No consequent action to combat the crisis in the dairy sector
European Milk Board (EMB) press release
Even during the summer period where production volumes are structurally lower, the dairy crisis remains severe. Milk collection in Europe increased by 5.6% in the first four months of the year while milk prices continue to fall and are dangerously close to the lowest levels seen in the previous crisis of 2009, under 25 cents litre, a decrease of almost 40% in two years.
It was within this context that at the proposal of the Commission, on 18th July, the Council of Agriculture Ministers released a second extension of €500 million Euros split as €150 million to encourage voluntary reduction in EU dairy production on the basis of Articles 219 to 222, and €350 million also used to finance reductions in production or more structural measures that may affect sectors other than milk, the beef sector in particular, that in turn have been affected by the decapitalization of the dairy herd.
However, for many producers, organizations and politicians these measures are far from satisfactory and are considered just another financial sprinkling from the Commission.
Thus, according to the European Milk Board (press release below1), though this package might be a step in the right direction, will not be enough to cope with the severity of the crisis.
For the European trade unions this decision essentially offers a two-tier system which allows those who wish, to continue their production without any caps on volume during the three month period during which the compensation will be abound, a period actually estimated too short by the EMB. Finally, compensation is situated between 11 and 14 cents per litre of milk, an amount considered far from adequate with regards the concrete proposals put forward by the EMB via the “Market Responsibility Program” (MRP) that it holds since 2010.
Based on incentive measures that enable milk producers to adjust their production volumes to the market, as well as crisis prevention, the same objectives as the MRP were found in the announcements made on 18th July. According to a study recently commissioned by the Committee of the Regions, concerning the feasibility of such a program2, it appears that with a reduction of 6% in milk volumes year on year, producers’ gross margin would increase by €6 billion Euros due to a rise in milk prices of 14.6% and gross margin of 38%.
Four months after announcing it would use the tools available under Articles 219 to 222, the Commission has taken pragmatic steps towards treating a crisis in overproduction: help producers while encouraging them to reduce their production in order to move out of the crisis. As the crisis began more than a year ago, it is impossible to predict whether these measures will be sufficient to escape the doldrums or to buy time until a possible resumption in Chinese purchases, or whether everyone will lose waiting for recovery, in vain, whilst maintaining production. In any event, the financial and human costs of eliminating quotas without safeguards continues to slide out of control, to the political discredit of the supporters of this reform.
Momagri Editorial Board
The measures adopted by the Agriculture Council are far from enough to overcome the crisis
Brussels, 19.07.2016: Producers on the dairy market are under exceptional pressure. The prolonged crisis with continuously sinking milk prices has dairy farms across the EU at the end of their tether. It was therefore key that yesterday's Agriculture Council decided on radical measures to reduce overproduction on the market. However, the measures adopted yesterday are not going to provide the urgent reorientation the sector needs. Instead of taking a consequent EU-wide approach, which would offer all producers the possibility of voluntary production cuts, 350 million euros of the total 500 million package, that is, the majority was allocated to measures that are not clearly defined.
Romuald Schaber, President of the European Milk Board (EMB), is disappointed: "Production cuts is the label used to describe the current package of measures. However, no one wants to take a crack at their proper implementation. Merely 150 million euros shall be used for measures to reduce production. This amount is not nearly enough in light of the severity of the current crisis."
Too short a reduction period and no simultaneous capping
Furthermore, while the envisaged reduction period of 3 months during which willing producers will receive financial compensation is too short, there is no simultaneous volume capping for other producers. Therefore, there is a great risk that the achieved reductions will be neutralised by increased production by other producers and the effect on milk prices will be minimal or insignificant. The equivalent 14 cents to be paid for each litre of milk not produced is not enough of an incentive either. This compensation has to be higher in order to generate enough willingness and bring about sufficient volume reduction on the market.
"With prices that are sometimes below 20 cents per litre of milk, we are facing an acute and significant crisis in the dairy sector in Europe. This crisis must be combated with consequent and clear policy," says Schaber. However, the European Commission and some Member States have been trying to ignore the consequences of this crisis for months now. Sadly, the measures adopted yesterday show that nothing has changed.
1 The entire press release is available on European Milk Board’s website
2 “Evaluation of the Market Responsibility Programme put forward by the European Milk Board taking 2014 as a test year”