Farm Ireland
Independent.ie

Tuesday 21 February 2017

'Biggest challenges are yet to come for dairy farmers'

The dairy sector will remain prone to crisis until the EU gets to grips with policy, European Milk Board director Silvia Daberitz

Chris McCullough

Published 20/11/2016 | 06:30

Image: Getty Images/iStockphoto
Image: Getty Images/iStockphoto

Irish dairy farmers are fearful of the effects that Brexit will have on the dairy industry and for now have only speculation to go on. The reality is that regardless of trade tariffs, the cows still have to be milked every day and a home must be found for that milk before it perishes.

  • Go To

Currency fluctuations that are pushing sterling weaker are also making it easier for UK processors to export goods and making it harder for Irish companies doing business there.

Long before Brexit ever happened, dairy farmers were wondering when the turbulent times would end and their sector would return to profit?

European Milk Board general director Silvia Däberitz says removing quotas certainly provided challenges for farmers but she fears the bigger challenge is yet to come.

Ms Däberitz said: "Brexit will have consequences for many sectors. The dairy sector is one of them. The EU as a whole will see an impact. Some 64m people live in UK, which is a net importer of dairy products.

"Particularly, neighbouring countries such as Ireland are highly dependent on the British market. The EU and the UK have to find a good agreement in order to limit disturbance to a minimum.

"The common market should be maintained, ideally with common standards and without any tariffs. Of course, it cannot be a unilateral agreement, according to which the UK obtains free market access while not providing the same access to the EU.

"The EMB stresses the importance of finding a reasonable, fair and balanced solution. Both UK and EU farmers as well as UK and EU citizens would benefit from an agreement which would not lead to significant shifts in trade of dairy products between the UK and the EU."

Also Read


Silvia Daberitz
Silvia Daberitz

Quotas

Looking back at how the current milk situation has been affected by the past and the ultimate abolition of milk quotas in 2015 Ms Däberitz said the current crisis has forced many farmers out of business.

She said: "EU milk policy took a turn in 2003 when deregulation of the milk market started. This policy peaked in 2015 with the abolition of production quotas, which were introduced in 1984 as a response to massive overproduction.

In the last 30 years, these quotas kept the EU from continuing to produce milk lakes and butter mountains.

"As a preparation for the end of quotas in 2015, the production limits were already raised by 9.8pc in the ten years from 2005 to 2015, with visible effects on farm-gate prices.

"Supply had not been in balance with demand.

"Overproduction occurred with the result that in 2009 farmgate prices plummeted to around 25c/kg of milk, causing a loss of revenue of around €11bn for European dairy farmers.

"This milk price crisis forced many farmers out of business and heavily burdened the financial reserves of those remaining.

"Since the end of the milk quota system on March 31 2015, the dairy market has faced an even bigger challenge, because the successor system lacks effective instruments for preventing a damaging surplus of production.

"Already in 2014 higher prices and expectations of a quota-free market triggered a 4.3pc production increase in the EU.

"Additional volume increases of 10pc in New Zealand and 2.4pc in the US, together with EU production, have resulted in a surplus on the world market of over 11m tons of milk.

Problem

"It is obvious that so far the ability to produce milk has not been an issue for the EU. The problem lies elsewhere: the challenge actually consists in not producing too much milk.

"The market is saturated and the additional volume is putting immense pressure on farm-gate prices. That is also becoming clear in 2015, with an additional production volume of 2.8pc in the EU between April and July compared to the same period in 2014.

"Prices have dropped dramatically, so that at the end of the summer in 2015 farmers in the Baltic States were already being paid less than 20c/l.

"In Italy farmers were paid around 34c and in France around 32c, while Spanish prices had already fallen well below the threshold of 30c.

"In Belgium the price was around 25c in the middle of 2015, in the Netherlands it was 24-28c and in Germany it was 25-30c/l.

"These prices cannot cover production costs, as shown by studies from individual countries. These studies show production costs of 45c/l and 39c/l for France and Italy, respectively.

"In Belgium, production costs are 46c and in the Netherlands 42c/l. This huge gap between costs and prices means that losses for dairy farms are very high.

"Therefore a reasonable reaction from the EU would be to recognise market signals and slow down production throughout the EU.

"That requires an adequate framework implemented by EU policymakers. Only then is an EU-wide reaction possible," she said.

Crisis

Ms Däberitz says the dairy industry will remain prone to crisis while there is nothing to tackle it on an EU basis.

She said: "Milk prices have been so bad that many farmers had given up their businesses after trying to get along for quite a while with prices that did not even cover the cost of production.

"The voluntary milk supply reduction scheme, that became effective in October, is another important factor.

"It co-ordinates compensations for farmers who are producing less milk on an EU level and has significant effects on the volumes as well as psychological effects on the prices.

"But the dairy sector will remain prone to crisis as long as there is no regular crisis instrument on EU level.

"As long as decision-makers do not agree on such a sustainable instrument, price slumps will happen regularly," she said.

Indo Farming