UK farmers raise dairy supply chain concerns amid proposed contract changes

UK farmers have voiced concerns over proposed changes to the new dairy contracts legislation, which would allow dairy farmers more flexibility to negotiate non-exclusive agreements and sell surplus milk to third parties when the primary buyer does not need it. The farming unions are worried that the potential changes would introduce a tiered pricing model that would impose bonuses and penalties for seasonal milk volumes and discounts on certain milk quantities, including exclusive contracts.

Tiered pricing means changes based upon the volume of milk supplied, which the Fair Dealing Obligations (Milk) Regulations’ 2024 (FDOM24) prohibits in case of exclusive agreements, according to the additional guidance for the FDOM24. Further, the price to be paid for milk under such a milk purchase contract cannot change based on whether the amount of milk the producer provides exceeds a certain volume.

The National Farmers’ Union (NFU), NFU Scotland, NFU Cymru and the Ulster Farmers’ Union have written to Food Security Minister Daniel Zeichner calling for further clarification on key provisions in the legislation.

“The UK farming unions have always believed that the ability for milk buyers to control both price and volumes of milk on a dairy farm should be separated. We cannot see any reason why anyone would object to a farmer being free to market their excess milk to a third party should their primary purchaser be discounting it,” the unions note in a statement.

The deadline for implementing the new standards for new and existing contacts is July 9, 2025.

Concerns over tiered system

Historically, contracts have allowed milk buyers to have “complete discretion” over the price paid for milk and exclusivity over all of the milk produced on a dairy farm. However, farmers are concerned that the tiered pricing model could undermine the FDOM24’s transparency goals and restrict the benefits of the proposed non-exclusive agreements.

Dairy producers and purchasers have until July 9, 2025 to ensure their contracts comply with the regulations.In the past it was possible for a purchaser to enter into an exclusive milk purchase contract with a producer, where the purchaser would pay a different price for any quantities of milk supplied over a certain volume, but the producer is prohibited from supplying their milk to anyone else. Under the FDOM24, this is no longer allowed.

In a letter to the dairy sector stakeholders earlier this month, Zeichner outlined how his officials had informed him of “potentially unintended consequences stemming from the tiered pricing” provisions in the regulations. He explained that while they were designed to protect producers from unfair practices, the rules also aim to preserve flexibility where current approaches work effectively.

Meanwhile, the farming unions say they understand the government is proposing the changes to allow for a specific interpretation of tiered pricing that covers both a price bonus and penalty linked to seasonal milk volumes. This would effectively allow the milk buyer to “discount certain liters of a farm’s milk, even where a contract is exclusive.”

Ensuring fair dairy contracts

The FDOM24 came into force three months ago and set out the rules for how milk purchase contracts must operate. According to Defra, FDOM24 is designed to make these contracts “fairer and more transparent across the dairy industry.”

They apply to contracts to purchase cow’s milk that are arranged directly between “purchasers” (such as dairy processors or dairy product manufacturers) and “producers” (such as dairy farmers) throughout the UK.

To enforce FDOM24, Defra has appointed a new Agricultural Supply Chain Adjudicator, Richard Thompson, who explains that the rules cover the direct purchase of cow’s milk from a farm by a business purchaser — from farm gate to dairy processor or manufacturer. 

“These new rules make sure both purchasers and producers know their rights and responsibilities under milk purchase contracts. In summary, contracts must now be in writing and signed, and include clear terms about pricing, how long the contract lasts, how it can be ended, and how disputes will be settled,” he states.

Dairy farmer interests

NFU Dairy Board chair Paul Tompkin previously called the implementation of FDOM24 legislations a “significant step in a long road of campaigning to improve fairness across the supply chain,” wherein farmers could verify the calculation of variable prices. Further, the Secretary of State could also impose substantial financial penalties in case of any breaches.

Richard Thompson is appointed as the Agricultural Supply Chain Adjudicator to enforce the regulations (Image credit: Giles Hall).“For a fully functioning supply chain, we must also see the regulations pave the way for better farmer representation and cross-industry collaboration. Risk must be shared across the supply chain, as should reward,” he said at the time.

NFU Scotland’s vice president, Andrew Connon, also raised concerns over the proposed changes and asked for “more detail” during a meeting with the Farming Minister.  

He states that any changes to this area of the hard-won milk contract legislation can potentially undermine a crucial cornerstone of the regulations around pricing and exclusivity and “act against the best interests of dairy farmers.” Until further discussions, he reportedly urged the Minister to refrain from proceeding with this proposed amendment at this late stage.

Demanding quick resolutions

The farming unions have supported the government’s intentions but demand fast solutions. 

“We share the food security minister’s desire to improve fairness in the dairy supply chain, but these proposed changes would act against the best interests of dairy farmers. That is why we have written to him seeking further clarification and a proposed solution without delay.”