Competition rules will be temporarily relaxed to allow the dairy industry to address current market challenges posed by Covid-19, it has been announced.
The legislation, which will be laid shortly, would allow the sector to avoid waste and maintain productive capacity to meet future demand.
UK farmers produce over 40m litres of milk every day, but decreased demand from the hospitality sector and reduced collections has caused 'unprecedented disruption' to dairying, the NFU said during a recent crisis meeting with government.
The outbreak has seen the almost complete loss of the food service and hospitality markets, as well as increasing price volatility in global markets which has left farms and processors under pressure.
This has led to some farmers with no other option but to dispose of milk on farm.
But the new announcement will enable collaboration between dairy farmers and processors so they can avoid their surplus milk going to waste.
This could include sharing labour and facilities, cooperating to temporarily reduce production or identifying where there is hidden capacity in the supply chain for processing milk into other dairy products such as cheese and butter.
The Competition Act 1998 prohibits certain types of anti-competitive behaviour, including collusion and cartels.
This covers agreements between businesses that prevent, restrict or distort competition. This can, for example, include price-fixing, sharing pricing information and sharing markets.
In the Act (paragraph 7 of schedule 3) there is a mechanism to allow the Business Secretary to exclude this prohibition – the one that covers agreements between businesses that prevent, restrict or distort competition – for exceptional and compelling reasons of public policy.
Dairy UK and the Agriculture and Horticulture Development Board (AHDB) will now identify spare processing capacity, how to stimulate demand and how production could be temporarily reduced.
Defra Secretary George Eustice said government has heard 'loud and clear' the dairy sector's concerns: "We are suspending competition rules law to allow farmers to work together.
"I am also urging farm businesses to access the loans that are available from their bank to support them in this period.
“We welcome our farmers’ heroic efforts in ensuring food supplies remain resilient and will continue to support them through this difficult time.”
Dairy is the UK’s largest farming sector, with milk accounting for 16.85% of total agricultural output in the UK in 2018.
Of this, approximately 50% of UK dairy sector output is fresh milk and as such accounts for a significant amount of UK processing capacity.
The government has also encouraged any farm business facing difficulties to access support such as Coronavirus Business Interruption Loan Scheme farming businesses can access.
Alok Sharma, Business Secretary said: “Temporarily relaxing competition law for the dairy sector will mean farmers can work together to minimise waste of milk, and use it to make other essential dairy products."