Farm Ireland

Tuesday 12 December 2017

German report puts spotlight on milk supply agreements

A German report proposes the restructuring of supply contracts
A German report proposes the restructuring of supply contracts

Farming Independent Team

A highly critical report on the structure of milk supply agreements (MSAs) by the German national competition authority has proposed changes that could have implications for the industry right across the EU.

The interim report from the Bundeskartellamt proposed a restructuring of supply contracts to loosen the links between farmers and their dairies.

The investigation by the German authorities found that:

  • Milk supply contracts are too restrictive as farmers must supply the milk they produce exclusively to one co-operative;
  • Notice periods for a farmer to leave a processor are too long;
  • Pricing should be fixed ahead of collection.

The interim report's findings have been strongly criticised by the German dairy industry.

This German investigation began in April last year and was mainly focused on Deutsche Milchkontor (DMK) which is a joint co-operative-plc structure and the largest dairy in Germany.

However, most of the country's dairies, co-operatives and private companies, have since been asked to return extensive questionnaires outlining how their relationships with farmer suppliers are structured.

Asked how the German case could impact the Irish industry, TJ Flanagan of ICOS said the implications of the Bundeskartellamt report were still being assessed.

However, he said MSAs were firmly provided for in EU law and their operation was in the interests of both milk suppliers and of the co-ops.

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Mr Flanagan said he was not certain that the German authorities took account of the perishable nature of milk and "the vulnerable position" in which this placed the producer.

"Contracts were put in place by the EU authorities to protect farmers," he pointed out.

The introduction of MSAs in the Irish dairy sector following the ending of milk quotas was generally accepted by farmers but the move provoked considerable opposition in some co-ops and companies.

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