Improving the mechanisms to share added value within sectors and strengthening producer organisation are two subjects at the centre of discussions on agricultural policy, both at the French and the European level. In France, the dairy sector has been particularly affected by these issues since the abolishment of dairy quotas and the 'contractualisation' implemented as of 2010 does not seem to have been the adequate response.

While also very dependent on international trade, the American dairy sector was less affected by the world overproduction crisis that hit in 2014. Since the 1930's, milk trading in the United States has been carried out by federal bodies (Federal Milk Marketing Orders), which are created when two-thirds of producers in a region decide to create such an instance. In this way, 80% of American milk production is covered by this regulatory measure.

The main function of these Offices is to ensure a fair sharing of value between producers and processors based on price formulae. The same minimum price is defined every month for all producers. It is established on the basis of developments on the market for processed dairy products. The price formulae can be modified but they are now identical for all 10 Offices and have been the same for at least 10 years. The functioning of this instrument depends on a high degree of transparency by those involved in processing who have to notify the sales volumes and prices of their end products. If the monthly minimum price is the same for all producers covered by an Office, the price at which they supply to processors differs based on the type of value added. Thus, an equalisation is directly applied to companies in segments of high added value, which pass on part of this created value to companies making lesser value 'mixed products'. This is equal to 10 to 15% of the turnover of milk producers that operate via their Offices to ensure the application of this equalisation.

If we were to apply these American price formulae, the milk price in France would have been 13% higher over the last 10 years. The huge cooperatives in the Netherlands, Denmark and even New Zealand operate in a situation of quasi-monopoly at national level, which allows them to carry out internal equalisation. As compared to these competitors, French producers suffer a competitive disadvantage at an organisational level: cooperatives collect 55% and process 45% of French milk production.

Keeping in mind the tensions regularly seen within the sector and the sometimes-dated trade practices applied – unilateral termination of contracts, price fixing post delivery, etc., it seems necessary to reorganise producers to free them of this excessive economic dependence. The 'contractualisation' applied in France in preparation of the abolishment of dairy quotas has not provided the expected results. A contract cannot rebalance commercial relations in and of itself. And dairy cooperatives have clearly wished to remain on the side-lines of 'contractualisation'.

The extension of the logic of 'sectoral intervention' announced for the CAP post 2020 could help speed up the reorganisation of the dairy sector in France. French dairy cooperatives will thus be faced with an important decision. Either they decide to take the bull by the horns and get organised in a unified territorial body, aligning themselves with existing POs as a way to progressively integrate producers of the latter as cooperative members. Or, POs are created within cooperatives and these POs come together in an Association of Producer Organisations (APO) as a kind of pooling and cooperatives then specialise in specific processing activities like in the United States.

This would bring us out of the paradoxical situation on French dairy farms where, on one hand, one half of producers is well-organised in cooperatives where milk receives an average value and, on the other, one half of producers are barely organised in a PO and do not have any real negotiating power in the face of processors who are very well-placed in their higher value-added segments.

It is therefore crucial for milk producers to organise right away in order to anticipate the upcoming CAP reform and to work on production reorganisation to be able to steer volume management and the sharing of added value within the sector.

Summary of the study "Les enseignements de la politique laitière américaine en matière de partage de la valauer ajoutée" by Courleux F., Gaudoin C., 2018 (Agriculture Stratégies). You can download the full study here (in French).

Comments on behalf of APLI France: We find the results of the study very interesting. However, we do have some reservations, especially with reference to production costs (see also EMB studies on milk production costs in Europe). Furthermore, one cannot stick to an approach limited only to France in the context of production regulation. In fact, producer organisations must be created at European level.

About 600 dairy farmers and guests from all over Germany met once again at the traditional symposium of the German dairy farmers' association BDM e.V. at the International Green Week in Berlin. This year, it was held on the first Saturday and was entitled "Dairy together – a global network for a future-proof dairy market."

In her opening speech, Dr. Beate Jessel, President of the Federal Office for Nature Conservation, appealed to the dairy farmers present to show an open and collaborative spirit regarding the necessary structural and substantial changes within the CAP reform that are urgently required to reach environmental and climate goals, while at the same time agreeing that these changes must be affordable for farmers.

Darin von Ruden, President of the Wisconsin Farmers Union, introduced the
"Dairy together" movement, where dairy farmers in the US have been raising awareness among policy-makers and the media about the necessary changes that are urgently needed, considering American dairy farmers have been incurring losses on every litre of milk for a while now, in spite of all the political measures.

Murray Sherk, the new Chair of Dairy Farmers of Ontario in Canada and himself a dairy farmer, provided an overview of the functioning of the Canadian dairy market model and also outlined its advantages for dairy farmers and rural areas. He said that the market opening as a consequence of different free trade agreements comes with pressure on the dairy market, and there are attempts to provide some relief through policy measures. Nonetheless, he said that in general, it is possible to earn a comfortable income in Canada solely through the sale of milk.

Herbert Dorfmann, Member of the European Parliament and rapporteur on "The Future of Food and Farming" expanded the discussion to EU agricultural policy and the possible changes that the CAP reform could spell for farmers. Within the context of vibrant rural areas, he supported a capping of agricultural funding.

Sieta van Keimpema, Vice-president of the European Milk Board EMB, used her presentation to explain the imbalanced situation faced by European dairy farmers, by simply taking a close look at their farm data. If production costs and milk prices are compared, it becomes clear why many farmers are unable to find anyone willing to take over their farms. She also showed how the dairy industry managed to increase their profits even through repeated milk crises.

BDM spokesperson Hans Foldenauer concluded with an outline of the BDM Sector Strategy 2030 and highlighted that in this context, discussions cannot be limited simply to the distribution of funds – real changes are the need of the hour. He referred to the BDM Strategy Paper with its ambitious targets that are albeit necessary in order to bring some real movement toward improvement.

This year also included what has now become a permanent fixture on the agenda – the "Fair Milk" Journalism Prize. It was awarded to six articles by Michael Braun, Head of Marketing for Fair Milk, as part of the BDM symposium.

Siek Postma and Romuald Schaber, former Presidents who stepped down in the course of the previous year, were also honoured for their contributions over many years to the EMB. Flag-waving dairy farmers from different Federal States together with Erwin Schöpges, President of the European Milk Board EMB, jointly celebrated the nomination of Romuald Schaber as Honorary Chairman as thanks for his extraordinary and tireless commitment to the cause of dairy farmers. As said by Stefan Mann in his congratulatory words acknowledging Mr Schaber's achievements, he has influenced the Association like other.

German dairy farmers' association BDM e.V.