Newsletter October 2011
Dear Dairy Farmers, Dear Interested Parties,
In the Netherlands several farmers have already built stables to be filled with cows from 2015 on. Three billion litres of milk extra (calculated on 8,000 kilos of milk production per cow on average) could be milked if these now still empty stables were filled with cows. A report commissioned by Rabobank shows this overcapacity of cow places very clearly.
At the press conference, where this report which is essentially about chain returns was presented, we heard a lot about the bad situation of the dairy farmers and that something needed to be done. Quotes like: “farmers come off badly again”, “the earnings remain nil”, “the situation has become nothing better for the farmer”, “this cannot go on”, “the stretch is out in the primary sector”, and most important: “together we should try to bring the percentage of return on equity back to 17%” (source: Zuivelzicht), sounded very promising.
In its marketing messages Rabobank always points out that they are a co-operative, founded by farmers. But on enquiry they said that it would not be a good idea that the co-operative dairy industry shared some of the required percentages in equity with their members/owners. “That could be harmful to the progress of co-operative dairies”, as Mr Thus, Dairy Manager of Rabobank, put it. Instead: “Support the individual farmer so that he will become a part of the top 20%”. Because there are producers who have return on equity. The LEI report also noted what the percentage of return on equity for that top 20% is: 1.9%. So a further increase in efficiency will not be enough to bring the dairy farmers' income on a level comparable to the rest of society.
We need a good volume regulation and fair prices to offer a future to many farmers in Europe and to enable them to produce good milk in a sustainable way. We, the European dairy farmers, we have to struggle together inside EMB and also together with other groups of society to achieve that goal.
Sieta van Keimpema, Vice-President of EMB, President of Dutch Dairymen Board
Even if in large parts of the EU a golden autumn and mild temperatures have been the major features in recent weeks - unfortunately that does not apply to the EU dairy policy. The strong wind blowing over here from the Council of the EU is pounding the minor progress achieved in the Parliament before the summer. In the “Trialogue” negotiations on the dairy market reform the Council of the EU stubbornly opposes important proposals such as a monitoring agency and contracts with dairies applicable throughout the EU. Are all the milk producers’ efforts to date for intelligent control of volumes to be swept aside so easily?
In the 2010/2011 financial year, farmers in Denmark, Luxembourg, Austria, Cyprus and the Netherlands produced almost 0.2 million tons of excess milk. So the farmers concerned have to pay super-levies amounting to 55.57 million euros. In total the volume of milk supplied was 137.98 million tons, i.e. 8.1 million tons or 6% short of the total European quota volume. 14 EU states apparently failed to produce more than 90% of their quotas. Even before the abolition of the quota milk volumes are actually being shifted around within Europe. Whereas milk production continues to be concentrated in countries with a high density of milk, in areas where milk production is difficult it is on the decline. So far the EU has neglected to provide security measures to maintain Europe-wide milk production and with it added value.
S. Korspeter: M. Jørgensen, some banks in your country had serious problems and land prices more than halved in Denmark... what does this mean for you?
Flemming Jørgensen: All Danish farms taken together have a total debt of about 50 billion euro, spread on about 10.000-12.000 farms. Hence Danish farms and banks are quite strongly linked. Banks have stopped almost altogether lending out more money. The security in form of land has enormously lost in value. When I bought my three neighbouring farms in 2006, 2007 and 2008 I had to pay 40.000€ per hectare. Now, a hectare costs less than 20.000€. But actually in my day-to-day life I do not think a lot about this loss of value. The farm means a lot to me. So I try to look well after my animals, to have a good quality of milk and to get a higher milk price. And good harvests are important as well.
In spring 2010 the French government passed a new Agriculture Market Act, the LMA (Loi de Modernisation Agricole). The act obliged private dairies to draw up a contract for their producers by 31.03.2011. The dairies used this new contractual obligation to extend their power over the producers. The farmer is tied more closely to his dairy by the most diverse new terms of contract. That's why relatively few milk producers have so far signed such a contract (only about 5% of French milk producers). In spring 2011 APLI, in conjunction with OPL (Organisation des Producteurs de Lait) and the Confédération Paysanne, set up the FRANCE MILK BOARD (FMB). It is a producer organisation which is not affiliated to any dairy or association and which is open to any milk producer, regardless of whether he supplies a co-operative or a private dairy. It is to be the producers’ arm of the French monitoring agency “Office de lait”. Its aim is to encourage as many dairy farmers as possible to authorise the France Milk Board to negotiate with their dairy on their behalf and thus gradually build up an economic milk producer organisation that acts as a real counterbalance to the dairies.
The majority of Galician dairy farmers are on the verge of going under, according to the broadcaster Antena3. “Nearly 90% of income goes straight out again to settle bills”, says José Antonio, member of the “Gremio de ganadería”. The farms’ profitability is either low or non-existent. “The farm-gate price is consistently low, but feed is becoming more and more expensive, as is fuel; what you get for a calf is so little you’re practically giving it away”, José Antonio continues. The farm-gate price is 30 cents a litre, which is exactly what a kilo of feed costs at present. At the moment Galician farm-gate prices are the lowest in Spain.
The core Group of ARC2020 gathered near Brussels on 6 and 7 October to discuss the Common Agricultural Policy (CAP). The EMB was also present. In a press release afterwards ARC called upon the citizens of Europe to continue fighting for a truly sustainable CAP, in which funds are used fairly, fair incomes are ensured and economically viable rural areas are created.
Council of the EU switching to being OBSTINATE
Even if in large parts of the EU a golden autumn and mild temperatures have been the major features in recent weeks - unfortunately that does not apply to the EU dairy policy. The strong wind blowing over here from the Council of the EU is pounding the minor progress achieved in the Parliament before the summer. In negotiations on the dairy market reform the Council of the EU stubbornly opposes important proposals such as a monitoring agency and contracts with dairies applicable throughout the EU. Are all the milk producers’ efforts to date for intelligent control of volumes to be swept aside so easily?
Trialogue is what they call current talks between the European Parliament, the Commission and the Council on the Milk Package – an initial reform of the dairy market. The Council’s attitude is obstinately in favour of deregulating the market and precludes alternative solutions. As is obvious from an initial working document, the Council ignores the proposals previously put forward by the European Parliament which could at least bring about some minor progress towards overcoming the crisis.
For instance, the Parliament proposes an EU-wide obligation to have contracts between producers and dairies, which the Council rejects. These contracts, which according to the EMB would have to be guided by production costs and negotiated by producer organisations across the board with the dairies, give producers a chance to obtain a fair price for their milk. This will not be achieved if – as the Council evidently intends – each individual country is to decide whether it introduces compulsory contracts or not.
As the Council’s working document goes on to show, what is referred to as the monitoring agency, proposed by the Parliament after talks with the EMB, is not to be included in the final dairy market regulation. According to the Parliament, this agency’s initial function should be to collect market data on volume, price and costs. Even if no active control of volumes is planned yet, the monitoring agency as a market observer would be a beginning at least. Once the national quota system comes to an end, it is only through a monitoring agency that we can prevent damaging surplus volumes being produced and the market plunging deeper into crisis.
The problem is also that the Council intends to put very severe limits on the size of producer organisations that negotiate contracts with dairies on behalf of milk producers: 33 % of the national milk production and 3.5 % of EU production. That is not enough to give producer organisations the requisite bargaining power. Dairies achieve a share of up to 95% of the national market. This enables them to simply dictate contractual terms and conditions – and with it inordinately low prices – to a producer organisation that is never allowed to achieve such numbers.
Whereas before in the EU only the Council of the EU and the Commission worked everything out amongst themselves, now the Parliament has to be included in decisions on the new dairy market reform. It is questionable, though, whether this will actually result in more democracy. Unfortunately, as is evident, the old “double act” – Council and Commission – looks as though it still does not want to take the Parliament’s opinion on board. The Parliament must affirm itself and steadfastly defend its position. But the milk producers in Europe must also carry on bracing themselves against the keen wind blowing over from the Council in particular. Without a sensible control of volumes the next profound crisis is a given. Switzerland is already preparing us for it. In 2009 the policy-makers there abolished the quotas without bringing in a sensible follow-up regulation for the dairy market. Since then, farm-gate prices have been plummeting.
The EU milk producers’ efforts so far have not been in vain. This can be seen for instance in the change in attitude of many Members of Parliament. However, the milk producers’ campaigns must be continued and not allowed to fizzle out. For a cold wind from Brussels can quickly extinguish any spark of hope - but it will find it so much harder to knock over more than 100,000 resolute milk producers standing shoulder to shoulder in support of sensible supply management.