Dairy decline can be solved by demand stimulation and restructuring, not new interventions

Despite all the steps taken to stabilise the milk market, the situation in the dairy sector remains tense. The tension was expressed on Monday by several hundreds of European farmers who gathered in front of the building hosting the meeting of the Agriculture and Fisheries Council in Luxembourg. Czech Minister of Agriculture and acting President of the AGRIFISH Council Jakub Šebesta and Commissioner Mariann Fischer Boel met the representatives of the protesters. The Minister also hosted a working lunch where the dairy sector was discussed. The decline in the sector has been accompanied by an intensive search for instruments that would help producers overcome this difficult period. According to the Commission, the persisting difficulties are no longer caused by overproduction, but by the global economic crisis. Therefore more effort is needed to stimulate demand, restructure the dairy sector and make the relations with commercial chains more transparent. 

According to Minister Šebesta, the Czech Presidency is well aware of the difficult situation which the European milk producers have to face. “During the six months of its mandate, the Czech Presidency has been paying close attention to this issue, giving as much room as possible to debating it in the Council. The Presidency is also in regular contact with Commissioner Mariann Fischer Boel, consults with corresponding national ministers, as well as representatives of professional associations and NGOs”, said Minister Šebesta. “We believe that despite the current financial crisis, European producers, supported by the Commission and national governments, will manage to overcome their difficulties and European milk will keep its position on the world market”.

According to the Commission report, the production in the quota year 2008/09 has dropped by 0.6 % against the preceding year, despite remaining differences between Member States. With the beginning of a new quota year in April a slight increase of production was seen. This is accompanied by competition from large third-country producers, a long-term drop in exports and poor access to credit. The EUROSTAT data show the drop in demand mainly for products with higher added value, such as cheese and fermented products.

It is also thanks to the close attention paid by the Czech Presidency to responses to the crisis that several instruments are already under way, e.g. intervention purchases in the form of tenders, export subsidies and support of private storage, whose duration and volume have been increased by the Commission. The last time that the Commission increased its export subsidies was last week. The only instrument at the Commission’s disposal which has not been used so far is processing skimmed milk into casein or utilising it in feed. According to Commissioner Fischer Boel such measures would not be effective. The instruments introduced by the Commission resulted in a withdrawal of the equivalent of 1.6 % of the overall EU annual milk production from the EU market. According to Commissioner Fischer Boel, these market interventions have reached their ceiling. The EU must respect the intervention rules agreed within the WTO.

On Monday, Commissioner Mariann Fischer Boel expressed her conviction that the ongoing problems in the milk industry are not caused by current overpressure on the market but by the global economic downturn and decreased availability of loans and bankers’ guarantees for producers of milk. She also clearly refused the possibility of any changes in the ongoing reform of the milk quota system established in 1992. “The current situation on the milk market is not related to the quotas. Low prices are a result of the combination of a drop in demand, especially for products with high added value, and higher competitiveness among the main exporters outside the EU,” stated Fischer Boel who also admitted that a purchasing price of milk in the amount of 24 cents per litre is not sustainable in the long run. The Commissioner is convinced that the measures that have so far been adopted will help put an end to the decrease in prices, although significant differences remain throughout the EU.  

The situation in the milk industry was also discussed at the June meeting of the European Council. The meeting charged the Commission with drafting a detailed analysis, within two months and propose further steps leading to market stabilisation.