Farming: Milk industry suffering from a 'climate of fear'

The NFU of England and Wales has claimed it has uncovered a "climate of fear", with milk buying companies being forced to sign confidentiality agreements so that no details of their negotiations with retailers can be disclosed. This, the union claims, is leaving the supply chain dangerously in the dark.

This latest claim by the union emerges from the responses they have received to a series of direct questions from president Peter Kendall on how the ten major buyers and retailers in this country view the current profit disparity in the milk supply chain.

The union estimates that the total revenue from the manufacture of dairy commodities in 2010 has been worth 322.7 million more than the same period last year. That is equivalent to 3.1p per litre. However, the primary producer - the dairy farmer - has seen his milk prices increase by just 1.4p per litre in the same period.

Kendall points out that not one of the milk buyers attempted to claim that farmers were getting their fair share of market returns: instead they used unspecific words such as "competitive" to describe producers' returns for their milk.

"Many of the milk buyers responded at great length and I would like to thank them for their candidness and engagement," said Kendall. "The answers make for interesting reading, not just because of what they do tell us, but in some cases, because of what they don't, or perhaps can't.

"I asked milk buyers if retailers were putting them under unfair pressure in negotiations. The one answer they clearly wanted to give me but couldn't was 'yes'. I believe retailers have created a climate of fear, forcing milk buyers to sign confidentiality agreements so that no details of the negotiation can be disclosed.

"The balance from healthy competition into ruthless and erratic negotiations has been tipped. Worse still, this is the money that could have been returned to dairy farmers but is instead funding this situation.

"These antics are an affront to hardworking dairy farmers and the NFU should not be alone in criticising this situation as it affects shareholders, consumers and suppliers alike."

Kendall believed the current price stalemate that exists in the liquid market would be difficult to break until milk buyers stopped tearing strips off each other to win business.

The answer, in his book, would be to move towards longer-term supply agreements between retailers and milk processors to further reduce the frequency of retendering cycles and opportunities for buyers to undercut each other.