In light of the critical situation in the dairy sector, French President Emmanuel Macron announced that henceforth, the milk price will be determined on the basis of production costs. In fact, for years now, milk producers have been operating in a market that does not allow them to cover costs, with prices that are often below even paid production costs, without even considering remuneration for producers – something that is, nonetheless, primordial to ensuring the survival of the sector.

In order to implement President Macron's proposals, it is essential to have up-to-date figures that represent real milk production costs in France. That is why the French dairy producer organisations APLI, OPL, and France Milk Board (FMB) Grand Ouest and Bassin Normand, in collaboration with the European Milk Board (EMB), have commissioned a study on milk production costs with the German Farm Economics and Rural Studies Office (BAL). "The results of the study published today are unequivocal," says Boris Gondouin of APLI. "We need at least 45.14 cents to cover milk production costs, remuneration included."

EMB President Romuald Schaber explains the importance of this study: "Up-to-date, representative figures on production costs are key. They should serve as the basis for political discussions and to calculate the milk price." In fact, with an average milk price of 33.91 cents per kilogram milk over the last five years implies that the shortfall in terms of production cost coverage has been 27 per cent. Even in 2017, where there was some recovery of milk prices, producers were still short by 10.72 cents per kilogram to cover their production costs and to receive fair remuneration for their work. In 2016, this shortfall rose to 14.31 cents per kilogram of milk produced.

"Now that we have these figures, work can continue," says Denis Jehannin, vice-president of the transversal producers' organisation FMB Grand Ouest. "We can refer to these figures during price negotiations with the industry." For Joseph Martin, representative of OPL, it is now necessary to find concrete solutions. "We call on political representatives to implement an adequate framework that would finally make viable producer prices a reality. Together with policy-makers and other sectoral representatives, we should find the appropriate solutions to ensure the future of the sector," he continues.

The BAL studies, which include production cost studies for other key milk-producing countries in Europe, are available here: http://www.europeanmilkboard.org/en/milk-production-costs.html

In terms of a crisis management instrument, the EMB and its member organisations propose the implementation of the Market Responsibility Programme (MRP), which would help counteract crises. You can find more detailed information on this Programme here:

EMB press release of 2 March 2018

EMB Pressemitteilung vom 2. März 2018

It was a tough start for incoming Agriculture Minister of Lower Saxony, Barbara Otte-Kinast. Contrary to the announcement by her predecessor Christian Meyer from the Greens, there will be no redesigned grazing premium this year.

Meyer promoted pasture-based farming last year by creating a compensation subsidy. The idea was to reinstate this aid this year as a more formal grazing premium. According to statements by the ex-Minister, which were confirmed by SPD members, aid to the tune of 30 million euros had already been decided on with the concerned departments. However, we then had early elections. The Ministry for Agriculture went from the Greens to the CDU. The grazing premium was 'lost' along the way. The aid amount was eventually not allocated in the supplementary budget. An oversight?

Livestock farmers were meant to receive 60 euros per cow and 20 euros per sheep or goat in 2018. At this point when there is greater social awareness about animal welfare, which includes cows at pasture, and dairies like Ammerland are trying to introduce their own brand of grass-fed milk on the market, many farmers fail to understand this policy coming to a complete standstill.

Even during Meyer's term, there was opposition in the Ministry to the grazing premium. It was said to be too complicated and too difficult to monitor. There were also clear concerns about cross-compliance violations. The temporary power vacuum post elections and the new incoming Minister created room for manoeuvre that the official machinery was able to expertly manipulate. Now the Ministry is placing itself very clearly against the grazing premium. "When it comes to dairy farming, there are stall-rearing methods that qualify high on animal welfare, even though there is no pasture grazing involved. Simply making a certain amount of pasture time compulsory is not going to effectively improve animal-rearing conditions in dairy farming."

While the Minister explained in her first statement that no funds were available and that the grazing premium could only be financed by drawing funds away from other agricultural and environmental measures, it has now become clear that it is a clear case of diverging priorities. After the Minister mentioned aid payments for the construction of slurry tanks, a spokesperson from the Ministry specifically stated that there were plans for a three-year aid programme with funding to the tune of about 10 million euros per year. Instead of addressing the mid-term goal of land-based animal rearing, this shows that things are going to be business as usual.

Even if the grazing premium is not paid this year, there are, nonetheless, some signs from the SPD and CDU that such a budgetary allocation could be envisaged for 2019. A spokesperson from the Ministry recently confirmed this: An aid programme shall be planned "within the budgetary exercise for 2019 as well as the mid-term financial planning for the following year."

Furthermore, the new Minister of Lower Saxony underlined her support for the grass-fed milk programme: "With the continuation of the grass-fed milk programme, which was initiated by the previous government, dairy farmers, who carry out pasture-based farming and contribute to the maintenance of pastures, shall receive support."

Marcus Nürnberger, German small farmers' association AbL

At the end of February, the European Commission sold over 4,300 tonnes of skimmed milk powder at a set minimum price of € 110/100 kg. This has been the lowest selling price since the beginning of the tendering process and has been met with severe criticism from European milk producers.

The latest sale at € 110/100 kg clearly contradicts the European Milk Board's call to reduce intervention stocks in a way that will not be detrimental to the market and without selling skimmed milk powder below market value. The largest volume of skimmed milk powder to date –  4,337 tonnes – was rejected in the most recent tendering process. Since December 2016, 6,421 tonnes of SMP have been sold as part of 17 calls for tender. About 380,000 tonnes are still sitting in European intervention storage. The current market price for skimmed milk powder has fallen to €137/100 kg.

"Unfortunately, the powder was not sold but outright dumped – this price is scandalous," says the president of the European Milk Board, Romuald Schaber, outraged by the European Commission's behaviour. "You have the feeling that the Commissioner for Agriculture is trying to get rid of stocks without any concern for the consequences." Dumping milk powder in this fashion is very dangerous considering the current market situation and makes conditions even more difficult for milk producers, adds the president of the EMB. "Even the minimum price of € 215.10/100 kg set in December 2016 does not actually correspond to real production value," continues Schaber. "By steadily reducing the selling price to a mere € 110, policy-makers continue sending the wrong signs."

After a short-lived recovery, milk prices are already showing a downward trend. German and Belgian dairy farmers have reported a price reduction of about 4 - 10 cents in past weeks. With the projected production increases in coming months, Europe's dairy farmers are heading into the next crisis with their eyes wide open.

Sieta van Keimpema, milk producer from the Netherlands and vice-president of the EMB, remains pragmatic. "Agriculture Commissioner Hogan assured us milk producers that the voluntary production cuts instrument continues to be available at EU level. Mr Commissioner, NOW would be the time to follow through on your assurances and to introduce a new volume reduction programme that includes production caps, as proposed in our Market Responsibility Programme!"

For the EMB it is crystal clear that intervention is ineffective in the face of chronic market instabilities and suppresses future selling prices, thus counteracting market recovery. Instead, production must be aligned with market needs through volume reduction.

EMB press release of 5 March 2018