Just as in the last issue of the EMB Newsletter and the one before last, we are reproducing in this issue an excerpt from the EMB’s recently published brochure on co-operatives in the dairy sector. If you are interested you can obtain the complete version of the brochure on co-operatives in German, English and French from the EMB.

The Netherlands: Brief history of co-operatives in the dairy sector since 1890 and their significance for farmers’ incomes

DR. NIEK KONING

Within the Dutch dairy industry, co-operatives have a dominant position. They process around 90 percent of all milk produced in the Netherlands. In fact, the lion’s share is processed by one co-operative giant – Friesland-Campina – a modern company with a strong position in international markets. This situation should make the Netherlands the case par excellence to prove that co-operatives can compensate the weak market position of farmers in a liberalised market. Unfortunately, the claim fails to pass the test of reality. The management of these co-operatives has freed itself from effective control by the members. It has become a lobbying force for reforms that serve narrowly defined interests of their enterprises as well as their own ambitions, but hurt the interests of their farmers. The historical development of the dairy co-operatives in the Netherlands clearly illustrates this.

The first butter and cheese co-operatives in the Netherlands were established in the late 19^th century. They could force small traders and processors to pay more competitive prices to farmers or to stop trading. Yet the period up until after World War II saw a constant rise and fall in milk prices and a corresponding situation for dairy farmers. This was due to overproduction in the international milk markets, the requisite development of equity capital in the co-operative dairies, the global economic crisis and the shortage during World War II.       

The creation of the Common Market of the European Community in the 1960s was a godsend for Dutch dairy farmers. Exports to European Community countries now earned the subsidised internal EC prices rather than the low international prices. The yearly price support negotiations in the EC, however, revealed a conflict of interests within the Dutch dairy sector. Most farmers wanted price adjustments that compensated higher production costs, whereas the managers of many co-operatives were primarily concerned to boost exports and sales whilst incurring the lowest possible costs.

This conflict of interests became increasingly clear with each and every reform of the agricultural market organisation such as the introduction of milk quotas in 1984 and direct subsidies in 1993. Although the Dutch dairy co-operatives were against the quota in principle, they welcomed the Dutch decision to make the quotas fully tradable between farmers. In this way, maximum room for manoeuvring was created for a further concentration in dairy farming. This would allow a rapid reduction in production costs, which suited the export expansion strategy of the co-operative management. The downside was that young farmers in particular had to absorb the high quota costs to achieve a volume of milk that would secure their livelihood.

The conflict of interests also became evident when direct payments were introduced. Here upon the initiative of the dairy industry the Dutch government joined the ‘Club of London’ – the faction in the EU Council of Ministers that urged for ending all price supports. The farmers’ losses were only partly compensated through direct payments and they saw their incomes decrease. Thus Dutch dairy co-operatives, although once established to defend the income of farmers, welcomed reforms that suited the competitive strategy of their managers but hurt their own members.

As the quotas were no longer used for maintaining reasonable support prices, the reason why farmers supported the quota system had disappeared. Only the disadvantage of tradable quotas – the high quota costs incurred by young farmers – remained. In this situation, the Dutch co-operatives took the offensive. Together with the livestock committee of the meanwhile unified mainstream farmers’ organisation LTO, and playing upon the frustration of young farmers, they lobbied hard for ending the quotas. Their pressure contributed much to the EU decision to phase out the quotas from 2008.

Niek Koning is a researcher at Wageningen University/Netherlands.

Christian Schnier (EMB)