Fair Dealing Obligations (Milk) Regulations 2024

Motion to Approve

Moved by

That the draft Regulations laid before the House on 1 March be approved.

My Lords, I declare my interests as set out in the register. This evening’s protests around Parliament by farmers, seeking a fair price for their product, I think speaks to the need for these regulations.

These regulations are the first of those that were promised, with pigs and eggs to follow, and are part of this Government’s continued backing of our farmers, as the Prime Minister made clear at the NFU conference only last month. These regulations make use of powers in the Agriculture Act 2020, introduced by the Government to help level the playing field between dairy farmers and the larger processers that they supply. The then Agriculture Bill was debated intently in this House and the expertise of many noble Lords helped to shape these powers, for which I extend my thanks. I hope noble Lords share my delight that this work is coming to fruition.

The dairy sector plays an extremely important role in UK agriculture. Its success is underpinned by countless relationships between producers and processors that work extremely well. However, we have been made aware that, for some time, there are examples where relationships are not as constructive as they should be, and the vulnerable position farmers are in can often be exploited. The public consultation carried out in 2020 sought to uncover the issues and inform the types of interventions required to address them. The responses highlighted the main issues that dairy farmers experience, and we have constructed these regulations in direct response to those issues.

We also listened to the perspectives of the milk processors. While the central aim of the regulations remains to enhance fairness and transparency for UK dairy farmers, we have also taken great care to avoid unnecessarily constraining those processers who already treat farmers well. Throughout the entire process of developing these regulations, we have undertaken extensive industry engagement with representatives from across the dairy supply chain to ensure that the regulations were effective and proportionate. It is incredibly pleasing to report that, since the introduction of these regulations, the industry has been in agreement that what we have developed strikes the balance between improving protections for farmers and maintaining the flexibility that businesses need to remain agile.

We will have the opportunity to discuss the content of the regulations, but I will summarise the rationale behind some of their most significant provisions. The regulations introduce a legal requirement for a written contract. We appreciate that this is already commonplace in the industry, but enshrining it in an agreement in writing is the most effective way of safeguarding farmers’ rights. We want to see this best practice universally adopted. Importantly, this also allows us to protect farmers from the imposition of changes without their agreement. The consultation responses revealed quite a worrying number of instances where the agreements farmers had signed up to were changed without their consent. Clearly, this is not the basis of a respectable business relationship. The regulations expressly prohibit unilateral contract variations, so farmers know that, once they have signed up to a contract’s terms, their agreement is required before any changes can be made.

The regulations introduce new requirements on processes to be more open about how prices are determined through the inclusion in the contract terms of the factors that will be used to determine the price being paid. We know it is ultimately the market that decides the price of milk at any given time, and these regulations are not an exercise in price-fixing. However, where farmers are subject to price variations, they should be confident that these have been determined fairly, in line with their expectations, and that they are a true representation of market value. Farmers have sometimes been left scratching their heads as to where the price included in their monthly milk cheque has come from. This new approach will ensure a far higher degree of trust and transparency.

When it comes to either party wanting a business relationship to end, there are now new rules that apply to all contracts on the process of termination. The specific details of this will still be a matter of negotiation, but they will now be subject to some broad parameters to avoid unfair practices occasionally seen in the past, such as restrictions on the days on which farmers are permitted to serve notice. This is to ensure that farmers are not subject to unjustifiably short notice themselves, nor are they trapped in a contract that they want to terminate for an excessively long time.

The regulations address problems farmers raised with us about exclusive contracts, which are contracts that stipulate that a farmer supplying one processor must supply them with the entirety of their production volume. These arrangements have a place in the industry and can be mutually beneficial. However, they can also be harmful to farming businesses when used alongside other contract terms, such as volume gaps and A and B pricing. Therefore, it is no longer permitted.

It is also worth touching on the way in which the regulations account for farmer representation. We are aware that many democratic organisations, such as co-operatives or producer organisations, are inherently structured to adequately represent the interests of their farmer members. As such, we have allowed for lighter regulation of these groups, exempting them from the pricing provisions and the rules on contract variation.

Finally, the regulations establish how we will ensure compliance. We are recruiting a new agricultural supply chain adjudicator, who will be in post before the regulations come into force. This borrows from approaches which have proven successful in related contexts. The individual appointed will investigate complaints and be able to issue substantial fines to anyone in breach.

In conclusion, I hope that I have been able to assure noble Lords that these regulations are the right approach to some of the problems faced by the dairy industry. They focus on those areas the industry has clearly told us need to be improved. They represent a significant step forward in achieving fairness and transparency for UK dairy farmers. I beg to move.

My Lords, I applaud His Majesty’s Government for these new contract regulations. They are both comprehensive and long overdue in addressing matters of serious injustice in the dairy farming sector. Unfair milk contracts have been an area of concern for the dairy sector for many years, going back to the voluntary code of practice for dairy contracts, introduced in 2012. In their current form, most milk contracts do not create mutually balanced business relationships between buyers and sellers. Rights and obligations are often heavily biased in favour of buyers.

At times of pressure, purchasers have been able to change contract terms and pricing mechanisms, in some instances even introducing retrospective penalties and price cuts without negotiation. The Covid-19 crisis saw many of these scenarios play out. Farmers were hit with price cuts at no notice, a lack of transparency on pricing, and delayed payments, resulting in significant pressures on producers during this challenging period.

These regulations will see freely negotiated and fairly balanced contracts, tailored to the needs of both buyers and farmers. They mark a significant step forward. It will be important for industry and government to help support the development of farmer representation structures, such as producer organisations within the dairy sector, to make the most of the regulations and improve trust and collaboration across the supply chain.

This legislation contains extensive powers for the Secretary of State to oversee and enforce the code. I welcome the recruitment of the agricultural supply chain adjudicator, who will, among other things, enforce the regulations on behalf of the Secretary of State. Can the Minister clarify whether it is intended that the person appointed to this role will learn from the operation of the Groceries Code Adjudicator, which has been in operation since 2013?

My Lords, I warmly congratulate my noble friend on bringing forward these regulations. They plug a gap which has long been open, as most farmers do not supply supermarkets directly and so are not covered by the Groceries Code Adjudicator.

When I chaired the Environment, Food and Rural Affairs Committee in the other place, I took a small delegation to Denmark to learn about the effectiveness of its milk and other co-operatives. Does my noble friend see this as an opportunity to encourage more co-operatives and producer organisations than we have seen in the past?

I grew up in the hills of the north of England, where I could see how fiercely independent hill farmers and others were. There is often a certain resistance to working together. I hope that the regulations my noble friend has presented this evening will lend themselves to producing such co-operation in future.

The NFU has long argued for fairer, more transparent supply chains. I hope that its pleas will be rewarded in the regulations before us. Can my noble friend assure the House that the Government will lend their support to the development of representational structures, such as the producer organisations and co-operatives to which he alluded? This will ensure that the dairy sector can work collaboratively and effectively with improved trust and greater collaboration across the supply chain.

I warmly welcome these regulations.

My Lords, I too warmly welcome these regulations. It is interesting and rather ironic that the farmers are protesting in Parliament Square while we are addressing this topic. When I saw the tractors outside, I felt rather envious. I wished I had brought my own tractor from Northumberland, although it might have taken most of the weekend.

This has been an issue for a very long time. I have been involved in trying to encourage better relationships within the dairy and other sectors for at least 25, if not 30, years. This is an important development. I welcomed it when the then Agriculture Bill came into the House. It was a big step forward for the Government to bring this in as part of that Bill.

I have two questions for the Minister. First, did the Government seriously consider whether to extend the existing GSCOP and Groceries Code Adjudicator to include the elements contained in that Bill? There have been at least two reviews of the scope of GSCOP during the years. Many of us have been keen that that scope should be extended down the supply chain to provide greater protection and support for primary producers.

Secondly, if the answer to that is, “Yes, we have considered it but have decided to go it alone and establish our own adjudicator within the dairy sector”, are the Government likely to extend that scope to other sectors? Many of the issues dogging the dairy sector dog other sectors too. Relationships within supply chains are nothing like as good as they should be and, in many cases, degenerate into confrontational relationships. In my view, it is important to look at other sectors. When the adjudicator is appointed, it should be made clear that—if it is government policy—the remit is likely to be extended to include other sectors.