A number of factors ranging from the end of milk quotas to economic sanctions against Russia and Brexit, have put pressure on the EU milk market, leading Czech industry experts to call for reinstating the quota system. EURACTIV Czech Republic reports.
Three years after the end of milk quotas, the EU market is facing a persistent surplus production, which depresses prices. Countries like Germany, the Netherlands, Ireland or Italy have all increased their production since 2015, hoping to find new markets in China, Russia and elsewhere.
However, new export markets haven’t materialised for different reasons, leading some in the food and drinks industry to call reinstating milk production quotas.
Miroslav Koberna, director at the Federation of the Food and Drink Industries of the Czech Republic (FFDI), said the abolition of quotas had permanent consequences because it led to a lasting growth of milk production in most EU countries.
“It causes high pressure on export and prices and it is responsible for the instability at the primary production level due to the stagnation of consumption in the EU,” Koberna said.
Milk market under EU supervision
A new system was installed for monitoring milk production after the end of the quota system. Raw cow milk supplies in each European country are controlled every month.
According to Koberna, the abolition of quotas has not changed much for dairies; they just face fewer administrative burdens.
“On the other hand, the growth of production without proper pro-export measures causes high pressure on prices on the Czech market and on products import,” Koberna said.
In the Czech Republic, milk prices are almost equal to the cost of production, which means producers make almost no margin.
Between 1984 and 2014, milk production quotas were set on an EU level to reduce the surplus of milk production and to stabilise milk prices. In the Czech Republic, milk production has been restricted since 2001.
The Czech Republic exceeded its quotas only once, between 2005 and 2006. In this period, 450 million litres of raw milk were exported from the Czech Republic, which was approximately one-fifth of the country’s milk production.
The Russian threat
The end of milk quotas is not the only problem, considering other developments on the global market. There has been a reduction in demand from China, a disintegration of the North African market, while EU trade sanctions against Russia in the wake of the Ukraine crisis also played a role.
All these have caused imbalances and remarkable economic losses for European milk producers.
“Important production countries such as Germany, Denmark and the Netherlands exported mainly to Russia and the price pressure is focused on new EU countries after the market closure,” Koberna said.
“We are losing hundreds of millions at the domestic milk market level and billions at the export level,” he added.
The industry representative also warned that Russia could become an export country very soon, and challenge the traditional European milk export markets.
Brexit could also cause disruptions because the UK imports a significant amount of European milk, he warned.