A push for greater transparency in the farming sector

The CLA’s Charles Trotman explains how new dairy regulations from Defra offer greater contractual and pricing transparency for this and other farming sectors
dairy cow

The supply chain is an essential part of how we provide and purchase food, and the relationships involved are equally important. If producers cannot trust processors, and if processors cannot trust retailers, the supply chain begins to break down. To make it work, there needs to be adequate and effective safeguards for all those taking part.

In the dairy supply chain, there are several unique relationships within a two stage process: from the producer to the processor; and from the processor to the supermarket. Although producers are not directly impacted by discussions that take place between processors and retailers, decisions often have an impact on milk prices. This is why fair and transparent contracts are vital.

Aiming for a more transparent and fairer supply chain, Defra has announced new regulations to be introduced later this year that should give greater contractual certainty for dairy farmers. In short, the changes will provide:

  • Clearer pricing terms and contracts for farmers, setting out factors that determine the milk price. Where farmers believe that the contractual process is not being followed, it can be challenged, particularly regarding the milk price.
  • That changes to any milk contract must be agreed by both parties. According to the government this will encourage both sides to discuss where and what types of changes can be made.
  • Easier processes for farmers to raise concerns about contracts, with the aim of increasing accountability as well as speeding up the decision process.
  • Clearer rules in place regarding notice periods and exclusivity. This should protect both buyers and sellers as well as remove any contractual ambiguity.
  • An enforcement process in place to ensure the new regulations are followed by both parties.

There is little doubt that these changes should provide a far more transparent platform than is the case today. The regulations introduce an element of legal certainty that will offer greater protections for producers. The only question that can be asked is why it has taken nearly thirty years since deregulation of the sector in 1994 for these changes to have been adopted.

Providing a case of best practice for other sectors

Defra has already said that it will be conducting reviews in the Autumn, in the egg and horticulture sectors. Subject to the success of these new dairy regulations, there is a case that they can provide an important platform for these future reviews. For example, we know of issues in the egg sector where contractual relationships are fragmented and fractured.

When looking at the changes that are to be introduced, it is rather surprising that the government has allowed the dairy sector to get away with such a series of unusual contractual practices. The fact that regulation will now be done by government to ensure a fairer contractual process, must mean they accept that the previous system was riddled with inconsistences undermining the principles of contract law.

In any contract, both parties have to consensually agree to the original contract and later, to any proposed change by one or other of the parties. Defra’s new regulations confirm that producers were at a significant disadvantage to processors, particularly in terms of setting the milk price. Before the breakup of the Milk Marketing Boards in 1994, prices were heavily regulated, and deregulation of the sector led to a major imbalance in the supply chain which negatively impacted milk producers and disadvantaged consumers.

It would now seem the UK Government has accepted that these imbalances are detrimental to the efficient operation of supply chains. The key now is to ensure that the principle of a fair and equitable contract is applied for all agricultural sectors and that transparent contractual practices become the norm, rather than the exception.

If members have any evidence they wish to share with Defra on the reviews into the egg and horticulture supply chains, please forward this to charles.trotman@cla.org.uk.

Key contact:

Charles Trotman
Charles Trotman Senior Economics and Rural Business Adviser, London