UK Needs to Review its Groceries Code Adjudicator’s Role to Protect Dairy Farmers

22 Jan 2015 --- The UK House of Common Environment, Food and Rural Affairs Committee report on Dairy Prices concludes that the UK dairy industry is under intense pressure due to the worldwide crisis, led by global oversupply and reduced demand, especially in China, where demand was expected to rise and failed to. This, coupled with the Russian trade ban on EU imports, has led to many of the industry’s problems, concludes the report.

The report also recognises, however, that the Groceries Code Adjudicator’s role, concerning the relationship between direct suppliers and major retailers, is too restricted to be of assistance to the vast majority of dairy producers, as they are indirect suppliers. It says that the Government should urgently consider extending this role to provide more reassurance to farmers. The Adjudicator should also have the power to launch investigations instead of only responding to complaints, and the Government has been slow to provide the Adjudicator with the practical powers required to fine companies which break that code.

Reports suggest that while it costs a farmer around 30p to produce one litre of milk, that farmer is currently being paid just 20p/litre, on average. Some supermarkets are selling milk for a fraction of that amount.

The British Retail Consortium released a statement in which it said that retailers routinely pay a fair price for their milk to farmers. “Retailers routinely promote products in our highly competitive market, but promotions are covered by the Groceries Code to ensure they are fair to suppliers. The Groceries Code, overseen by an independent adjudicator, was developed after an extensive inquiry and is specifically designed to oversee retailers' relationships with their direct suppliers.”

It also said that retailers alone bear the cost of price promotions. Andrew Opie, BRC Director of Food & Sustainability said, "Some individual retailers have reduced the price of milk charged to consumers in store but they alone are paying for the price reduction – not farmers. In fact, retailers continue to pay the highest prices in the market to farmers regardless of the price they charge their customers. Furthermore, retailers have constructed dedicated supply arrangements with dairy processors for their milk supplies to ensure they pass the best prices back to the farmers."

Food and agriculture campaigner Sustain is concerned about the role that retailers play in unfair pricing of milk that leads to losses for dairy farmers. It highlights five main reasons that more should be done to support a local, sustainable dairy industry to protect farmers in the UK. The top reason cited is fairness:

“Processors and retailers make a profit from milk sales – either directly or as a loss leader, it entices customers into their stores. Yet dairy farmers are having to sell it for less than it costs to produce it. They have so little choice of outlets and suppliers to sell to, that they are forced into unfavourable deals.”

Vicki Hird, policy director at Sustain, gave five further reasons in support of local farmers:

•    Local Economy: If you give farmers a decent wage and a good regulatory framework, they should be able to farm in ways that protect the farmed environment and have high livestock welfare standards.  They will also play a key role in the local economy. It is particularly important to make sure we get more money into rural areas, and that people can make a viable living in the countryside.

•    Security: Ensuring local dairy producers are viable supports better food sovereignty. Whilst we will always need to import foods – and we should trade fairly - reducing reliance on imported dairy can help to reduce our global environmental and social footprint, including energy, water and land.

•    Environment: We have more grass fed cows in the UK than many other parts of the EU, a system which is good for welfare of the cows and uses less imported soy and grain, where as the increased demand for soy for animal feed is a major contributor towards deforestation and biodiversity loss globally.

•    Standards: Where possible consumers should buy organic or similar low input pasture fed products to reduce the use of antibiotics and artificial fertilisers which can harm grassland biodiversity. A fair trade mark for dairy could be considered to allow customers to make informed choices.

Hird concludes: “Whilst consumers can do their bit to support local dairy producers, there is only so much they can do, and what we need more than ever is action from government to save this threatened sector by reducing inequalities and unfair play in the dairy supply chain.”

The news in December that over 60 farmers left the industry in just one month has shocked many and led to fears about the health of the industry in the UK. Many farmers are working 14-15 hr days and then selling at a loss. This could lead to many more farmers leaving an environment that is not sustainable.

The Government said it plans to review the role of the Adjudicator in the future.