During the Second World War, the US Army asked the mathematician Abraham Wald where it should place armour on its planes for maximum effect. The army told Wald that returning planes had many more holes in the fuselage than in the engines. Put the armour where there are the most holes, right? Wrong! Wald recognised that he only had partial data. He did not know where the holes were in the planes that did not return. Wald’s insight was to put the armour where the bullet holes weren’t. What Wald recognised is now called Survivorship Bias, which is the tendency for the failed elements of a set to be excluded from studies.
You might legitimately, at this point, be asking what this has to do with dairy farms in the UK and the government consultation on dairy supply contracts, the result of which was published on 3 February 2021. That consultation represented all those businesses in the sector that have survived due to (or in spite of) their milk supply contract; but where is the voice of those who have failed because of the terms of their milk supply contract?
A dairy supply contract can be worth upwards of £500,000 per year for a medium-sized herd, representing the farm’s main source of income. One would expect, therefore, that dairy farmers would understand the meaning and effect of the contract on business performance by monitoring both gains and risks arising from the contract. Sadly, this is not always the case and I for one have never been asked by a dairy farmer to advise on the meaning and effect of a dairy supply contract.
Chief amongst the conclusions of the consultation was the need for legislative standardised terms and for milk contracts to be written down. All this would achieve is to replace references to a processor’s standard terms with references to the statutory terms together with permissible variations on those statutory terms. Those terms will no doubt be available somewhere but possibly not immediately obviously. Notwithstanding standardised terms, a farmer has to be able to understand those terms, what they mean for the farm’s business and how to operate the business to maximise returns from that contract. At the same time, an understanding of the rights and dispute resolution mechanisms encapsulated within the contract is also crucial.
If farmers do not take the time to review and understand such a business-critical contract, they are in danger of the dairy processor remaining in the contractual driving seat; the very thing the consultation was aimed at. Contracts should not be one-sided; they are designed to be reviewed and negotiated in order to be acceptable to both parties. This needn’t mean endless toing and froing but a pragmatic attempt to ensure that both farmer and dairy company benefit from a productive relationship based on sound contractual principles. Ultimately it is for the contractual parties to enforce the terms of the contract, not anybody else.
The Government’s answer to standardised terms is somewhat akin to putting the armour on the fuselage of returning planes during the war. It probably makes the crew feel a bit safer but will have little effect overall. Once regulations are in place the contract will incorporate the regulatory prescribed terms, but the farmer still has to take the step to truly understand what his dairy supply contract means for them, their farm business and their cows.