Driven by relatively high prices, global and French milk production rose last year, leading some producers in fear of a price reversal in the coming weeks.
In 2011, world milk production increased by 16 million tonnes (+2%), reaching 737 million tonnes. In France, this increase was even more pronounced with a 5% increase in the production of cow's milk, or more than one million tonnes, reaching nearly 25 million tonnes in 2011.
However, this favorable trend is not without concern for some milk producers who fear they will soon see a market oversupply, possibly leading to a sharp reversal in prices. As Gerard You, an economist at the Institute of Livestock reminded us on 12th April during a press conference “we only need an excess of 2-3 million tonnes of milk for there to be considerable leverage on [...] milk prices.”
These concerns are even more significant because the milk sector is characterized by structural price volatility which is exacerbated by specific economic factors in terms of production costs and strong variations in front margins and annual listing fees with distributors. Thus, between October 2010 and June 2011, the average price paid to milk producers in France fell 12% to increase to 20% in November 2011, before falling again by over 10% in three months.
Since the French Directorate General for Competition, Consumer Affairs and Fraud Control (DGCCRF) made the decision in September 2008 to put an end to the collective inter-professional negotiation of milk prices, agricultural price volatility has affected producers with more force and tensions have increased between the sector’s different actors upstream and downstream.
Since then, repeated short-term measures have been taken, which participated more in blurring producers’ visibility than informing them about the future, pending CAP reform whose practical implementation is fading as European budgetary pressures are rising and waiting for MPs to realize the urgent need for regulation mechanisms adapted to our current context.
It is therefore urgent that the current discussions on the future CAP, propose a structural reform of this specific sector’s mechanisms for intervention and regulation in order to limit the price hyper-volatility experienced today. The dairy sector should not be regarded as the industry’s “guinea-pig” for CAP reform, currently disoriented and obsolete, in face of the new challenges, as was the case in the sheep sector in the 1990s, with all the subsequent consequences for the sector’s stability.