The results of the EU volume reduction programme are out: Close to 44,000 farmers have participated in the EU reduction programme and have dropped their milk production between October and December 2016 by 851,700 tons.

The recovering dairy market is a clear indicator that with this measure, the European Commission is finally addressing the correct factor - production. As compared to last summer, the average milk price has increased by 31% to 33.7 cents/kg in February.

High participation in EU programme

European milk producers have spoken clearly in favour of volume reduction. The available EU funds to the tune of 150 million euros were taken up almost 99% in the first application period itself. As an EU average, 80% of the volume applied for was actually reduced as well. EU aid of 14 cents/kg milk was only paid for the volume that was actually reduced and documented. Every applicant reduced production by an average 19 tons.

It is quite noteworthy that milk producers from the largest producer countries reduced their volumes as well. German dairy farmers reduced their production volume by a total 233,511 tons, followed by France (150,388), United Kingdom (89,957), Ireland (60,114), the Netherlands (53,171) and Poland (47,300).

In terms of eligible applicants, France tops the list with 11,299 farmers, followed by Germany (8,749), Ireland (3,514), Austria (3,214), the Netherlands (3,125) and Poland (3,055).

The final figures from the second reduction period (November 2016 - January 2017) are expected in early April.

EMB evaluation: The high participation in the programme and its effectiveness on prices show that voluntary production cuts can be relatively easy to implement across the EU, with minimal red tape. A major shortcoming, in our opinion, is the fact that volumes were not capped EU-wide, i.e. reductions could be nullified by increased production in other countries. We are also critical about the late implementation of the programme, the short timeframe (3 months) as well as the low volume proposed for reduction (1.07 million tons). The European Commission has proudly stated that the reduction programme has worked. As a logical next step, a legislative framework allowing for a crisis instrument, based on the EMB’s Market Responsibility Programme, should be put in place in the new CAP.

Overview of volume reduction in EU Member States from October to December 2016 (Quantity of delivery reduction and number of participants)

EMB press release: "EU volume reduction programme has proven itself"

Regina Reiterer, EMB

The German Federal Cartel Office has published an interim report that is significant for the dairy cooperatives system. It has caused quite a stir and confirms the MEG Milch Board's position almost entirely. In 2014, the MEG Milch Board appealed to the Cartel Office to launch an investigation against the DMK (Deutsches Milchkontor) and specifically criticised the exclusive supply obligation and long periods of notice in cooperative dairies in this context. The preliminary results concerning the key questions are now available.

The Cartel Office focused on the issues of exclusivity and restrictive supply conditions in German cooperatives. The former refers to exclusive supply obligations, while the latter includes notice periods and the issue of ex-post pricing. In the opinion of the Cartel Office, both aspects lead to low levels of competition.

It is important to note that there is a specific reference to the switching rate of dairy farms, which was only 2% between 2013 and 2015. The rate, which is insufficient from the point of view of competition, is significant because no new dairies of a significant size were founded in the mentioned time period. The large dairies, nonetheless, expanded, while the development of on-farm dairies was insignificant.

The restrictive supply conditions were intensively investigated. With regards to the practical observation concerning periods of notice (24 months in most cases), it is stated that the planning horizon for producers is subjected to the widest possible restrictions, leading to insufficient scope for competition conditions to be fulfilled.

With respect to raw milk supply, the usual combination of notice periods and exclusivity violate competition law in the opinion of the Cartel Office. This was especially highlighted in the report.

The Cartel Office addresses an important issue by stating that ex-post pricing (94% of dairies) is noticeably accompanied by a harmonisation of prices. This does not necessarily confirm the widespread suspicion of price fixing, but it does not fully exclude this possibility either.

The progress report by the Cartel Office is extremely specific and criticises the rules set by cooperatives. The conclusions directly refer to violations of competition law. One can safely assume that the basic concerns and convictions of the MEG Milch Board have been almost entirely taken up and addressed by the Cartel Office.

The final decision will be provided after a hearing of the parties on the progress report.

Rainer von Hößlin, Director of MEG Milch Board w. V.

Link to interim report: "State of play in investigation regarding conditions of supply of raw milk" (in German)

The interim report on conditions for the supply of raw milk, published by the German Federal Cartel Office (Bundeskartellamt) in mid-March, was highly anticipated, perhaps fearfully by dairies. This fear was justified: Using Germany's largest cooperative dairy Deutsches Milchkontor (DMK) as an example, the Cartel Office has thoroughly investigated the conditions on the raw milk market and concluded that there is a strong imbalance to the detriment of milk producers (suppliers).

It specifically criticises the extremely long periods of notice, the exclusive tender and supply obligations for total milk production, the setting of prices only in the first weeks post-delivery and the system of reference prices. Together with almost monopolistic structures in large parts of northern Germany, all these factors mean that milk producers have very little possibility to switch to another dairy even if they are highly dissatisfied. The Cartel Office found that less than one percent of farms switch per year. The results are nothing new for affected farmers, but they do strengthen their position in the political battle of power relations on the milk market - and it seems like that the Cartel Office also has the law on its side.

Outraged dairy industry

The reaction of the dairy industry is quite telling: In an apparently coordinated wave of outrage, the dairy industry association, the cooperatives association and even the DMK have attacked the interim report itself. They are calling it destabilisation of the dairy sector and bullying, and the DMK has even gone so far as to claim that their supply conditions are "indispensable for the survival of small-scale milk production in Germany and for the provision of a basic food like milk to the population. The Cartel Office is destroying the German dairy market." This coming from a company that drove the destruction of the livelihood of innumerable farmers due to their ruthless prices and volume policies during the milk crisis!

The position adopted by policymakers and farmer representatives in this regard will now be decisive. The largest producer organisations MEG Milk Board and Bayern MeG have already expressly welcomed the report, as have the BDM and the AbL. The German Farmers' Association (DBV) has been more hesitant in its evaluation, although the new dairy sector president Karsten Schmal has recently expressed very clear criticism against the cooperative dairies.

Policymakers on the move

It is interesting to note that as part of a "Discussion on dairy market structures" on 27 March, the Federal Ministry of Agriculture has not only invited representatives from the dairy industry and the farmers' associations, it has also included those from AbL, BDM and BÖLW. The Cartel Office says: "The possibilities for cooperation, created by agricultural legislation for those buying agricultural products, can not only be used to push for better sales prices, they can just as easily also be used to fix conditions that are especially detrimental to producers. An effective mechanism, which would prevent the exceptions in agricultural legislation from competition law to be used against producers, is lacking." This is specifically addressed to lawmakers in Berlin.

We are talking about - as the DMK press release so rightfully puts it - the survival of small-scale milk production. 

Ottmar Ilchmann, dairy farmer in East Frisia and Board member of AbL Lower Saxony

Belgian milk producers together with Oxfam have supported their colleagues in Burkina Faso to put Fair Milk on the market. This month, they received the award for Corporate Social Responsibility in the Fairtrade category for the development project FaireFaso. 

We decided to use this opportunity to talk to Erwin Schöpges from the Belgian milk producers' association Milcherzeuger Interessengemeinschaft (MIG-EMB) - one of the founders of FaireFaso - about the award, Africa and the EU.

How did you come up with the idea for this project? What convinced you to create something like this together with producers in Burkina Faso?

In 2009, we got acquainted with Oxfam-Solidarité when they supported us in a milk strike. We have been in contact since then and have also exchanged information on the situation of dairy farmers in Africa. On a joint trip to Burkina Faso, I was able to observe on the ground that we have a lot in common with our Burkinabe colleagues and that we both struggle with the same difficulties. During the visit, I was especially shocked to learn that large European companies are gaining ground in this West African country. On the outside, it looks like they are in favour of producers' interests, but their activities ultimately destroy small-farmer structures.

Therefore, we wanted to create something together to support local production and also strengthen the market position of producers.  It was important to us to go beyond merely paying lip service to better developmental conditions in Burkina Faso. And so we as MIG-EMB, together with the National Association of Mini-dairies and Local Milk Producers in Burkina Faso (UMPLB) and Oxfam Solidarité, were finally able to launch the fair brand FaireFaso on the market in early 2016.  

You have received the award for Corporate Social Responsibility. What does that mean to you?

We are very happy because it is validation of the work we have done in the last year. Both the Belgian and the Burkinabe colleagues were quite excited at the news. We are proud that such small projects are also considered. Usually it is just large companies and multinationals in the running for such awards and development aid is often just part of their image campaign.

Fair Milk is a brand that was also brought on the market in different European countries by local dairy farmers. It is also significant to us in Europe because the brand highlights the issues and unfair prices in the EU dairy sector. And now as FaireFaso, it also helps to shed a light on the North-South issues with trade.

How do you evaluate relations between the EU and African countries?

We are critical. Political statements in recent months have hailed the African continent as a large market for the future. The European Commission is helping European companies to get established there, come hell or high water. The EU might try to project this image of someone that supports developing countries, but you can see that at the same time, their activities on the ground are causing major damage. This will only add to the flow of refugees. When small-farmer structures are destroyed, more and more farmers leave rural areas for the city. It is, however, extremely difficult to find work in the city. People then leave their country and try to come to Europe as refugees.

How can we ensure that social responsibility becomes even more widespread?

It is our duty to make this information part of public debate. We farmers must also think differently because we do not only have a responsibility toward our farms, we are also responsible for the effect our products can have beyond Europe.

Thank you for talking to us, Mr. Schöpges.

Silvia Däberitz, EMB

Click here to view a film describing the FaireFaso project in early 2016: "Must - Can - Should Europe feed Africa?"