EMB Newsletter March/April 2022

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Dear dairy farmers, dear interested parties,

As the COVID pandemic wanes – for now –, dairy producers face new and familiar challenges, but they also work hard, both at the political and sectoral level, to pave the way for much needed improvements of their situation. Farmers have weathered many storms, from the advent of discount supermarkets and subsequent downward pressure on dairy prices from retailers and processors, the abolition of the quota system in 2015 and unrealistic expectations of competing in a global market while also covering costs and garnering a decent income, to more recent trends: the prospect of a Green Deal, consumers’ desire for more sustainability, and decreasing appetite for meat and dairy.

The common thread throughout is the fact that individual dairy producers, small and big, are at pains to counterbalance the negotiating power of processors and retailers. Only together, through regional, national, or European associations such as the European Milk Board, do milk farmers stand a chance of tilting the balance in their favour. Even so, initiatives have come and gone. In Germany, the recent ‘Agrardialog’ created in 2019 at the initiative of industry and retailers in the wake of farmer protests has so far failed to produce the expected results, despite the constructive approach of dairy farmers.

At the end of the day, only a solid political framework, nationally and especially at the EU level, can bring about the necessary change, i.e. to create market conditions that strengthen the market position of the primary sector vis-à-vis the secondary sector. A balance should be struck between market-based solutions and steering measures that enable dairy farmers to cover their costs and to earn sufficient income.

When it comes to sustainability and animal welfare, there must be much wider recognition of the fact that the market alone cannot guarantee a transition to greater climate and environmental protection. The Green Deal will only work if farms can provide decent livelihoods for farmers, and are compensated fairly for additional efforts. For this, an effective policy framework is required.

At the German national level, we hope promising signals from the incoming coalition government will soon translate into concrete proposals. At the European level, the reform of the Common Market Organisation (CMO), negotiated by the European Parliament and the European Council as part of the EU Common Agricultural Policy, has brought some positive results. We support them, like the temporary volume reduction in times of crisis, but we cannot take our eyes off the ball until the measure will indeed be activated when necessary.

In this newsletter edition, you will find information on the most important market indicators. Our Belgian colleagues from MIG take stock of a recent increase in milk prices in 2021, which has proved insufficient. Our members organisations in Switzerland, BIG-M and Uniterre, explain how low milk prices ultimately threaten production, while Kaspars Melnis of the Latvian Agricultural Organization Cooperation Council discusses increasing price disparities in milk purchasing prices. The colleagues at BDM discuss among other things a recently agreed increase in milk prices in Germany, which – problematically – only applies to QM+ certified milk, while Coordination Rurale delves into the details of a low-carbon label in France.

I hope you will enjoy reading this newsletter!

Elmar Hannen, EMB Executive Committee member and BDM board member

Farmers stand with all those suffering from the war in Ukraine

: © Pixabay

The European Milk Board calls for an immediate end to the war in Ukraine. We strongly condemn the attack against the territorial sovereignty and people of Ukraine. Farmers stand with all those, in all countries, who are suffering from this war.

We urge dairies in the EU to stop their exports to Russia and to send their products to Ukraine as emergency relief. Likewise, we urge the EU itself to make use of its position and stop exports to Russia.

How can we help? In addition to participating in demonstrations calling for an end to the war – held in various countries – donating medicine, food and essential goods is also possible. We encourage you to donate to trustworthy organisations in your different countries. We thank you for your support!

EMB press release of 4 March 2022

"A dramatic collapse"

: © EMB

A current study reveals the development in margins for EU milk producers and the fact that they have decreased significantly over the last 30 years, even sliding into negative figures to a large extent.

The study by the BAL (Büro für Agrarsoziologie und Landwirtschaft, Rural Sociology and Agriculture Office) has calculated four types of margin for the EU for the period 1989-2019 respectively 2004-2019 with the gross and net margin and the net economic margin I and II, clearly indicating the development in dairy farming.

The gross margin for milk producers in 1989 amounted to 21.98 ct/kg milk, compared to only 15.15 ct/kg milk in 2019.

Gross margin = total milk revenue plus coupled milk subsidies minus input costs and general operating costs (excl. depreciation, wages, rent, interest [1] and taxes)

The net margin in 1989 amounted to 12.36 ct/kg milk, compared to only 4.17 ct/kg milk in 2019.

Net margin = same as gross margin but also after deducting depreciation, wages, rent, interest and taxes (but not including income for milk producers/family members helping on the farm)

The net economic margin I in 1989 amounted to 3.79 ct/kg milk. Negative figures started to be recorded already in 1995, with a value way below zero of -4.96 ct/kg milk in 2019.

Net economic margin I = same as net margin, but also after deducting a simple income rate for milk producers/assisting family members [2]

The net economic margin II is continuously negative in the period under review from 2004-2019 [3]. The deficit varies in this time between 5.3 and 13.5 ct/kg milk.

Net economic margin II = same as net margin, but also after deducting a qualified income rate for milk producers/assisting family members [4]

See here for the complete study.

Sieta van Keimpema, EMB President, finds the results alarming: "The figures show a dramatic collapse in margins for dairy farmers. This also reflects the situation on the farms. It is clear that the wrong course was set for the dairy sector in recent decades."

Profitability in milk production has become an alien concept, regardless of margin type. The same also applies to appropriate payment for hours worked. Nor is there any kind of respect or appreciation for the work of the dairy farmers. It is therefore no great surprise that farms have to close one after the other. France, for example, has lost a quarter of its dairy farms in ten years.

EMB Vice-President, Kjartan Poulsen, demands a new approach to agriculture. "We need a new system – one that is based on cost-covering prices. The distorted price/cost ratio faced by our own farmers, the unconditional, harmful focus on exports without sufficient scope for crisis prevention – this actual situation reveals the failure of the current agricultural system." A new agricultural framework must make it possible for prices to cover all previous costs of milk production and also the new costs generated by the higher sustainability requirements.

With a view to the margins, Kjartan Poulsen addresses clear words to the EU Commissioner for Agriculture: "Mr Wojciechowski, the data simply cannot be ignored any longer. You must work together with the farmers, the industry and the retail sector to look to the future and make every possible effort to make agriculture fair and profitable."

[1] Wages, rent and interest = external factors

[2] Simple wage rate = wage amount paid to employees / h x hours worked by family members (without employer contribution)

[3] The necessary data are only completely available for the period from 2004.

[4] Qualified wage rate = twice the minimum wage / h x hours worked by family members (without employer contribution); the simple wage rate was used for Member States without statutory minimum wage (Austria, Denmark, Italy, Finland, Sweden and Cyprus). The qualified wage rate can only be ascertained for 2004 to 2019 due to missing data. The qualified EU wage rate is a weighted average wage (ascertained based on the weighted milk volume in the EU Member States).

EMB press release of 17 March 2022

Market indicators (as on 08/03)

: © wrangler/Shutterstock.com

After a temporary dip of -1.5% at the end of last year, the Global Dairy Trade Index continues to build on its strong upward trend at the start of the year. On 1 February 2022, it increased by 4.1% and on 15 February by a further 4.2%. It continued upward in early March (1 March) with a further +5.1 percentage points.

The average price for Italian spot milk, which was 44.75 cents per kg in January 2022, rose by about 2.5% to 45.88 cents in February 2022. This represents an increase of about 26% compared to February 2021. In early March 2022, it rose an additional 2.4% to reach 47 cents per kg. The spot milk price is thus almost back to its level at the end of last year, when it reached an annual high of 47.63 cents in December.

The EU-27 milk price increased by 1.8% month on month in January 2022 and was pegged at 42 cents per kg. There was a slight increase in February as well, such that the milk price in said period reached 42.25 cents. This constitutes an increase of almost 21% compared to February 2021.

In mid-January, the EU butter price was 573 euros per 100 kg and by late February, it had increased by about 4.5% to 598 euros. Compared to the previous week (20 February 2022), the price climbed by 0.7%. One year ago, the EU butter price remained around 363 euros (28 February 2021), which was comparatively much lower.

EU skimmed milk powder prices are currently 367 euros per 100 kg (27 February 2022), which is an increase of 2.2% as compared to the previous week and about +5.5% across a four-week comparison. One year ago, it was still at 235 euros (28 February 2021) and in November 2021, it finally surpassed the 300-euro mark.

The rates for milk product futures on the European Energy Exchange (EEX) were as follows: skimmed milk powder contracts for May 2022 increased by 7.4% from 3,629 euros per tonne on 7 February 2022 to 3,898 euros per tonne on 7 March 2022. Butter contracts for May also evolved positively during the same period. This increase was to the tune of 9% from 5,900 euros per tonne (7 February 2022) to 6,438 euros per tonne (7 March 2022).

European Milk Board, March 2022

A milk price of 50 cents/litre - indispensable to ensure that farmers are remunerated for their work

: © EMB - CR - APLI

As the trading negotiations between suppliers and their clients come to a close, the outcome is not in line with farmers’ expectations. The announced prices are well below the production costs borne by farmers; the EGALim law to achieve a balance in trade relations in the agricultural sector and healthy and sustainable food has proven to be ineffective yet again!

The dairy industry and distributors, however, boast a significant increase in milk price, while conveniently leaving out the fact that operating costs have skyrocketed for over a year, and farmers bear the direct brunt of this trend. According to the dairy interbranch organisation for western France (CILOUEST), the increased costs would require a price increase of 3.35 cents per litre as compared to October 2020!

Faced with this reality, the European Milk Board (EMB) and its two French member organisations – Association des Producteurs de Lait Indépendants (APLI) and Coordination Rurale (CR) – demand a milk price of 50 cents per litre as the absolute minimum to allow producers in France to cover all costs and draw a decent remuneration. And also for the colleagues in other EU countries, who are in a similarly difficult situation, the prices must finally move to a cost-covering level.

Dairy farming in France in swift decline

For many years now, the European Milk Board and its member organisations have been sounding the alarm regarding the situation of dairy farming in Europe and more specifically in France. Things in France are especially dire: the number of dairy farms keeps reducing and according to the agricultural census, one fourth of dairy farmers have stopped their operations over the last ten years. At the same time, the herd size is also shrinking rapidly: France lost 8.2% of its dairy cows between 2015 and 2020, and about 441,000 heads could disappear by 2030 according to the French livestock institute IDELE. The unattractiveness of the sector and the ageing dairy farmer population are bad signs for the future of the sector.

Revaluing the milk price would encourage the youth to join the sector

With a work week spanning between 44 and 58 hours, and in spite of their status as farm managers, most dairy farmers have a hard time making a decent living. According to the latest study by the EMB, the average income of French dairy farmers between 2015 and 2019 was 1.24 euros per hour, while a fair income in France was an average 26.66 euros per hour. It is difficult to make dairy farming attractive to the youth given these conditions. It is also important to remember that only one in three dairy farms is taken up by the next generation and the number of young farmers entering the sector has halved since the late 1990s.

It is high time to bring decent remuneration to farms and to ensure the survival of our production – a milk price of 50 cents per litre is the only way. The future of French dairy farming is at stake!

Joint press release from EMB, CR and APLI of 1 March 2022

Rising costs put pressure on milk production

: © Deborah Cordwell, wikimedia

Skyrocketing energy prices are leading to far-reaching consequences. For many months now, milk products have become steadily more expensive around the world. This could be because many food corporations are capitalising on the situation and are using the excuse of rising energy prices to expand their margins. At the same time, milk production worldwide is either stagnating or decreasing. Rising costs and milk prices that do not cover these costs are leading to more farms going out of business and a reduction in production volumes. Since the phase-out of quotas in 2009, the number of dairy farms in Switzerland has reduced by one third. Today, only about 18,000 remain.

The dairy industry has always done all it could to put pressure on milk prices. In shops, however, prices for milk products keep increasing. The dairy price index by the Federal Office for Agriculture (FOAG) has been on the rise for months. The reference price for A-segment milk, however, has been languishing at 73 centimes for more than a year. In fact, producer prices are actually reducing month on month!

A short survey among dairy farms revealed the following: the rising prices for feed and energy alone have raised the cost of milk production by a whole 3 centimes per litre! It is high time that the dairy sector took some decisive action. They cannot afford to simply look on as milk production in Switzerland runs out of steam. The measly 2 to 3 centimes offered by individual retailers for compliance with higher standards are of no help at all. They are simply cancelled out by higher production costs. The additional burden of higher standards is, once again, being borne by farmers and their families. And policies laying down additional requirements are about to enter into force.

The dairy sector needs to balance its books! There needs to be a systemic change in how the milk price is determined on the dairy market. The milk price must be calculated on the basis of production costs and must be thus implemented on the market as well. Time is running out. The fact that our official producer representatives have not spoken out to date in favour of such a systemic change is already alarming enough. BIG-M and Uniterre call on the milk interbranch organisation to take a first step at their meeting on 2 March by raising the target price for A-segment milk by 9 centimes in the next quarter. Dairy farms need a timely, clear sign that would allow them to plan for the future.

Berthe Darras, Uniterre, and Werner Locher, BIG-M

New record on farm-gate price, but there is a major difference in how much farmers earn on it

: © LDM

Arla Foods is raising milk prices in Denmark by a further 2 cents. This is good news for dairy farmers. In addition, the farm-gate price has broken new records with several dairies in Europe, but so far milk production has not increased as one might have expected. This has surprised the European Commission, which shows that it neither understands today’s farm work, nor the impact of future requirements on housing conditions and animal transports in several countries.

Flat production volumens also illustrate that the ratio between the farm-gate milk price, the cost of feed and interest does not increase at the same pace as the producer price. Farmers’ expenses heavily depend on the contracts they have entered into. Those who currently buy feed, electricity and diesel at a daily price pay a somewhat higher rate than buyers who signed a contract last autumn.

The examples below show the prices of some products on contracts signed last autumn compared to current price levels. Current prices for both pesticides and fertilizers are estimates as it has now become difficult to get these goods since both the provision of raw materials and logistics have been disrupted by the war in Ukraine. All prices exclude VAT and taxes.

Electricity costs 3-5 cents per KWh on contracts signed last autumn, while the current daily price is 11-13 cents.

Diesel costs 36-48 cents in an autumn contract, compared to a current daily price of 85 cents per litre; that’s more than double the price if you haven’t signed a contract.

Concentrate costs 27-35 cents per kilo on contract, depending on its composition. Current prices are difficult to find.

Pesticides prices have increased by 60-80 percent; and prices are floating.

Fertilizer on contract cost 34 cents in autumn, while it would currently cost an estimated 67+ cents per kilo, even though it is unavailable on the market today.

Danish farmers sign many contracts: for electricity, feed, fertilizer, diesel and pesticides. These variable costs can result in differences ranging from 10,000 to 100,000 euros, depending on the size of the herd and whether farmers have signed contracts or not.

Lone Vestergaard, specialist editor, Landsforeningen af Danske Mælkeproducenter (LDM)

Dangerous trends in the Latvian dairy sector

: © LOSP

The Latvian dairy sector has witnessed a dangerous trend in recent months. Since September 2021, the difference between the highest and lowest purchase prices of milk received by farmers and milk producers has increased substantially.

According to the Agricultural Data Centre, milk purchase prices are varying wildly. Of course, the purchase price depends on multiple factors like milk quality and delivery volume. Variations in purchase prices between farms are not new, but not to the extent that we see now.

Back in August 2021, the purchase price of milk ranged from 0.2382 to 0.36 euros per litre, a difference of around 34%. By December, it was between 0.2709 and 0.47 euros per litre of milk, a difference of 42%. This gap continues to grow in 2022.

Added to this is a sharp increase in electricity prices paid by farmers. Even though the government is giving some compensation for the electricity cost (10-40%), it is clear that farmers are struggling to survive. Fuel prices, already at a record high, continue to rise steeply.

Against this dramatic backdrop, for several months farmers have been feeling the pinch of sharp increases in the price of raw materials. The cost of fodder has gone up by 40%, that of micro minerals even more. Compared to last spring, the price of cereal seeds has seen a rise of 50%, which means that the cost of self-grown fodder will also increase.

Kaspars Melnis from the Latvian Agricultural Organization Cooperation Council explains: “The overall situation together with the sharp rise in prices in the agricultural sector make it all the more urgent to return to the drawn-out debate on reducing value added tax (VAT) on fresh products such as bread, meat, milk and eggs, as is the case in many other EU countries. For example, in Ireland and Malta, VAT on food is 0%. In other EU countries, such as Germany, it is 7%, whereas Latvia has a VAT rate of 21%. Of course, such a step will not offer direct support to entrepreneurs, but it will mean a great deal to our citizens. With rising prices observed across all goods and services, the pressure on businesses to raise wages accordingly is growing. People are no longer able to buy the same amount of food with the same salary as they were two months ago. With continually rising food prices, the government must decide on long-term instruments to support its citizens and businesses, as one-off, short-term measures will not be able to sustain the system in the long run.”

Kaspars Melnis, Dairy expert, Latvian Agricultural Organization Cooperation Council (LAOCC/LOSP)

Together for a fair remuneration and sustainable agriculture!

: © MIG

At the start of this new year, the MIG – a Walloon association of dairy producers – wishes to highlight some recent developments in its sector.

Milk prices still insufficient

According to EU Commission figures, the average purchase price of milk from Belgian producers in 2021 stands at 36.5 cents/litre (gross average price for actual protein and fat levels). This amounts to a 17% increase compared to the average December 2020 price (31.3 cents/litre). This increase is mainly due to high prices in November (41.1 cents/litre) and December (45.6 cents/litre).

Despite this significant increase, the average milk price in 2021 was still lower than its production cost (standard remuneration to the producer included). The latest study by the BAL (Büro für Agrarsoziologie und Landwirtschaft, Office für Rural Sociology and Agriculture) suggests that the price of milk should rise to at least 46.8 cents/litre in the future for dairy producers to obtain a decent hourly wage. In addition, the future of the dairy producer profession and its attractiveness directly depend on this.

MIG welcomes decrease of dairy producers' contribution to MILKBE

MILKBE recently announced that the compulsory contribution paid by dairy producers will drop in 2022 from 8.05 to 6.05 cents per 1000 litres following a decrease of the botulism fund. This was one of the MIG’s demands and, as such, it welcomes this decrease. MILKBE is an "interbranch organisation" created in 2019 by Agrofront (FWA, Boerendbond and ABS) and the Belgian Milk Industry’s Confederation for the Belgian dairy sector. MILKBE mainly focuses on sustainability, quality standards, and also on relations between dairy producers and the dairy industry. MILKBE’s budget includes contributions stemming from producers and from the industry.

Wallonia's Strategic CAP plan includes most of the MIG's demands

Wallonia has presented its "2023-2027 CAP Strategic Plan" on 17 January 2022. The European Commission now has to approve this plan for implementation in 2023. Most of the aid measures upheld by the MIG have been integrated into this plan. According to the latest information:

The budget for the redistributive payment on the first 30 hectares of each farm has been increased. It will represent roughly €130/ha, which will contribute to preserving family farms.

The coupled aid for dairy cows has been maintained. It will amount to a maximum of €25/cow.

Eligible eco-schemes on dairy farms, such as the maintenance of permanent grassland (basic amount €44/ha) and the covering of soils (grassland included) in winter (€15 to €45/ha).

MIG press release of 31 January 2022

The low-carbon label in France

The national low-carbon label in France certifies projects by farmers that contribute to a reduction in greenhouse gases. Once a project fulfils the label's requirements and is certified, private investors can buy these certificates and use them to offset their own emissions. The euro price for the certificate is calculated per tonne of carbon emissions reduced. The French association Carbon’agri is entrusted with connecting farmers holding these certificates with potential investors.

What is the “Bas Carbone” label?

The low-carbon label is the first label by the French Ministry for Environmental Transition that provides compensation for changes in practices that contribute to the fight against climate change. A tonne of carbon is sold at about € 30-35 and the programme is currently limited to mixed crop and stock farms and field crops.

How is it funded?

It is funded by private entities, companies, groups – “polluters” who want to greenwash their image while enjoying tax exemptions. A company like Air France could thus tell their customers that their flights are carbon-neutral because they are offset by the purchase of agricultural credits. An association has been created to centralise such projects by farmers (or their collectives called “economic and environmental interest groupings”) and to connect them with investors. It is called France Carbon’agri and is managed by farmers’ unions specialised in livestock farming within FNSEA, the general farmers’ union. Yet another cash cow?

Who can participate?

Those who wish to apply for this aid have to respond to the call for projects, stating their projected reduction in carbon emissions. These projections will allow France Carbon’agri to match them with investors. Farmers have to undertake actions to reduce their carbon emissions:

reduce energy consumption

manage their herd more efficiently

select the least carbon-intensive feed for their livestock.

Every action has limited impact, which is why it is important to leverage a diversified approach to reach a total of -15%.

In order to improve carbon storage:

plant cover crops

create temporary grasslands during crop rotations

create hedges, meadows – ...

Aid amount

A farmer can hope to receive between € 5,000 and € 9,000 in total over five years and the amount is transferred at the end of the project period (after five 5 years). The exercise becomes even less attractive given that this aid is not guaranteed but is contingent on the final result! An unforeseen development or calculation errors could lead to a farmer receiving nothing.

CR’s opinion

CR believes that when it comes to the positive contribution of agriculture, it is absolutely essential to consider the net outcome by taking into account aspects like carbon sequestration and storage as well. Furthermore, CR welcomes the fact that the role of farming in reducing pollution has finally been recognised. However, we see a fatal flaw in the methodology that must be corrected: all extensive livestock farming methods and land conservation practices that are highly beneficial have been completely excluded from this mechanism. In fact, the labelling imposes a measurable and significant progress rate that is not possible if one is already very advanced when it comes to beneficial practices.

The folly of some regions

Certain regions wish to make their regional aid contingent on the implementation of this label – and that is very problematic. It is even more scandalous that farmers in regions with extensive livestock farming who are already on the right track would no longer be eligible for regional aid because they would be unable to meet the requirements of the label!

Coordination Rurale

QM+: A scandal that should actually come as no surprise!

: © BDM

The farmer’s union, Raiffeisen association, dairy industry association and the Federal association of German grocery retailers (BVLH) have agreed on a surcharge of 1.2 cents per kg for QM+ certified raw milk. The prevalent assumption among dairy farmers was that this extra amount would be paid for all milk produced under QM+ conditions. But now the cat is out of the bag: the additional 1.2 cents per kg will only be paid for the volume of milk that actually passes through checkout under the QM+ label!

When we brought up this scandal, it was waved aside, claiming they did not want to reveal anything before the agreement was reached. When QM milk was introduced over 15 years ago, it was possible to stall the initial implementation of QM milk in southern Germany thanks to a protection association initiated by the BDM. Unfortunately, an increasing number of dairies still continued to push their suppliers into QM in the background. A revival of the protection association would be extremely useful at this juncture, assuming that many farmers are, once again, ready to muster the courage to commit to the association to protect their interests.

Video conferences in March 2022

After the major success of the “Market, Policy and BDM in action” video conference last December, the BDM built on this initiative. On 3 March, for example, the BDM Women's Panel took place digitally. Another video conference of the BDM live series was held in mid-March. This time the topic was “Race of Standards” with a focus on QM+ and we had the pleasure to welcome about 180 guests.

Federal Farm Minister in favour of harmonised EU rules for origin labelling

When it comes to compulsory national origin labelling, the Federal Ministry of Food and Agriculture (BMEL) underlines the need for EU legislation. This position is backed by the belief that a European system would lead to more transparency and a level playing field in terms of competition. However, such a proposal from the European Commission for EU-wide rules is only expected in the second half of 2022. A purely national solution should only be considered if the EU proposal is not comprehensive enough. The Federal Government has been criticised for this stance by the spokesperson for agriculture for the Conservative party's (CDU/CSU) group in the Bundestag. He says he cannot understand why France can introduce compulsory national origin labelling and Germany cannot. “But many pig farmers in Germany do not have the time for this”, says Albert Stegemann.

While it is true that compulsory origin labelling is very important and much needed, it will not be enough to solve the current market problems in the pig sector and in animal husbandry in general. The only thing that would help is aligning production with demand.

Henrik Kramer, Political work and communication, Bundesverband Deutscher Milchviehhalter (BDM)

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