On 13 June the EU Commission published the long awaited report on the milk market. The current situation in the EU milk market is described as positive, and medium-term prospects are good, although severe price fluctuations are most likely to re-occur.

Call for crisis instruments

Despite a substantially positive outlook with possibilities for growth in the coming years, doubts are expressed in the report as to “whether the EU regulatory framework is sufficient to overcome extreme market volatility or a crisis after the quota system ends. This must be seen in the context of guaranteeing EU-wide milk production and preventing extreme concentration in the most productive areas.”

The plan is for the new Milk Market Observatory “to assist the Commission in keeping an eye on market developments, applying provisions for the ‘safety net’ proactively, and reacting to unusual circumstances.”

Proposals were put forward to extend the instruments available within the Observatory in order to keep milk production going in a crisis situation, to assist disadvantaged regions, and to counter a strong increase in production.

The report confirms that the Commission will continue to discuss the solution to these problems and scrutinise additional instruments. The Commission recognises the need for further analysis to support the EU milk sector efficiently.

Mandatory contracts

The report confirms that there are mandatory contracts between farmers and processors in twelve member states (Bulgaria, Croatia, Cyprus, France, Hungary, Italy, Latvia, Lithuania, Portugal, Romania, Slovakia and Spain). In two other member states (Belgium, the United Kingdom) farmers and processors have agreed codes of conduct.

Regina Reiterer (EMB)

On June 24, the Dutch Dairymen Board (DDB) presented the results of the study into the production costs for a litre of milk in the Netherlands. With a cost price of almost 45 euro cents for 2013, the production costs for a litre of milk are considerably higher than the average milk price paid in 2013, which was just over 37 euro cents. This means there is a coverage deficit of 16 percent, and this is just for 2013.

The study is based on the data gathered by the EU and calculated in the Farm Accountancy Data Network, which is recognised by all EU member states. Since the European Commission is presenting the results with a delay of no less than three years, this makes it tricky to have a substantive discussion about the situation in dairy farming. This is based solely on assumptions and ‘gut feelings’, with the level of the milk price paid being taken as the starting-point. These are incomplete and - as can been seen from the cost price calculated - incorrect assumptions. 

What also makes this study unique is that for the first time a remuneration has been calculated for self-employed dairy farmers – and family members who help with the work – that is not based on flat-rate assumptions. The remuneration calculated at the request of the DDB may refer to rates based on ‘BV Nederland’. The functions and responsibilities of a dairy farmer have been weighed in the market on the basis of a database consisting of two million employment contracts.

Since the year 2000 the fact that Dutch dairy farms have been undermined by means of a milk price that is structurally too low has already resulted in the closure of 37% of Dutch dairy farms. Because the selling prices for producers in agriculture are too low, the Netherlands is now characterised by a high degree of aging. Family businesses, which are a characteristic feature of the sector, are disappearing.

Background information:

The method used to calculate the production costs for a litre of milk in the Netherlands was developed in 2012 by the Büro für Agrarsoziologie und Landwirtschaft (BAL - Office for Agrosociology and Agriculture) in Germany at the request of the European Milk Board (EMB) and the MEG Milch Board. First the cost price for a litre of milk in Germany was calculated and this was published in January 2013. In January 2014, the results for France followed.

The entire study can be downloaded from www.ddb.nu

Sieta van Keimpema (EMB Vice-President)

The Majority of milk processors in Ireland are paying 37 cents per litre inclusive of VAT for May milk. Two processors remained paying 39 cents per litre inclusive of VAT for May milk despite others dropping price by 1 or 2 cents.

Silage season is well under way with the majority of first crops harvested at this stage. Yields have been good, with conditions excellent due to the recent fine weather. This good weather has seen milk supplies to processors increase year on year with most running far ahead of quota levels. The expectation is that there will be a superlevy next March due to this increased supply and the increased number of heifers that will calve next spring in anticipation of the removal of quotas.

The secondary business enterprise on Irish dairy farms is mainly a beef enterprise. Beef prices have reduced 10-20% depending on the animal in the last year and this is leaving many farmers suffering a loss from that enterprise.

Paul Smyth (ICMSA)