EMB Newsletter October 2018
Dear dairy farmers, dear interested parties,
What is the cost of producing milk?
In our sector, numerous spokespersons have the bad habit of taking the milk price as a starting point for looking at the dairy market. A short-sighted vision, because for dairy farmers the cost of production is as important as farm gate prices. In economic terms, it is impossible to consider the dairy market without knowing about the development of the cost of production.
Given the lack of reliable, up-to-date and representative information about cost developments, since 2013 a number of EMB members has therefore commissioned the Büro für Agrarsoziologie und Landwirtschaft (BAL, Office for agricultural sociology and agriculture) to calculate the cost of production for milk, including a fair income. The cost calculations are based on the only representative database in the EU: the EU's Farm Accountancy Data Network (FADN). This has provided a lot of insight into the developments not only in the farm gate prices and the production costs, but also in the gaps in existing so-called “cost calculations”.
Since last year, six EMB member organisations from several important EU milk producing countries (Belgium, Denmark, France, Germany, Luxembourg and the Netherlands) have combined their results in one report. This report on the development of milk production costs has recently been updated with the 2017 figures.
A cost item that is not even seriously included in the EU's cost analysis is the income of the dairy farmer and the family members working on the farm. This means that at the highest political and agricultural level, unrealistic and economically even irresponsible statements are made about the supposed “earnings” in dairy farming – while five years of cost calculations show that only “shortfalls” can be spoken of. The milk price has not covered the costs in any year since 2013!
In 2013 and 2014, the costs for milk production rose sharply – costs that were not compensated by the short increase in milk prices in 2014. The milk price crises of 2015 and 2016 forced dairy farmers to postpone necessary investments intended to keep their farms healthy and future-oriented. The cost study makes this painfully clear by a significant reduction in depreciation and interest as well as a sharp fall in wages. A situation that did not improve in 2017.
What the cost study also shows is the development of milk prices over the past five years. In spite of all the statutory requirements imposed on farmers by the dairy industry for terms such as “sustainability” or “image”, farm gate milk prices have not seen a considerable increase and have always been much lower than the cost of production. “Added value” – another slogan used by dairy managers – does certainly not apply to dairy farmers.
With the knowledge of production cost and price developments over the past five years, and the reform of the Common Agricultural Policy (CAP) in prospect, it is absolutely necessary to implement market instruments that guarantee producers that farm gate milk prices on average cover the costs. This is the only way to make our sector attractive again for successors and to maintain family farms, as desired by EU citizens. If we do not want industrial food production, a substantial reform of the current system, which is devastating for milk producers, is needed. We are being supported by more and more social groups in our demand that farmers should be paid the cost of production. If milk production does not become economically sustainable very soon, there will certainly be no social sustainability neither.
A first step to gaining real knowledge of the cost of producing milk is to take note of this study
Sieta van Keimpema, EMB Vice President and President of the Dutch Dairymen Board (DDB)