Copa and Cogeca, the organisations representing European farmers and agri co-operatives, have raised concerns over the rapid deterioration of the milk market. Speaking at the EU Milk Market Observatory on 28 July, chair of Copa-Cogeca Milk Working Party, Mansel Raymond, argued that without EU action many producers would be forced out of business by winter.
“The market is in a much more perilous state than it was four weeks ago, with producer prices far below production costs. It’s a critical situation for many dairy farmers across Europe,” he said.
The drop in milk prices is affecting farmers across the whole of the EU. In the Netherlands, Dutch farmers receive 30% less for milk than they did a year ago, according to the national statistics office CBS. Nevertheless, milk prices in shops have decreased by only 5%. This is due to a number of factors affecting milk prices, including transport costs and long-term contracts between farmers and supermarkets. Agricultural exports are also under pressure due to the Russian boycott against EU agricultural products. The Russian embargo is a response to sanctions on the Kremlin over the Ukraine crisis.
Rabobank, the Dutch co-operative bank that is the main source of finance for the dairy sector in the Netherlands advised farmers to wait until they made new investments and said milk prices could drop even further. Rabobank’s Dairy Quarterly, published on 22 June, highlighted that the world was still producing more milk than the market needed.
In the UK, farmers are losing up to 10p for each litre they sell. As part of a Milk Trolley Challenge, protesters have removed all milk from shops including Morrisons and Lidl and either paid for it or left the trolleys at the checkout. Meanwhile in France, farmers have been striking over the drop in milk and meat prices. French farmers have stopped trucks carrying imported produce at the borders with Spain and Germany.
According to the EU Milk Market Observatory milk production in the 28 EU member states remains above 2014 levels, with excessing stock for milk and cheese. In 13 EU member states, production in the first five months of the year was higher than in 2014. This is also due to the European Union ending milk production limits on 1 April. Introduced 30 years ago to address overproduction in the milk sector, milk quotas were removed in April this year, with the expectation that global demand would support prices. However, New Zealand, the world’s largest dairy exporter, has continued to increase production. The USA and Australia have also witnessed an increase in production.
“The EU Commission must act to improve the situation short term so that producers can meet demand which is expected to rise in the medium term,” said Mr Raymond. “With 88% of milk produced in the EU intended for domestic consumption, the situation must also be taken seriously by all participants in the supply chain. If retailers continue to force prices down, we will see a big exodus of milk producers causing increased volatility on the market. We need a commitment from them on this. A loss of production capacity in the milk sector would also disturb the meat market.”
At the meeting various producer organisations asked the EU Commission to take action, some advocating an increase in dairy intervention prices and financial support to help farmers overcome the situation. Others have asked the Commission to propose measures to regulate supply.
Increasing intervention prices would be counterproductive, thinks EU Commissioner Phil Hogan. “Indeed, in a situation where production quotas no longer exist, it is of paramount importance that farmers and economic operators follow market signals,” he said in a European parliament plenary session debate on 6 July.
Referring to proposals to increase intervention prices, he said: “This would do nothing but delay the inevitable and necessary adjustment and make it more painful. As we move towards a market-orientated policy, such a move would give the wrong signal. There is a need to change our mind-set: the goal is not to produce as much as we can, but as much as much we can find a market for.”
Mr Hogan added that the Commission had already taken some measures to address the situation, including special targeted support of €40m granted to dairy farmers from those member states most directly hit by the Russian ban.
Dairy is also the second recipient of voluntary-coupled support. The voluntary-coupled payment scheme (VCS) was included in the 2013 Common Agricultural Policy reform and enables member states to grant voluntary-coupled support to types of farming or specific sectors that are particularly important and undergo certain difficulties. The sector received €820m (across 19 member states); 20% of the VCS amount available.
“We want the EU Commission to allow Member States to advance the direct payments before the 1st of December,” added Mr Raymond. “Around €700m will also be taken out of the dairy sector as a result of the 2014/2015 milk super levy bill at a time when dairy farmers desperately need cash. This should therefore be returned to the sector to help farmers with their cash flow problems. The EU intervention price must also be increased to put a floor in the market. Last set in 2008, it is nowhere near production costs. Without these measures, we will no longer have a viable dairy sector in the future to meet growing demand and ensure consumers have a balanced, nutritious diet.”