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Dairy Sector Faces Fluctuating Global Prices | 31 March 2008 |
The planned elimination of support mechanisms under the Common Agricultural Policy "health check" combined with highly volatile prices for dairy products is likely to ruin many small- and medium-sized companies. Even the agri-food industries specializing in these products have had to reconsider the way they manage supply.
The dairy sector has already begun to prepare itself for the European Commission’s planned elimination of quotas in 2015, and agri-food giants are predicting multiple reorganizations. In the words of Alex Bongrain, chairman of the board at Bongrain, France's second-ranked cheese producer, "The impact of fluctuations in global raw materials prices will be difficult for many small companies to withstand."
Alain de Paillerets, Deputy Managing Director and board member, has said that "jolts" in milk prices (+36 percent in the first half of 2008) will demand "a great deal of responsiveness." The group uses long-term contracts to manage supply, more for reasons of flexible management than with the goal of setting up immense farms, like Danone,1 to secure production upstream. Bongrain predicts that price hikes should smooth out in 2008.
Still, such uncertain markets demand prudence; that is the lesson we can learn from the initial simulations of the MOMAGRI model, which indicate persistent volatility for most agricultural raw materials, with the potential for sudden price reversals by 2015.
1 See our article in A Look at the News: "Danone Wants to Create Giant Farms to Secure Supply" 12/11/2007
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