flag de flag gb flag fr
Legal notice     European Milk Board ASBL | Rue de la Loi 155 | B-1040 Bruxelles

News Details

PDF-Icon Icon-Print

News Details

Price drop in the dairy sector

“When prices fall well below production costs, it’s not a market correction, but a total exploitation of our farmers and our food system”

This has been a long-standing classic in the dairy sector: Milk is produced with much effort and at high cost, but the producer price does not actually cover these expenses. The situation in 2022 was, nonetheless, exceptional, with sky-rocketing costs in the EU for inputs like energy, fertilisers and feed along with rising producer prices in parallel, which meant that some producers here and there were, in fact, able to cover their production costs. For many farmers, however, prices did not rise above cost levels in these circumstances either. 

Even if cost coverage was achieved in some parts temporarily, a decrease in demand and rising milk deliveries for a few months now have, once again, led to an imbalance between supply and demand. This is clearly illustrated by the current significant decrease in producer prices in the dairy sector.
 
Simply characterising this as the beginning of a market correction, as the European Commissioner for Agriculture stated recently, completely ignores the fact that you cannot allow a chronic deficit between prices and costs to exist as a market norm. 

  • Not if we are interested in ensuring food security in the EU.
  • Not if we want to stop farmers from abandoning the sector in droves.
  • Not if we want to finally bring young people back into the food production sector.

But we are once again headed towards something dairy farmers know only too well - a return to the classic significant cost shortfall. The only difference this time around is that costs are no longer in the 40-cent range, but are already well above 50 cents/kg of milk in many countries. 
These developments are currently very apparent in countries like Lithuania and Latvia; other countries will soon follow suit. 
 
Kjartan Poulsen, President of the European Milk Board, warns against downplaying their effect on the EU agricultural system: “When prices fall well below production costs, it’s not a market correction, but a total exploitation of our farmers and our food system.”
 
Sadly, the European Commission is showing no signs of taking this situation seriously. In spite of information from Lithuania that shows that more than 10 per cent of producers had no choice but to leave the milk production sector in February 2023, a request for support by the two Baltic countries together with Bulgaria was simply turned down by the EU. No other measures to alleviate the situation in the sector were proposed either. “This really begs the question: Does the Commissioner even care about food security in the EU? Because it is really alarming that he doesn’t seem bothered in the slightest by the fact that so many farmers are leaving a production system that is, in any case, crumbling and outdated,” says Poulsen.
 
It would be unfortunate if the European Commission were to repeat past mistakes and continue to characterise the chronic deficit in the dairy sector as the desired normal situation. It is high time to carefully study the market and to leverage all possibilities to prevent the growing significant market imbalance.
This would include the implementation of EU-wide voluntary production reductionimmediately and a reform of the EU agricultural system towards a socially-sustainable model in the medium term. We need a system that ensures appropriate prices and income for farmers, so that they can continue to produce food and to build a secure and sovereign food system for EU citizens. 

 

 

 Background:
How to build a socially-sustainable agricultural system 



Crisis prevention through activation of voluntary production reduction


Why?

Voluntary production reduction already proved its effectiveness in 2016/2017 as an instrument to counteract crises linked to overproduction in the EU. Contrary to intervention, where processed milk products like skimmed milk powder and butter are simply taken off the market temporarily and put into storage, voluntarily “producing less” actually reduces the volume of milk on the market. In exchange, the EU pays farmers a bonus for reduction in milk production up to a specific number of litres. Considering the current market situation, where there is a threat of milk prices falling well below the level of increased production costs once again, the use of this CMO instrument should be seriously considered and the measure should be activated in a timely manner. This means that the European Commission should: 

  1. Immediately collect and carefully analyse precise data for the EU regarding the fall in demand, increases in production and the evolution of producer prices, and compile information on additional price indicators and production costs as well;
  2. Based on this analysis, activate voluntary production reduction, if necessary, as it is an important instrument in the EU toolbox that is enshrined in the Common Market Organisation (CMO); and
  3. Go on to develop a mechanism that will lead to automatic activation of this measure at EU level in the future when the market situation demands it.

EU surpluses are problematic for our EU producers, but they are also damaging for local producers in, for example, African markets. Their milk production is priced out by cheap EU milk powder.



Prices must be higher than production costs


Why?

Whether it’s because of dwindling food security in the EU due to farm closures or a lack of fairness towards our own farmers. Either of these reasons is important enough to, once and for all, create the conditions for cost-covering producer prices that would allow existing farmers as well as new entrants to be (and remain) active in food production. We need legislation at EU level that makes paying producer prices that are higher than production costs obligatory. This should apply to all farmers across the EU, including those who are members of cooperatives.

The current market position of producers does not allow for this cost coverage. The current, patchy CMO articles on contracts as well as the possibility for farmers to leverage pooling through producer organisations have done little to change this situation. 
 


Fair Milk: A model for the entire sector

 
Why?

When looking for brands in Europe that pay producers an appropriate price that includes fair remuneration, you will often come up empty-handed. That is why EMB producers decided to create their own brand, Fair Milk, which upholds this fundamental requirement. With this brand, we are already reaching consumers in Belgium, Germany, France, Luxembourg and Switzerland who recognise the importance of a fair income for farmers. This project is open to all producers and illustrates that fair prices in milk production are possible. This is especially important because it also sends a strong signal to the younger generation and makes it possible to attract them to dairy farming. 

However, compared to the number of producers, who still have to get by with unfair prices, the proportion of the sector that is currently covered by Fair Milk projects is too low. The project can and must be expanded and its public benefit must be clearly recognised because more producers and consumers should have access to fair conditions and fair milk products. 



Real involvement of producers in the design and implementation of the Green Deal, including creation of the right tools


Why?

Producers are currently not involved in drafting the Green Deal. The goals are simply announced to them and they are expected to bear the financial burden of these strategies with their already insufficient agricultural income. This has to change. Producers must be placed at the heart of agricultural strategies and must be appropriately involved in shaping them. Farmers are fundamental to climate change mitigation.
The Green Deal must be used to reform the current system towards a socially-sustainable model.

 


Strong horizontal producer organisations that allow producers – including those in cooperatives – to pool together for a better negotiating position


Why?

Strong producer organisations are also strong negotiating partners when it comes to determining producer prices with dairies. However, an organisation can only be strong when it brings together a large number of farmers and negotiates with multiple dairies, i.e., it is horizontal. It is impossible for so-called vertical producer associations that are dependent on a single dairy to develop this strength. The position of producer organisations until now has not been robust enough, which is why membership should be actively promoted by policy-makers and, notably, should be opened to cooperative members as well.
 


Mirror clauses ensuring that imported food and feed stuffs comply with EU requirements. Furthermore, this compliance must be enforced through sufficient checks and sanctions. 


Why?

The import of goods that are, for example, produced under less strict environmental conditions than EU products is harmful in a number of ways. On one hand, these goods can undercut EU producers due to lower production costs stemming from lower environmental compliance and, on the other, can end up pushing EU products out of the market. These lower costs also promote the offshoring of production outside the EU, which would lead to a greater environmental impact in these locations. And this for goods then consumed in the EU.
 


Reduced dependence on imports and damaging cheap exports by excluding agricultural products from free trade agreements 


Why?

A responsible EU trade policy would completely disallow the dumping of cheap products on sensitive markets. This practice destroys the livelihood and income of producers in other countries. Furthermore, if we were to become even more dependent on imports, we would diminish our ability to achieve real food sovereignty and security in the EU, destabilise our own production structures, and further promote environmentally-harmful transport.

 

 

Contacts:

EMB president Kjartan Poulsen (EN, DK, DE): +45 (0)212 888 99
EMB vice-president Elmar Hannen (DE): +49 (0)175 6378484
EMB director Silvia Däberitz (EN, DE, FR): +32 (0)2 808 1936
EMB press office Vanessa Langer (EN, DE, FR): +32 (0)484 53 35 12

<<< back