Summary report on milk : enhance growth prospects despite market turmoils 

The think tank Farm Europe held a meeting the 22nd of July to analyse the difficulties currently being experienced by Europe’s dairy industry. Attending the meeting were representatives from the production and processing sectors.

The meeting reviewed current market tracking tools, recent changes in prices, and asked what measures the EU could take – at European scale –under the new CAP. With a spot price at 26 centimes in the Netherlands and the continuing fall of the price of whey, it is increasingly clear that, in many EU regions, the dairy industry has entered a period of turmoil which requires an immediate, coherent and coordinated EU policy response if the sector is to be able to cope with what is a perfect storm of multiple developments: the Russian embargo, the withdrawal from the market of Chinese buyers, the rise in the cost of animal feed and the high levels of production in most of the world’s major production areas. Moreover, the challenging timing of these developments must not be neglected: the entire sector is going through a period of far-reaching change as it adapts to the new policy and financial context of the post supply management era.

The challenge over the next few months will be to successfully make the transition into the post-quota era and to prevent a one-off crisis from compromising the long-term prospects for the EU dairy industry and undoing the good progress made over recent years. Europe needs to reaffirm its support for the dairy sector as a key component in its agricultural policy and it needs to reaffirm its desire to maintain a dynamic sector, one equipped to grow in a balanced and sustainable way in all European regions.

In terms of long-term development the European dairy industry has, it should not be forgotten, already made significant investments to increase its production capacity and adapt to new EU policy orientations: in 2014 alone nearly 3 billion Euros were invested in the construction, extension or modernisation processing infrastructures, to which needs to be added the just as considerable investments made by farms themselves.

Today’s CAP provides EU institutions with significant scope for action to help the sector to cope in times of difficulty and implement genuinely European responses that avoid any return to national management of such crises whenever the sector is faced with unexpected challenges. The EU does possess the financial resources to intervene without needing to resort to the crisis reserve as long as the European Commission does not use the CAP budget to support spending outside the agricultural sector.

The range of possible measures that could help the sector to play its natural & central role as a source for growth and employment in the EU’s rural areas must therefore be studied. Today’s meeting drew up the following options, which, working with partners from the sector, Farm Europe could further develop:

– Funding. Consideration should be given to the creation of a Europe-wide scheme to provide short-term help to farmers in difficulty with loan repayments. Such a scheme could enable farmers to suspend capital repayments on current loans, with defrayment of interest payments for a period of 6 to 9 months, along with debt consolidation if necessary. This scheme could be managed by the European Investment Bank (EIB) and could target holdings in serious difficulty but which are able to demonstrate long-term viability. Such a measure would have a twofold impact: first, it would help growing farms to get through a difficult phase and second, it would reaffirm Europe’s confidence in and ambition for its dairy sector, thereby encouraging long-term investment.

– Additional assistance. In order to help more modest holdings located in disadvantaged areas (i.e. holdings not necessarily struggling with debt problems, but struggling to cope with falling prices) with their cash situation one possibility could be targeted aid, limited to the first 30 cows. This emergency assistance could be provided under article 219 of the Single CMO Regulation.

– Traditional safety nets. Without compromising the market approach, the intervention price could be adjusted so as to send a signal to operators, thereby limiting the downward spiral. An increase for example up to 25 centimes would have no budgetary impact and would remain below production costs – estimated in Bavaria, for example, at 29.6 centimes/litre. Over and above the signal this would send to operators, such an increase would reconnect the currently unrealistic intervention price – set at 21 centimes – with the reality of the market.

– Promotional measures. EU supported promotional campaigns could increase the international visibility of European products and, in view of the time needed to organise them, these could be ready in time for when the market recovers in 2016. A further justification for this measure is that Europe’s competitors have been building up substantial stocks. To give operators time to act it is important to announce these measures rapidly. It is also important to give careful consideration both to the level of funding needed, which needs to be consistent with the goals if the approach is to bear fruit, and to the questions of campaign targets and brand focus. There are currently a number of ‘place based’ brand development initiatives to support milk marketing. However, Europe either lacks completely or offers only very limited support in this area. Current efforts are incapable of reaching the scale needed to make a tangible impact in markets, both in Europe and internationally.

– In relation to support for longer term sectorial development, four themes will be studied from next September with a view to implementation in the medium term:

o how insurance schemes can help the dairy sector, in particular in relation to fluctuations in farm revenues and/or profit margins;

o the conditions necessary for a more effective application of the principles promoted by the 2012 Milk Package;

o the possibility of greater targeting or regionalisation of market management tools and;

o for farms located in remote areas, an adjustable Europe-wide funding scheme could be introduced in such a way as to reduce their structural competitiveness deficit (the cost of collection ranges from 0 to 4 centimes/liter of milk)

There has been significant progress over recent months with the strengthening of the European Milk Market Observatory. However, this observatory is not yet able to monitor and analyse, on a continuous basis, variations in producers’ margins, which are being heavily impacted by the cost of animal feed. It is therefore unable to provide policymakers with useful and timely information about impending crises – for an industry that is a key component in Europe’s growth and employment strategy for agriculture and agri-food.