Today and tomorrow, the 26th and 27th of November, dairy farmers from all over Europe will travel to Brussels in their tractors to protest in front of the European Parliament against the low milk prices. According to the European Milk Board (EMB), a lobby group for milk producers in Europe that represents around 100.000 milk producers, the “milk market is on fire”. They say that: “for too long the milk prices have been below production cost and already thousands of farmers have had to give up”. But, it is not just the low milk prices that are of concern to the farmers. They also fear that the expiration of the milk quotas in 2015 will lead to even lower prices and will cause more farmers to go out of business.
To understand what lies behind these problems we have to go back in time a little. In 1984 the introduction of milk quota’s to combat overproduction lead to a relatively stable milk market. Although production was stable around the quota’s the number of milk farmers decreased drastically throughout the decades from 1,6 million in 1984 to 220.000 in 2010 in the old ‘EU 10’. In the same year there were around 900.000 dairy farmers in the ‘EU 27’.
This stable situation changed in 1999 with the first milk market reforms, in line with the goal of the Common Agricultural Policy (CAP) to let price signals guide the decisions of farmers on what and how much to produce, intervention prices were reduced, direct payments were decoupled from production, and the quota’s were set to end in 2015. To soften the blow for farmers a transition period was installed in which the milk quota’s increased slowly from 2009 onward.
In 2008 milk prices rose significantly due to a decline in supply caused by severe weather. Although one would expect that this was beneficial to farmers; it wasn’t. Since the difference between the world price and the support price maintained by the EU decreased the EU Commission reduced the export refunds by around 50% or even completely; export refunds are given to ensure that farmers, when exporting to outside the EU, still receive at least the support price (which is often higher than the world price). This made that the higher prices did not help the farmers recover.
In 2009 the financial crisis lead to a drop in demand for dairy products and market stability in the EU causing the milk price to drop. This, however, did not translate into lower prices for consumers preventing an adjustment of demand to lower prices. Ever since this ‘milk crisis’ prices have been at a level that makes it difficult for farmers to stay in business.
The difficult question that remains is: why are milk prices low? Is this just a result of demand and supply or is it more complicated. Due to the increased market orientation – letting market signals reach farmers instead of providing a fixed price – in the milk sector the European milk price has grown closer to the world milk price and price volatility has increased. The milk price in Europe was and still is held at an artificial level which is higher than the world market price. Thus, when market orientation increases EU milk prices will become more equal to world prices.
What then can be done to make sure farmers can get a proper price for their milk? The 2010 conference “What Future for Milk” concluded that there should be:
• More equal and transparent sharing of added value between market parties
• A speedier adaptation of supply to demand
• Farmers should gain more bargaining power at a collective level to compete with large retail blocks
• Market measures are needed to function as a safety net
These conclusions are somewhat in line with what Copa-Cogeca, that represents European farmers and farmer’s cooperatives, argues in their report “What future for milk in the Eu?”. They state that:
• The current market mechanisms should stay and be improved to act as a safety net
• Milk producers should strengthen their bargaining power through:
o Concentration of milk supply
o Collective bargaining so that producers can jointly plan and market their
production and negotiate conditions
• A framework of ‘Flanking’ measures should be created supporting farmers in situations of crisis
We shall have to see whether some of these policies will become reality. Let’s hope that today’s and tomorrow’s protest fuels the debate and leads to definitive conclusions on how to improve the situation of dairy farmers.
Sources and further reading:
The European milk board
“What future for milk in the EU” report
EU Commission conference proceedings and presentations
Report of the high level group on milk
Very good to read this background information! This afternoon around lunchtime I experienced a quite symbolic moment. At the Info Point of DG DEVCO (development cooperation department of the European Commission) the new book of Sir Gordon Conway was being discussed. Title: ‘One Billion Hungry’. Subtitle: ‘Can we feed the world?’ According to Mr. Conway: Yes We Can, BUT… and then he gives 24 qualifications. Very interesting and good research, recommended by Bill Gates, Ravij Shah and Kofi Annan.
After a clear and interesting presentation on the book, there was room for questions from the audience. Unfortunately it was hardly possible to understand each other, due to the loud noises from outside. The whole political centre of EU was packed with tractors. In my vision, this scene could not be more symbolic. I managed to ask (‘scream’) to Mr. Conway if he would advise on installing a CAP in Africa, and if yes: in which region this could be kicked-off? He excused himself by saying that the CAP was not one of his expertises. A quick glance at the index of his book learned that the CAP is not mentioned.
I don’t blame Sir Conway for this. However, it made me realise again that the design of agricultural policy is not coherent at all. The farmers are here in Brussels to expose the problems of a system. An old system that has had positive but also very negative effects on agriculture (and environment, and fair trade) worldwide. I wish AGRI’s Commissioner Ciolos good luck with his CAP reforms. And maybe he should have a coffee with DEVCO’s Commissioner Piebalgs any time soon.
Like you say Marleen – any policy should always strive to be progressive. You can never be ready with that…
But why do we, EU citizens, need to subsidize farmers for making a product that we, the EU consumers, don’t want anymore? Why do we need to pay so much money to safe farmers while others (millions of EU citizens) loose their jobs as well because of the crisis? I really don’t understand this. Maybe people become more and more aware of the fact that we don’t need milk anyway. It is not that healthy as we were told all those years. At least it is not something you really need to be healty. In fact, a lot of people don’t digest it very well because cow milk is ment for baby cows and not for people to drink. People don’t want to drink as much milk anymore as back in the 80s and 90s. So in my opinion, farmers just need to take their lost in this, like many others have to nowadays in the crisis, and the EU should make a more realistic CAP that is fair for all citizens and not only for farmers.
That’s a good point Eva,
First of all I would like to say that the goal of this piece was not to propagate either support or opposition to the current events. It was meant to help understand what is happening and what lies behind the current protests.
Then, as future tax payer and economics student I wholeheartedly agree with you that it is a strange construction of subsidies that the CAP has devised. The funny thing is that the low milk prices are not really due to a lack of demand, according to the two reports I cited above (the EU conference and the high level group in milk) the world demand for milk and dairy products is actually increasing (mainly due to increased demand from Asia). Also, not all farmers agree that market regulation is beneficial, take this article (in Dutch), from LTO: http://www.ltonoord.nl/nieuws/%E2%80%98tegenover-wat-hogere-melkprijs-staan-scherp-gestegen-kosten%E2%80%99-0
They argue that it will actually be beneficial for the milk sector if the market regulations are stopped.
Finally, I completely agree with your point that the CAP should become fairer towards all EU citizens. This could for example be done by shifting the CAP from providing income support in what ever way (subsidies, export refunds etc.) towards promoting sustainable agriculture; which in my opinion would be very beneficial to all EU civilians. Sadly, with the current political reality it does not seem that (1) ‘leaders’ want to radically transform the CAP into a policy that supports sustainable agriculture, and (2) that a cut on CAP expenditures will be excepted (see the current struggles around the EU budget in which France would only accept a reduction of the entire EU budget in exchange for more CAP expenditures).
Sem