Understanding the 2024 dairy contract overhaul

In our latest Experts in the Field podcast episode, we spoke to Paul Tompkins, chair of the Dairy Board for the National Farmers Union, about the changes to dairy contracts with the introduction of the Fair Dealing Obligations (Milk) Regulations 2024.  You can listen to that episode here: Ep. 29 Experts in the Field: New dairy contracts legislation - what dairy farmers need to consider

We are now a few months into the Regulations applying to new contracts and momentum is gathering.  We are seeing milk purchasers proactively reviewing their contracts to ensure compliance and there are increasing enquiries from suppliers about their contracts and what the Regulations mean to the sector and their business. 

In conjunction with the National Farmers Union we will be attending various dairy contract roadshows around the South West in November.  The roadshows are to assist suppliers in understanding this brand new legislation.  The events are open to NFU members and non-members and the link to sign up is here: Join the NFU upcoming dairy contract roadshows – NFUonline

Earlier in the year we wrote an article on the Regulations.  Which can be found here but by way of reminder the key headlines are:

Standard requirements

Milk purchase contracts will need to contain a range of standard terms (i.e. must be in writing and signed by the parties, must contain a term requiring business purchasers to act in good faith in relation to the contract, specify frequency of collection, force majeure events, any changes agreed by both parties in writing (with some exceptions for certain structures such as co-ops).

Duration

Milk purchase contracts will need to be either:

• Fixed-duration (one which will terminate on the expiry of a specific period / specific date) or
• Evergreen (one which will continue until either party terminates it).

Pricing flexibility

Allows for more flexibility on pricing mechanisms. Contracts may use a fixed or variable price, or a combination of the two.

Contracts will also need to specify various points including payment frequency, what constitutes exceptional market conditions and a procedure by which price can be reviewed where those conditions occur. Variable price contracts will be required to include a third-party verification procedure in terms of how pricing is determined.

Exclusivity

Prohibits exclusive milk purchase contracts from including any terms which try to provide that the price paid under the contract changes if the amount of milk provided by a producer exceeds a certain volume.

Dispute resolution

Contracts will need to set out a procedure by which a producer may make a complaint to the business purchaser (and require that where a complaint is made, the business purchaser will need to investigate, and take all reasonable steps to resolve the complaint).

Cooling off period

Contracts will need to include a 21-day cooling off period during which producers can terminate contracts without any penalty or liability.

Notice periods

Require that where a contract has a duration of more than 12 months:

• A business purchaser will need to give at least 12 months’ notice to terminate the contract (aside from where a producer consents or there has been a material breach)
• A producer must not be required to give more than 12 months’ notice to terminate and may in certain cases terminate the contract much more swiftly.

If you are party to an existing milk purchase agreement, you should have your contract reviewed to see if it complies with the Regulations or requires amendment.  The deadline for all existing contracts to comply with the new regulations is July 2025.  We therefore expect to see increasing focus on this as we go into 2025. 

If you are interested in learning more about this topic or other matters concerning farming or rural land, please contact our team of experts, listen to our podcast, Experts in the Field or visit our Farms, Estates & Rural Land web page.