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How are Countries Across the EU Dealing with the Dairy Crisis?

27 November 2015

EU - Dairy farmers across the UK have struggled with low milk prices for months - but farmers in other EU member states have also been affected. Melanie Jenkins looks at the wider picture across the EU.

Global increases in milk production along with trade sanctions and retail price wars have all contributed to the current dairy crisis. Affecting countries across the EU, farming bodies have joined forces to consider ways to counter the effects and prevent future crises.

Low farmgate prices have pushed many UK dairy businesses into the red, but perhaps surprisingly the UK farmgate price comes in above the average of all member states.

The EU28 average for September stood at €29.91/100kg (22.54p/litre) while the UK average was €31.37/100kg (23.64p/litre).

Cyprus achieved the highest average price at €55.47/100kg (41.81p/litre) while Lithuania’s farmgate price was well below this at €20.12/100kg (15.16p/litre). However, this doesn’t reflect different countries’ typical costs of production, which will vary widely.

What factors are influencing EU dairy prices?

In the UK, the average has been dragged up by retailer-aligned contracts but there is a huge variation between the top price and the bottom price, with some farmers receiving 33.14p/litre in September and others 16.62p/litre.

According to Richard Potts, policy advisor in Brussels for the UK farming unions, the UK is quite unique among EU states in having such a broad spread in prices. “Aligned contracts are a good model though, and it would be good to see them replicated across the EU,” he said.

Increased production has been one of the major factors influencing the dairy market.

“The average EU production has increased by around 13 per cent this year and global production has also risen. The EU has added about 1.2m tonnes to the market while the US has contributed an extra 900,000t, meaning there is a lot more milk on the market,” said Mr Potts.

Currency is another element having a dramatic effect on UK farmers, leaving them at a disadvantage due to the strength of sterling and the weakness of the Euro.

“The Euro has allowed Europe to expand exports - it is the next biggest exporter of dairy products after New Zealand, with around 11 per cent of EU production exported,” said Mansel Raymond, chairman of the Milk Working Party at Copa Cogeca.

“The strong US dollar has meant the USA has lost some of its export competitiveness, which has allowed some European states to increase exports of butter and cheese to the US.”

Some EU member states, particularly the North Eastern and Baltic states, have been severely affected by the Russian embargo on dairy imports. This has reduced exports from a number of EU states, meaning producers have lost a significant market for their produce.

Retailer price wars have also played a role in reducing farmgate prices across the UK, but this has not been an isolated incident. Other member states have also seen retailers passing price pressures back to farmers.

“The retail and food sectors have to take responsibility as the price wars are not good for the long-term wellbeing of the industry,” said Mr Raymond.

The mild autumn has helped to keep production costs down but with winter arriving things are about to get even harder. “The expensive part of feeding cows is just beginning,” he added.

European Commission working on easing burden for farmers

The European Commission is well aware of the serious situation the industry is in, and has been working at implementing tactics to ease the current burden and prepare for future volatility.

“We want to see the tools and safety nets in place to manage market volatility,” said Mr Potts. The Commission is therefore setting up a new High Level Group focused on tackling this issue.

It has allocated €500m to a farm aid package which it has already begun to pay out.

“This money is for dairy and pig farmers suffering in the current market, with each member state using the money differently,” said Mr Potts.

Governments in Sweden and Finland are both match funding the aid package, while in the UK the money is divided according to production, says Mr Potts. UK producers will share £26.2m, which works out at an average of £1,800 per producer, and the first payments went out in mid-November.

“The Netherlands are using it differently again, as they already have a dairy and pig development fund, so they are adding the aid money to this pot,” explained Mr Potts.

Private Storage Aid (PSA) has been re-opened, and each member state is allocated a certain amount of intervention for butter and skimmed milk powder, which the majority of states are utilising, he adds.

The Commission is also looking at setting up low interest loans for farmers through the European Investment bank. “The loans would be linked to the milk cheque and would offer a different way for farmers to finance and plan long-term investments,” said Mr Potts.

With December looming, farmers are expecting CAP payments, but many UK farmers are uncertain about when these will arrive due to technical issues earlier in the year. In contrast, Ireland and France have both paid out advanced Basic Payments to help ease the burden on their struggling dairy producers.

Some EU states such as Ireland and Italy also have strong co-operative organisations which allow producers to join together and benefit from larger scale, while smaller co-ops can add value to and exploit niche markets. “However, other states such as the UK, Germany and parts of France do not have this strength to add backing to their products,” said Mr Raymond.

The next hurdle for farmers will be getting through the winter. “People will have struggled through the summer months and carried on due to the kind autumn but now the winter is here, many will not be prepared to continue,” said Mr Raymond. “The question is, what will happen to the producers in the next 12-month squeeze?”

Sadly, the next generation may not want to go into dairy farming when nothing may come of their hard work.

“The supply chain needs to take responsibility, as a successful dairy industry depends on having a profitable primary production base,” added Mr Raymond. “All we can hope is that in a couple of months, things will start to improve.”

Further Reading

Read Melanie's previous articles on the troubles of the dairy sector here:

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