Commission publishes contract reforms for dairy sector

EU agriculture commissioner Dacian Ciolo unveiled the proposals on contractual relations yesterday in advance of a further set of reforms on volatility, innovation, marketing standards and origin labelling due to be addressed in CAP reform discussions.

Together the reforms respond to the recommendations laid out by the High Level Group, set up in the wake of the dairy price crash in 2009. The aim is to prepare the industry for market volatility and ensure a “soft landing”​ when quotas come to an end in 2009.

There has been much debate, discussion and lobbying over the direction of the Commission proposals. This has been particularly heated on the subject of contractual relations as this relates to the balance of power between dairy producers and processors.

According to the Commission, the contract reforms aim to boost the position of dairy producers in the supply chain and prepare the sector for a market orientated future.

The main proposals ​

There are two there proposals set out to achieve these goals. The first provides for optional written contracts between milk producers and processors to be drawn up in advance of deliveries. These should include details of price, timing and volume of deliveries, and duration. The proposals allow for member states to make written contracts mandatory.

The second proposal allows dairy farmers to club together to negotiate contract terms through producer organisations in order to put them on a more equal footing with major dairies. Size limits for collective negotiations of 3.5 per cent of EU production and 33 per cent of national production were proposed to safeguard competition in the raw milk supply.

The third proposal sets out rules for inter-branch organisations that can potentially play useful roles in research, quality, promotion and best practice for producers and processors. The aim is expand access to high quality information in the sector and to improve transparency.

Processor view ​

Of these three main proposals, it was the first two that attracted the most controversy. The European Dairy Association (EDA), which represents processors, had lobbied hard against the idea of mandatory written contracts, arguing that they would compromise efficiency. It pushed for greater guidance without too much prescription, so as to ensure that farmers and processors could maintain a degree of flexibility.

The EDA had also expressed concern about the idea of producer organisations being given power to negotiate on behalf of farmers. Because these groups would not take delivery of milk themselves, the trade association argued no organisation should be able to “have significant influence on the market without market responsibility.” ​

Reacting to the newly published Commission proposals, Joop Kleibeuker, EDA secretary general told DairyReporter.com that the trade association continues to have reservations.

Kleibeuker said the limits set for the size of producer organisations are too high considering that a lot of milk is already tied in via the co-op system. In countries where a lot of the milk is produced and sold through co-ops like the Netherlands, he said the limits would not prevent a situation where no milk could be free to move.

In addition, on the subject of written contracts Kleibeuker is concerned about the clause allowing member states to make them mandatory. He said this could undermine the single market.