Learn about the hidden traps of milk contracts before you opt to sign

Nov 13 2007 by Dai Davies, Western Mail

RAW milk contracts are one of the most important legal documents that a dairy farmer has to sign and at today’s Welsh Dairy Event, I will explain to those who attend that such a commitment shouldn’t be taken lightly.

Not only do raw milk contracts influence the way the dairy farm business operates through seasonality schemes, constituent requirements and other standards, they also fundamentally determine how milk prices are set. Therefore it is vital that milk producers fully understand the liabilities and obligations that their contracts compel them to undertake, especially when they look to sign a new contract with a milk buyer.

A contract can mean a commitment to a buyer of over 18 months and within that time you as the farmer may not know what you’re going to get paid. Even if you see the price of milk is slipping, if you are in a contract, you may not be able to get out without incurring penalties.

NFU Cymru has produced a guidance note specifically designed to help its members understand the content of raw milk contracts. It seeks to point out the most important provisions normally contained in a contract and how they affect the farming business. It is not a guide to every contract on offer, but does give some good general pointers.

Some general rules which apply to all contracts are:

Read and understand your existing contract with your milk buyer;

Be aware that the contract will probably consist of more than one document. It is important that you have read and fully understood the contents of any schedules or additional terms and conditions that may accompany the basic contract that you have signed;

Be mindful that some supply contracts (especially with milk co-operatives) are accompanied by separate, but related agreements such as a membership or financial agreement;

Before signing any new contract make sure you have taken the time to study all of the provisions of the contract and not just the headline price. Failure to understand the fine print can lead to disappointment later. The MDC’s online milk price calculator allows milk producers to compare the actual milk prices that would be payable using your own constituent levels/seasonal profile, etc on any given milk contract;

Be mindful that this is a legally binding document and you and your buyer are bound by the terms and conditions that it contains;

If you are in any doubt about your contract, seek professional and independent advice. The NFU can provide initial advice on particular raw milk contracts to members and you should in the first instance contact NFU Call First on 0870 845 8458.

Don’t underestimate contracts. It is vitally important that producers fully understand the liabilities and obligations that they compel them to undertake – they are hugely important documents.

NFU Cymru is developing a standard form contract to be used between milk producers and milk buyers/processors. The purpose of the contract is to give greater clarity to certain provisions commonly contained in milk contracts and more fairly balance the rights and obligations contained in raw milk contracts between dairy farmers and their milk buyers. It will be published very soon.

Dai Davies is a dairy farmer from St Clears and president of NFU Cymru