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The importance of Fair Dealing Obligations (Milk) Regulations in dairy contracts
The dairy sector plays an extremely important role in UK agriculture. Its success is underpinned by countless relationships between farmers and processors. However, there are instances where these relationships have not been constructive, and the vulnerable position of farmers has been exploited.
This highlights the need for new regulations, which have been recently introduced into the dairy contracts sector.
Our agricultural solicitors run through the implications in this guide.
Dairy contract regulations
The Fair Dealing Obligations (Milk) Regulations 2024 aims to address the relationships between farmers and processors, while dealing with issues that pervade the dairy industry. It aims to:
- Ensure fair and transparent dealings between dairy farmers and processors.
- Protect the interests of dairy farmers with clear contractual obligations.
- Promote sustainability and long-term stability within the dairy sector.
Terms of the regulations
The regulations address several areas critical to dairy contracts that have historically been a source of controversy and unfairness. The regulations ensure:
- Format – Written contracts: The regulations confirm that all dairy contracts must be in writing and signed by both parties.
- Term – The Contract: The contract must also clearly state whether it is for a fixed period or ongoing “evergreen” contract
- Variation and termination: Any changes to the contract must be agreed upon in writing by both parties. Termination will require at least 12 months’ notice unless there’s a material breach or both parties agree to a shorter period.
- Enforcement options: Regulations compel producers to refer complaints to the Secretary of State if the contract is non-compliant, or if a business purchaser has failed to provide an explanation regarding pricing following a request by the producer. Non-compliance by a business purchaser can result in penalties, including compensation payable to the producer.
Pricing
Importantly, the Regulations introduce a pricing and payment framework that provides farmers with negotiating space for fairer terms and secure more predictable income streams.
The benefits of dairy contract regulations
It will be welcome news that the Regulations are not mere ‘guides’ and carry a very real risk if they are not complied with:
- Auditing: Regulations introduce an audit system, ensuring that producers and processors comply with the Regulations and draw up compliant contracts.
- Penalties: There are penalties and sanctions available against processors who fail to comply with ‘fair dealing’ obligations which, if breached, could result in fines and potential restrictions on their operations.
- Good faith requirements: A substantial basis for the Regulations is that dairy contracts must include a term requiring processors to act in good faith, considering both their own interest and those of the producer.
- Dispute Resolution: Contracts must provide a dispute resolution procedure.
- Contract duration and termination: Contracts must specify their duration, whether for a fixed term or an ongoing period (evergreen). They also must detail termination procedures, providing clear guidelines on how to end the agreement to both parties.
Fundamentally, this changes the landscape for both producers and processors and puts an even playing field for both parties, front and centre.
What does this mean for Farmers?
The Regulations are the first set of regulations imposed on the dairy industry following the introduction of the Agriculture Act 2020 and are pointedly aimed to protect the parties against unfair contractual terms and business practices.
The Regulations also ‘have teeth’ and the message they convey is:
- Compliance: This crucial for establishing equitable relationships between producers and purchasers. By adhering to the Fair Dealing Obligations (Milk) Regulations 2024, all parties commit to fair practices, reducing the risk of disputes and fostering a stable dairy industry.
- Transparency: Vital for building trust and accountability. Clear terms regarding pricing, contract duration, and termination procedures empower producers with a comprehensive understanding of their agreements, enabling informed decision-making while promoting a more resilient dairy supply chain.
The consequences of breaching the new contract include:
- Civil penalties: You could receive a fine, which can be levied for each breach of contract.
- Compensation: Producers may also be awarded compensation to be paid by the processor.
Future changes to dairy farming contracts
Indications from the legislature imply that similar regulations could be introduced and applied to other farming contracts in other sectors.
This marks an important step toward equal bargaining power.
Dairy contract farming timelines
- It is mandatory for all new milk contracts issued from 9 July 2024 to comply with the code.
- For all existing contracts which are already in place, they must be compliant by 9 July 2025.
This makes it mandatory for producers and processors to familiarise themselves with these new obligations to ensure compliance and capitalise on the benefits of a more transparent and balanced industry.
Benefits for NFU Farmer & Grower members
If you are a NFU Farmer & Grower member, you may be eligible to benefit from the NFU Contract Checking Service. For example, NFU Farmer & Grower members that subscribe to the NFU Legal Assistance Scheme (LAS) can get financial assistance up to a maximum of £1,000 towards the costs of having four contracts checked or drafted.
Seeking early advice before signing on the dotted line can protect you from potentially costly, lengthy and stressful legal disputes in the future.
As a NFU legal panel firm in the NFU North region, Crombie Wilkinson Solicitors offers the NFU contract checking service to help you understand exactly what you’re signing.
Enter into contracts with confidence, and get new and existing contracts checked by the NFU Legal Panel Firms.
Call NFU 0370 845 8458 to speak with one of the NFU specialist advisers who can discuss your requirements and confirm if you are eligible to have your dairy contracts checked/written under the Contract Checking Service.
Legal expertise: Get help to understand what you're signing
Crombie Wilkinson’s agricultural law experts have a detailed and intricate understanding of how new contracts are impacting processors and purchasers of dairy products and can provide bespoke guidance on your business and how these new regulations might impact it.
For detailed advice, or compliance assistance, contact Crombie Wilkinson Solicitors on 01653 600070. Our friendly team are eager to help with protecting your interests.
