Farming groups join forces to tackle dairy volatility

Sian Davies, the NFU’s chief dairy adviser, reports on the initial work of a new cross-industry group to address volatility in the dairy sector.

Acknowledging that the current situation has left dairy farmers across the UK struggling to see a future in the industry, a number of organisations are working together on initiatives to alleviate risk.

The aim is to allow farmers to better manage the volatility that is becoming the norm in the sector.
The NFU has joined with the CLA, FFA, NFU Cymru, NFUS, RABDF and TFA to form a ‘task and finish’ group.

Following a presentation by Liam Fenton from INTL FCStone Ltd on the role of futures trading in the dairy sector, the group began by considering a number of initiatives that are available in other parts of the world.

In America, the government-backed Margin Protection Scheme supports dairy farmers in volatile times and in New Zealand Fonterra offers their farmers a guaranteed milk price scheme. Closer to home, in Ireland a number of milk co-operatives have brought in fixed-price, fixed-term contracts and uptake by farmers has far outweighed availability.

Milk contracts and pricing schedules can also be used to reduce risk in-between farmer and processor.

Farmers need fairer, more transparent contractual arrangements and more effective ways of selling milk, such as fixed price (eg through fair A and B contracts) and longer-term pricing arrangements.

A and B contracts could be a way of managing volume going forward, but need to be developed in discussion and with agreement from farmers, with a clear way to appeal any decisions made.

The ‘task and finish’ group will look to provide guidance on best practice with A and B contracts so that farmers can question their milk buyers’ intentions.

So far the only farmers that can manage their risk are those on formulaic contracts, cost of production plus retailer contracts or on longer-term pricing arrangements. These still are in the minority in the UK. We want to see increased use and uptake of these innovative, new tools that help balance the price risk between farmer, processor and end user. This will require better pricing signals to farmers so that they can decide whether to take the risk themselves.

Ultimately we need to build more transparency and trust into the UK dairy sector, and the first step to this is through farming representatives working together on a common goal.