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.
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