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2009: The Year of Truth for the Dairy Industry
Interview of Jehan Moreau,
Executive Director, ATLA
Dominique Lasserre: The Association de la Transformation Laitière (ATLA)––the French dairy industry association––which combines the two French dairy industry federations: the FNCL (Fédération Nationale des Coopératives Laitières (FNCL)––the federation of national milk cooperative groups––and the Fédération Nationale de l’Industrie Laitière (FNCL)––the French dairy industry national federation––is questioning the future of the French dairy industry in the current global situation. You even fear that the hour of truth will ring during 2009. Why?
Jehan Moreau: Contrary to the various experts forecasting higher agricultural prices because of declining supply and growing demand, ATLA is indeed fearful that the price drop currently recorded on global milk markets will intensify in the coming months. In fact, New Zealand is now lowering global prices to levels that do not allow the French dairy industry to survive!
In addition, we will probably observe, in 2009, surplus markets in an environment of unregulated markets. The question is therefore to identify which nations will be the first to give up! In theory, all nations with higher production costs will have to stop milk production! Thus European Union countries, along with the United States, would be the first to be affected. But the American Government keeps supporting an agricultural policy that will protect its dairy industry from all financial difficulties. Conversely, the Europeans will not endure! European milk producers, even the most competitive, cannot produce in a global market undermined by downward pressure wielded by a few major players!
The turnaround will only be reached when the overwhelming consequences of this pressure reach a level where milk production shortage will endanger the world’s supply.
DL: How did we get to this situation?
JM: The liberalization of global trade has led milk producers that do not profit from the same competitive advantages “to share the same playground”. By nature, the “small fry” disappear to the advantage of the “big boys”, except in situations where the former benefit from protective support.
We are currently observing the confrontation of three production models, whose very coexistence is not feasible without a pertinent regulation policy.
› The monopolistic model, such as the New-Zealander model, structured around a cooperative monopoly––Fonterra––which also benefits from position revenues produced by well developed markets, such as that of the European Union. This is the reason why it is essential to understand that trade liberalization must include the framework of the various industries’ structures so that neither thousands of jobs nor food security are jeopardized.
An 80,000-ton quota is thus allotted for New-Zealand dairy product export to the EU at European prices that remain higher than global market prices. This system, which provides genuine position revenues, has existed since Great Britain joined the European Union.
› The over-administered model, such as the American model, which grants subsidies to producers and regulates prices through product classifications: retail milk, dairy products and ice creams, cheeses and finally fat-free milk powder. On the other hand, this leads to high prices for American consumers.
Canada has implemented a system that is somewhat similar to that of the United States, since it combines a milk collection monopoly with subsidies to producers financed by consumers through dairy product prices.
› The “in-between” model, such as the European Union model, which has to face competition from the two above-mentioned models, a model that presents a break-up in supply and almost no longer benefit from the former CAP regulating tools. In other words, it combines unbearable drawbacks against its competitors, who are not willing to alter their models.
We can thus see that the economic situation, as it shapes up for 2009 and combined with the basic structures of global market players, does not bode well for European farmers.
DL: In the end, is there a risk that 2009 will become a year as unstable and troubled for agriculture as 2007 and 2008 were?
JM: The years 2007 and 2008 reminded the whole world that agricultural markets were, by nature, extremely volatile, a situation that can lead to severe agricultural crises.
The year 2009 should be a year of truth for the resilience of European milk production! Consequently, European Union government leaders will have to officially state their willingness to maintain or stop a strong milk production in Europe. And if this is the former, they must outline pertinent regulation tools.
Lastly, it will be essential to recognize that:
› The current situation does not answer the issues of supplying food to poorer nations; DL: In this environment, how can we plan for an exit strategy that is fair to all players involved in the dispute concerning prices paid to French milk producers?
› We are now endorsing a model of global concentration of agricultural production, which, following that of energy reliance, opens the way to future conflicts regarding food.
JM: Indeed, in this global situation, one can easily understand that the current milk price in France can no longer be supported, neither for dairy products manufacturers nor for the producers themselves!
Nevertheless, the French dairy industry is now undergoing a genuine structural revolution to become more competitive.
The difficulty is that we must, at the same time, confront the elimination of European regulating tools that softened price volatility, which, according to estimates, should increase little by little with the agricultural market liberalization (as indicated by the momagri model simulations).
Yet, it is absurd to note that the global market of dairy products, which accounts for only six to seven percent of total production, directs domestic prices and holds the “life or death right” for our farms!
The situation is not a new one since identical causes already generated identical results, in the case of African farming for instance.
This is the reason why we wish to join with momagri’s work to achieve price regulation through a set of tools, among which the institution of balance prices by large homogeneous regions.
by Dominique Lasserre, Advisor, momagri