Will UK dairy embrace Producer Organisations?

SINCE the EU Dairy Package was finally published 12 months ago, with the objective of increasing the bargaining power of producers in the supply chain, a small number of groups of milk producers are already weighing up the possibilities it offers.

Should any group decide to go ahead they can apply to Defra for a slice of the £5 million fund which it has made available.

The impact the creation of Producer Organisations (PO) might have on the UK dairy industry will depend on precisely how far the UK Government goes in legislating what contractual aspects are to be mandatory.

Promar’s Neil Adams has produced a comprehensive document bringing together the essential detail of the EU Dairy Package and the Defra Dairy Fund which was announced towards the end of last year.

However, he stressed the document did not seek to suggest whether producers should or should not be taking action to form groups.

Pros and cons

It is understood some of the existing producer groups supplying major the processors/manufacturers are looking at the pros and cons of seeking to become an offical PO under the terms of the EU Dairy Package, and whether it would increase their bargaining power.

But NFU chief dairy adviser Rob Newbery said most producers needed to know just what ‘teeth’ Defra would see fit to bestow on a PO. He pointed out while the EU was permitting any one PO to represent up to 33 per cent of national milk volume, it would not need to be that big to be effective if it had some ‘point of difference’ in the milk it was representing.

He also said recent moves by processors to seek to comply with the voluntary code of best practice, should not cloud the issue of PO relevance. It might be a PO could better negotiate the terms of a code-compliant contract with processors. However, the NFU was not setting out to prescribe how a PO should look, or whether or not it was the right move for individuals.

“What we have said is we will collate the details of individuals interested in the concept and if any wish to take the idea forward, we can put them in touch with one another and also help with the legal issues.”

Mr Adams said if legislation were not to create any real bargaining power for the POs then producers might well question whether they could achieve anything for example, which existing and past co-ops had failed to achieve.



EU Dairy Package: Producer Organisations

Summary of the main features of the EU Dairy Package from Promar.

  • It provides for the operation of producer organisations to negotiate price without necessarily taking ownership of the raw milk
  • Provides an exemption from some aspects of competition law
  • Gives member states the option of legislating a requirement for contracts between producers and milk buyers
  • The substantive components of the package cannot come into force until it has been put into UK law - not expected before spring

The Defra Fund, according to Promar, is provided for business planning and establishing legal entities.

It will give grant aid at up to 40 per cent for developing new products or processes which add value to milk or for accessing new markets. Activity to facilitate the formation of POs would be eligible for grant levels at up to 100 per cent.

The document suggests the UK Government appears to prefer, at least for the time being, to adopt a light touch approach which means the regulation will be implemented with the minimum level of control of contractual arrangements.

And the dairy trade’s endorsement of the voluntary code “appears to be a good way to head off the imposition of more draconian mandatory legislation which could emerge out of the Dairy Package legislation,” says Promar.

It suggests retailers and milk purchasers ought to consider to what extent POs are an opportunity or threat to their businesses.

“Farmers would probably welcome a more formal mechanism with proper representation as a means to agree supply arrangements.

“Retailers could establish POs with existing suppliers as a defensive measure against their suppliers fragmenting into new non-aligned supply groups,” it says.

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