration and with fixed prices. Unfortunately, the UK decided to opt instead for a Voluntary Code of Practice, in addition to the creation of the Groceries Code Adjudicator, but the framework was riddled with holes. The Voluntary Code covers processors 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. POs are vital to balancing the supply chain unfairness and would allow our farmers to counter weak bargaining positions – look at France, where almost 90% of the annual marketable volume of recognised POs is negotiated collectively! 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. 

The UK Government took more than a year to grant the GCA the power to fine supermarkets for dodgy practices. The GCA, Christine Tacon, has confirmed she has “reasonable suspicion” that Tesco breached the Groceries Supply Code of Practice but cannot fine supermarkets retrospectively. In 2013, Christine asked for the power to fine retailers 1% of their annual turnover but wasn’t granted the authority until earlier this year. If Tesco is found guilty, I’m sure the £400million fine the coalition government saved them will cushion the blow!

Supply-chain bullying really came to prominence in 2015, with ‘pay to stay’ and retrospective discounting – and, of course, First Milk telling farmers in January to expect a two-week delay in payments. But what’s the alternative? If First Milk went bust, all those farmers would have lost their buyer. Supermarkets can tell a farmer they’ll buy cheese at £10 per kilo and then, once the cheese has been delivered, boot it down to £5 per kilo. Sure, the farmer can complain but who’s going to buy his cheese next time?

I’m all for supermarkets cutting prices. But our suppliers shouldn’t be the ones who take the hit. Retrospective deductions, the threat of de-listing, demanding standards’ compliance but at the suppliers’ expense – these are all ways that Unfair Trading Practices (UTPs) are strangling farmers. That’s why, as Shadow Rapporteur for Mairead McGuinness’ draft report on UTPs, I pushed for formal legal protection for our farmers:

Our case was so compelling, we managed to get the majority of MEPs to agree, and the European Parliament voted to adopt the full report! The Commission should now draw up an open list of UTPs to be banned at EU level, implement procedures to allow confidential complaints, and give enforcement bodies the power to impose appropriate sanctions. The opinion will now be passed to the Internal Markets Committee, so we’re not there yet but it’s an absolutely superb start.

Meanwhile, the Milk Supply Association (MSA) has announced it will form the first EU Dairy Producer Organisation in Scotland! Formed by producers, a Producer Organisation can optimise production costs, stabilise producer prices, and respond faster to changes in the market. For example, Fresh Growers Ltd brought Chantenay carrots back to the UK and now supplies over 90% of the domestic Chantenay market. I’ve given MSA my support, and I hope their DPO to be the first of many for Scotland.