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28/07/2016

Bringing an end to the never-ending milk crisis

Agriculture & Food

Bringing an end to the never-ending milk crisis

European farmers have made their dissatisfaction with the EU's response to the crisis well-known over the past few years.

[Teemu Mäntynen/Flickr]

A temporary ‘slimming down’ scheme for the milk sector, led by the European Commission, would provide a strong EU-wide response to rebalance the market. With €500 million, the quantity of milk available on the market could be reduced by more than 2 million tonnes, writes Yves Madre.

Yves Madre is the co-founder of Farm Europe, a Brussels-based think tank that aims to stimulate thinking on rural economies in the European Union.

A few days ago, EU Agricultural Ministers commented, once again, not only on the severity of the crisis into which the EU milk sector has plunged, but also on the fact that the measures taken so far have failed to improve the situation of EU dairy producers.

The EU milk sector is in a downward spiral, whereby producers are individually pushed to produce more in order to soften the effect of declining incomes – even though, collectively, this only serves to worsen the on-going slump in prices.

In the absence of suitable action, it is clear that the crisis will have a considerable impact, pushing many farmers out of business, in spite of the fact that the medium- to long-term forecasts for the milk market are promising and offer good prospects for the EU economy.

What, then, may be done to bring the situation back under control and to prepare the sector in the best possible way for the future?

Indeed, the market measures taken last autumn must be upheld and, in some cases, reinforced – especially when it comes to promotion measures. However, in the current context, it is clear that these measures alone will be insufficient. This is even truer given that farms, which have recently made investments – those upon which the EU relies to generate growth and economic dynamism for the future – are endangered.

Injecting, once again, a few million euros as symbolic political support to farmers should also be excluded as a veritable response.

EU institutions must therefore be creative in fine-tuning timely and efficient policy responses, on the basis of the room for manoeuvre at hand.

One tool has, in this regard, been regularly mentioned since 2014: the possibility of introducing a European incentive to reduce production for a limited time frame and for a predefined volume. This option deserves to be considered seriously, without preconceptions and without the fears conjured with the introduction of new tools.

In times of imbalance between production and demand, responsiveness is key to limiting the financial consequences both for the farming community and for the taxpayers.

The European Union could organise a temporary ‘slimming down’ scheme to regain balance on the EU milk market.

This tool would take the form of European calls for tender, with the aim of reducing production and halting the downward spiral. The tenders to reduce production should target farmers and would be on a voluntary basis. Those who decide to participate in the scheme would reduce the quantity of milk delivered, in comparison with the previous winter’s deliveries.

This scheme would be managed by Producer Organisations (POs) and dairy factories, which would respond to EU calls for tender and would manage the reduction plans within their scope of collection.

The scheme would be simple for them: POs and factories would indicate the names of farmers and the related volumes committed which would ensure that public money devoted to the tender goes directly to the milk producers (farmers) This would also ensure that the producers have cut production and have not transferred deliveries to another PO or dairy (incidentally, this risk is rather limited as, in most cases, producers deliver all of their produce to a single operator).

To precipitate a proper shake up effect on the market, the European Commission should announce from the start the overall reduction objective, sending a clear signal to the market, indicating the overall envelope, and putting on the table what it considers to be an attractive range of incentives (probably around 20 cents).

For example, with a financial envelope equivalent to the €500 million package presented by the Commission last autumn, this new scheme, would result in a reduction of 2 to 2.5 million tonnes of the milk available on the EU market.