EU throws fresh cash at struggling dairy farmers

Overproduction of milk since EU quotas were abolished has distorted the market. [Matthew Black / Flickr]

The European Commission on Monday (18 July) announced a new €500 million aid package to tackle the unprecedented crisis in the EU’s dairy and livestock sectors.

€150 million will be assigned to the milk sector in exchange for voluntary reductions in production, said Phil Hogan, the EU Commissioner for Agriculture and Rural Development who presented the measures to EU agriculture ministers on Monday.

Another €350 million will be allocated to EU member states to enhance liquidity and address problems in other areas of livestock farming.

Hogan said the Commission’s ultimate goal was “to see the much needed recovery of prices paid to farmers, so that they may make a living from their work and continue to provide safe, high quality food for citizens”.

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Unaffordable production

The abolition of EU production quotas in April 2015 combined with the Russian embargo and dropping demand from China led to a collapse in milk prices.

A previous €500 million support package, agreed in September, recently came under fire by the European Parliament, which said it failed to effectively address market imbalances.

With this new package, the Commission aims to stabilise the market by compensating EU farmers for reduction in production volumes and bringing prices to a fair level.

According to the European Milk Board (EMB), a federation of dairy farmers with member organisations from 13 countries, the cost of milk production is not affordable anymore.

In April, milk production in Germany showed an average price of 25.78 cents, which did not even cover two-thirds of production costs, which are over 44.60 cents per kilogramme of milk. The picture is not different in other EU countries.

With average costs of 41.70 cents in 2015, Denmark suffered losses of over 10 cents, while the deficit for Dutch producers with costs of 44.50 cents was almost 14 cents per kilogramme of milk.

“Can we really treat those producing our food so unfairly and allow production in many regions of Europe to simply disappear?” President of the EMB Romuald Schaber asked.

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How to spend the aid

Member states and struggling farmers expressed satisfaction with the rescue package, saying it will cover farmers’ immediate cash needs. But the success of the programme will depend on how the money is used.

Farm Europe, a think-tank specialised in EU farm policies, believes voluntary production cuts are an adequate response to the current market imbalance.

“However, its success will depend on the level of aid [to be decided by the Commission] provided for the tonnes that won’t be produced,” the think-tank said in a statement, adding that this should be greater than the marginal cost of producing a litter of milk.

Farm Europe says the most competitive producers must be encouraged to voluntarily reduce their production and warned that a 8.3 cents aid rate per kilogramme is unlikely to be effective.

The rescue package also provides that member states will have flexibility to define the mix of measures they will make available to farmers in terms of the €350 conditional adjustment aid.

Farm Europe stressed that the Commission should be strict on the measures ultimately decided by the member states, noting that the executive should in no way tolerate this aid to result in increased productions.

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The European Union voiced support on Monday (14 March) for temporary cuts in milk production by farmers in member states in a bid to reverse the plunge in prices that has shaken the dairy industry.

France’s Minister of Agriculture, Agrifood and Forestry, Stéphane Le Foll, welcomed the Commission’s decision, saying it is “in line" with French demands.

“I also want to thank Germany and Poland, countries with which we have worked together to define a common position, but also Spain and Italy, as well as many other states who have supported us during the discussions.”

Commenting on the package, Ireland’s Minister for Agriculture, Michael Creed, said: “I welcome the fact the Commission has taken a two-pronged approach to dealing with the issue. Ireland’s views in relation to supply management are well known and we did not want today’s package to be focused exclusively on production discipline, although there were strong demands for that from some Member States.”

“So the fact that 70% of today’s package has been directed to adjustment aid is very welcome. In relation use of these funds, I have argued strongly that the maximum possible flexibility needs to be given to Members States. While we still await full details, which we will examine closely, the flexibility indicated by the Commissioner to provide liquidity support to farmers is welcome,” he added.

Pekka Pesonen, Secretary-General of Copa-Cogeca, the EU farmers' association, said: “We welcome the fact that EU Farm Ministers have broadly endorsed the plan worth €500 million put forward by EU Farm Commissioner Phil Hogan to help solve the unprecedented crisis hitting EU agricultural markets”.

“We look forward to getting further clarification on the details when member states experts discuss the rescue package in the next weeks. We urge them to agree the package, which includes an update in the withdrawal price for fruit and vegetables and also pigmeat measures, as soon as possible to help improve producers short term cash flow problems so that they can meet upcoming demand”, Pesonen stressed.

The lifting of EU milk quotas in March 2015, combined with declining Chinese demand, changing dietary habits, and a Russian embargo on Western food products, have let to a drop in prices for beef, pork and milk.

The European Commission unlocked €500 million in aid to farmers, as angry protesters took the streets of Brussels. The details of the 'flexible aid package' were unveiled on 15 September by EU Agriculture Commissioner Phil Hogan.

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