DAIRY farmers have been urged to take care when signing new milk contracts as falling UK production leads to a tightening of supply and a flurry of recruitments.

Processors are starting to offer contracts to new producers but, four years on from the launch of the voluntary Dairy Code, the NFU is asking exactly what producers are signing up to.

The Industry Code of Best Practice on Contractual Relationships was designed to achieve fairer treatment for dairy farmers and has been adopted by some of the country’s biggest processors, including Dairy Crest and Muller.

But while it covers most of the milk produced in the UK, it does not cover the majority of farmers – with many still supplying smaller regional processors.

Paul Tompkins, North East representative on the NFU's national dairy board, said that before the code farmers faced many unfair practices including retrospective price cuts, unilateral changes to contract terms with no notice, and clauses requiring them to continue supplying a processor even when the company was insolvent.

"Following the launch of the voluntary code, we have seen a number of positive moves by processors, however contractual problems still remain and that’s why we are now urging our dairy members to take a close look at any contracts they may be offered," he said.

Conceding that the headline price is often the main focus, Mr Tompkins said it was important to read the small print and understand important aspects such as notice periods and performance incentives to make sure farmers understand exactly what they are signing.

He said: "We have had issues for example with new 'fixed term' contracts that have appeared recently. Some farmers signed up without realising that the contract ran out after 12 months and then found themselves without a home for their milk at a time when prices were rock bottom and no one was taking on new suppliers.

"Other issues include 'exclusivity' – where farmers are unable to sell surplus milk elsewhere, to sell it from the farm gate or even drink it – and very restricted notice periods that leave farmers unable to take advantage of a rising market."

Australia is introducing new legislation to tackle unfair contracts and the NFU is urging farmers to take their contract seriously and get advice where needed.

"The NFU already offers initial advice through NFU Callfirst and a Business Guide for Contracts," said Mr Tompkins.

"Looking ahead we’re working on strengthening our contracts offer as well as launching a 'top tips' guide at the forthcoming UK Dairy Day to highlight good practice and potential 'bear traps' to watch out for."

The Dairy Board is also working closely with the NFU legal team to review the current framework of dairy contracts to establish if it is delivering fairer and better contracts for dairy farmers.