Milk first, then pigs and eggs: The Fair Dealing Obligations (Milk) Regulations
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The Fair Dealing Obligations (Milk) Regulations come into force on 9th July 2024. They introduce mandatory minimum terms for milk purchasing agreements (MPAs) and cover all milk sold by a farmer (producer) to a milk buyer (processor).
These regulations are not a new concept. They are an evolution of the Voluntary Code of Practice for Dairy Contracts of 2012 and are generally welcomed by producers and processors alike.
Any new MPA in the UK entered into after that date must comply with the regulations. Any existing MPA must be amended to come into line with the regulations by 9th July 2025.
The intention behind the regulations is to remove unfair and underhanded contractual rights and obligations, which can be forced upon producers who may have a lack of negotiating power.
In summary, under the regulations, an MPA must:
Allow for a cooling-off period of 21 days to allow the producer to cancel without reason.
State that processors act in good faith considering both their own and the producer’s interests.
Allow for pricing to be fixed, variable, or combined. There are restrictions on how the price is calculated and if it is variable, it can only move in reference to agreed factors of which there appears to be no limit. Fixed price contracts can vary under exceptional circumstances and those circumstances must be listed. There is no minimum price requirement.
Give the producer a minimum of 12 months’ notice of termination and the processor a maximum of 12 months.
Provide for variation of the contract by agreement of both parties. This is to stop unilateral variation.
Not be exclusive (where the producer can only sell to one processor), where the MPA is for a fixed volume. It is also not possible to have tiered pricing in an exclusive contract, so processors may opt for tiered pricing and risk the lack of exclusivity.
Be in writing and signed by both parties.
Be for a fixed period or ongoing.
An Agricultural Supply Chain Adjudicator has been appointed to enforce the regulations. A producer who has a complaint under an MPA must refer it to the processor for review first. If the producer does not receive a satisfactory response, it can then be referred to the adjudicator.
Financial penalties of up to 1% of the processor’s turnover can be imposed as can compensation. However, it is early days, and it is not entirely clear what teeth the adjudicator really has or how they will be used.
We understand the adjudicator will initially adopt an advisory stance rather than heavy enforcement. If the adjudicator sees abuse of the regulations, however, they may have little alternative but to deal with it in a robust way.
Although the regulations do not apply to egg, horticulture, or pig contracts , it is understood that egg, horticulture, and pig supply contracts may well be regulated in a similar way as the milk industry in the future.
Therefore, it is worth keeping an eye on what is happening in the dairy industry.
If you are party to an existing MPA or are going to enter into an MPA, you should have your contract reviewed to see if it complies with the regulations or whether it needs amendment. For expert advice and guidance in drafting or reviewing MPAs, get in touch with our specialist agriculture team.
Additionally, if you are a member of the NFU, please be aware that you may be able to benefit from their contract checking service or NFU Legal Assistance Scheme.
Contact Alistair to discuss this further.
