This comes at a challenging time for dairy farmers, many of whom have been notified that they will see reductions in their milk price in the coming months.
Following AHDB’s recently updated dairy market forecast and the price moves, staying informed about market trends and understanding their impact is even more essential for Welsh dairy farmers.
Fair Dealings Obligations
The Fair Dealings Obligations (Milk) or FDOM Regulations came into force fully in July this year after influential industry lobbying led by NFU Cymru and the other UK farming unions. The regulations do not set milk prices – which are led by the market – but the unions succeeded in advocating for three key clauses focused around improving price transparency, reducing exploitive practices and recognising the role of dairy producer organisations (DPOs).
“First and foremost, it is important that we remember that behind the numbers are real farming families who in some cases, have been notified of a drop in income of up to 18%."
Jonathan Wilkinson, NFU Cymru Dairy Board Chair
Under FDOM regulations, all milk contracts must clearly explain the pricing factors milk buyers use to calculate milk prices. This transparency should enable farmers to understand how their milk price is determined and therefore which market indicators to use for forecasting.
Real farming families
NFU Cymru Dairy Board Chairman Jonathan Wilkinson said: “First and foremost, it is important that we remember that behind the numbers are real farming families who in some cases, have been notified of a drop in income of up to 18%. This comes at a challenging time for the industry with concerns about the impact of the family farming tax and significant changes to agricultural support schemes in Wales.
“Under FDOM regulations, all milk contracts must clearly set out the pricing factors a milk buyer uses to calculate milk prices. This transparency should help farmers to understand how their milk price is determined, therefore allowing them to make adjustments where possible and to identify which market indicators to use for forecasting.
“NFU Cymru will continue to monitor the implementation of the new regulations and we will also continue to raise any issues or potential incidences of non-compliance with the new adjudicator.”
Clarity
As market conditions fluctuate, clarity around pricing mechanisms becomes even more important. If a contract lacks clear pricing mechanisms, farmers should discuss this with their milk buyer or milk pool representative to ensure they understand how their milk prices are set. If the contract does not include the required information and this cannot be resolved with the buyer, the regulations provide an enforcement mechanism to ensure these issues can be resolved.
Additionally, the regulations require that any changes to the contract, which should include any changes to the factors used to calculate farmgate prices, require prior agreement from the farmer or, where relevant, their DPO.
We encourage all members to continue to raise questions and engage in constructive dialogue with their buyer on how their milk price is formulated. The office of the Agricultural Supply Chain Adjudicator remains there for any farmer concerned about a lack of transparency or engagement from their milk buyer. However, it is important to note that the adjudicator can only officially investigate complaints made by farmers, so it is important that members also make use of the enforcement regime set out in their contracts.
Market volatility truly tests the resilience of the dairy sector. Global commodity prices are beyond local control and often put pressure on supply chains, and present challenges for the farming sector. However, the new fair dealing regulations place farmers in a stronger position than during previous periods of market volatility.
Dairy farmers can now challenge their milk processor to provide transparency when it comes to milk price adjustments.