A new cross-industry group is aiming to look at addressing volatility in the dairy sector.
Acknowledging that the current situation in the dairy sector has left many dairy farmers across the UK struggling to see a future in the industry, the TFA has joined with the CLA, FFA, NFU, NFU Cymru, NFUS and RABDF to form a ‘task and finish’ group to work on initiatives to alleviate risk. The aim is to allow farmers to better manage the volatility that is becoming the norm in the sector.
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.
Milk contracts and pricing schedules can also be used to reduce risk 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 are still 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.
TFA National Chairman Stephen Wyrill said “I am really pleased that the industry is pulling together to seek solutions to the challenges faced by the dairy sector at this time. There is no current sign of recovery in dairy markets and drastic action will be needed for dairy farming to have a viable future in this country”.
