Milk contracts are changing
What you need to know
The Fair Dealing Obligations (Milk) Regulations 2024 were introduced recently and are set to bring significant changes for both milk producers and processors. These regulations aim to regulate contracts between these parties, ensuring fairness and transparency in their dealings. Here’s what you need to know:
Application
The regulations will apply to all milk purchase contracts unless they are established within 12 weeks of the regulations coming into force and all milk is purchased within 12 months and 12 weeks thereafter.
Contract format
All milk contracts must be in writing, signed by both parties, and clearly state whether they are for a fixed period or ongoing (evergreen). There’s also a “cooling-off period” allowing producers to terminate the contract within 21 days of signing without providing a reason.
Good faith requirement
Contracts must include a term requiring processors to act in good faith, considering both their own interests and those of the producer.
Variations and termination
Any changes to the contract must be agreed upon in writing by both parties. Termination requires at least 12 months’ notice unless there’s a material breach or both parties agree to a shorter period.
Pricing
Contracts can specify fixed, variable, or combined pricing. For fixed prices, exceptional market conditions and review procedures must be outlined. Variable pricing must consider specified factors, with explanations provided upon request.
Enforcement
Non-compliance can result in penalties, including civil penalties up to 1% of the processor’s turnover. Producers can lodge complaints with the Secretary of State for enforcement.
These regulations aim to protect producers from sudden price changes and ensure fair dealings between producers and processors. They provide mechanisms for pricing transparency, contract clarity, and dispute resolution. It’s crucial for both parties to understand and comply with these regulations to avoid penalties and ensure fair and transparent relationships in the milk industry.
Clarke Willmott can advise on all contracts and NFU LAS members can take advantage of their fixed fee Contract Checking Service before signing a new contract. Contact a member of our team today.
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