Dairy performance & contracts
The financial year ending March 2021 saw a welcome return to profit for our average dairy farms. This was as a result of a slight increase in output driven by an increase in milk prices and a small reduction in costs.
Given the recent turmoil in feed and fertiliser markets it looks likely that costs will increase again this year. In fact, the breakeven milk price dropped by 0.54ppl to 28.14ppl. With rising wage costs, fertiliser and feed costs this will be much nearer 30ppl by next spring.
Whilst the average figures look well, we are aware that the range of milk prices has been quite large in 2020/21. Everybody knows the best payers have been quite a bit above 30ppl but, at the same time, some farmers have received less than 25ppl in the same period.
To date some of the poorer payers have had the upper hand as contracts have not given much clout to farmers. We may however be at a turning point with DEFRA about to press go on new dairy contract legislation.
All of this raises some potentially interesting questions for the industry. Will the various farming unions and processors be able to agree acceptable terms, how will it change the requirements for farmers and will some of the poorer payers end up with contracts for a specified volume? We have already seen top paying contracts attracting value when firms have changed hands.
Will differentiation between contracts make this more likely? And, more importantly, will revised contracts lead to a rise in prices in the liquid sector?
Minimum wage compliance
One of the issues farmers have to contend with is complying with minimum wage legislation. For hourly paid employees this is fairly straightforward.
For those, particularly in the dairy sector that have salaried staff, ensuring the amount they are paid is at least equal to minimum wage is important. If the contracted hours are 50 per week then an annual salary would have to be £23,166.
This is fine but it has been brought to our attention that HMRC are checking hours of employees, as if in the above example an employee effectively does 60 hours then they are being underpaid significantly. Whilst you can count the value of some benefits, such as accommodation, towards this minimum it is important that salaried payments reflect the hours that people are working to avoid failing to comply with minimum wage legislation.
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