‘Bargain bin’ milk could hurt developing economies

Christian Schmidt's plan to step up dairy-exports has received criticism from aid organisations. [campact/Flickr]

A proposed boost to German dairy-exports has been criticised for the potential economic damage it could do to developing countries, EURACTIV Germany reports. 

Germany’s agricultural minister Christian Schmidt (CSU) hopes to guide his country out of the ongoing milk crisis by increasing sales of German dairy-products on the global market. However, German NGOs believe that the strategy could be hugely damaging to the economies of developing countries.

It is the third milk crisis in six years. The price of milk has fallen to around 27 cents, which for most dairy farmers is not even enough to cover their costs. Additionally, in the wake of quotas being eliminated by the EU and the collapse of export markets in China and Russia, the situation seems more dire than ever. “We aren’t just in the midst of a structural change, the structure is collapsing,” warned Berit Thomsen of the association of traditional agriculture (ABL).

Farmers mostly believe that oversupply is the root cause of the European milk crisis and this is the rationale behind Schmidt’s decision to try and boost global exports and why he invited representatives of the milk industry and farmers’ unions to an “export summit” at his ministry on Tuesday (13 October).

>>Read: Milk crisis drives wedge between France and Germany

“Given the lower producer prices of important agricultural products, agri-exports are an important option on the route to finding a sustainable solution. We need a stringent export and implementation strategy if we want to secure added value and jobs in the agricultural sector,” Schmidt explained at the summit. The minister outlined his wish to link and harmonise business and political activities.

“Market disruption”

ABL, in conjunction with the NGOs Germanwatch, Bread for the World and MISEREOR, voiced their concerns that Schmidt’s export offensive could negatively affect developing countries through significant “market disruption”. Milk powder and whey powder make up around 60% of EU dairy exports, with Africa being the most important market. In 2013, a fifth of EU milk powder exports went to sub-Saharan Africa, with an additional 14% going to North Africa.

>>Read: EU stockpiling does little to resolve agricultural crisis

“West African countries such as Burkina Faso and Nigeria prevent cheap imports, so that domestic dairy farmers can remain competitive on their own markets,” explained Kerstin Lanje, an expert in international trade and nutrition at MISEREOR. “We fear that more imports from the EU would impoverish further the lives of herdsmen and their families, which make up a third of the population,” she added.

Milk exports could damage Africa in the same way that chicken exports have done in the past, turning the continent into a “bargain-bin” for EU products, criticised Francisco Mari of Bread for the World. He added that “vegetable fat enriched milk powder, which is aimed at the lowest market segment, is considered the new export hit of the EU in Africa. In the last decade, EU exports have more than doubled.”

The Free Trade Agreement effect

The trend has been exacerbated by planned free trade agreements (FTA) with more African countries, through the Economic Partnership Agreements (EPA), aid organisations have criticised. Negotiations with the Economic Community of West African States (ECOWAS) were recently concluded and must now be ratified by its members.

The EPA guarantees duty-free access to the African markets for European producers. The ECOWAS countries can only provide protection for a quarter of products, having decided to impose tariffs on liquid milk, but not powdered milk. “Regional dairies will benefit as they will be able to buy cheap ‘raw’ milk powder. Dairy farmers will be the ones to lose out,” concluded a draft joint study by the NGOs.

>>Read: EU seals free trade deal with West Africa

Temporary tariffs have proved to be effective in helping the local milk market; Kenya is a prime example, explained Francisco Mari, as safeguard measures have led to a rapid decline in EU milk imports. The German development ministry (BMZ) has supported the local industry through the “A world without hunger” initiative. “On the one hand, we support the development of one country, yet on the other, we undermine the markets of other nations by exporting our milk,” criticised Mari.

Poorest countries not targeted

Schmidt countered the criticism levelled at his plan by claiming that, “the focus of our export-drive is well-funded, high-growth future markets in third countries. Less developed countries are not a target.” His ministry would rather developing countries build up their agricultural sector through “significant financial resources”, provided through stand-alone funding schemes. In any case, the German government would not currently be in a position to finance EU export subsidies for farmers.

>>Read: EU urged to launch trade talks with TPP countries, starting with New Zealand

Tobias Reichert of Germanwatch points out that there are a number of countries around the world that do not fall under the so-called Least Developed Countries (LDCs) bracket, which also have weak markets, but which are not necessarily among the poorest countries of the global South; these countries’ local dairy markets could also be jeopardised, he told euractiv.de.

“Quality offensive, not export offensive”

European dairy companies such as Arla, FrieslandCampina and Danone have all sought to increase their investment in the African dairy industry. Arla and Danone are increasing their influence in the Ivory Coast and Nigeria, respectively, said Reichert. “Those companies have branch offices in Germany,” he added.

>>Read: Parmesan remains on the menu

ABL’s expert, Thomsen, believes that a “quality offensive” in Germany would be more preferable to an “export offensive”. “Free range animals, GMO-free feed and higher quality of life are all factors that would push up the producer price. The needs of farmers and the community need to be brought back to the fore politically, with the amount of milk limited,” she concluded.

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