Addressing a conference on the future of milk production in the EU, Agriculture Commissioner Dacian Cioloş highlighted the importance of intervention in the market in turning around the crisis in the EU dairy sector. The latest figures show average producer prices of 28 euro cents per litre, ‘close to the seasonal long-term average’. Market intervention measures used included:
- intervention buying for butter and skimmed milk;
- an extension of support for private storage of butter;
- the activation of export refunds;
- advancing the schedule for the release of direct aid to farmers under the single payment scheme;
- a special allocation of €300 million for milk producers.
Commissioner Cioloş maintained that ‘direct aid had been a crucial element of stability in income’. He argued that the future abolition of production quotas in 2015 ‘must be seen as an opportunity’ which promotes greater supply responsiveness to changing demand, and encourages competitiveness. However he maintained that ‘increased exposure to farm price volatility must be controlled’ by adapting existing tools, including strengthening and enhancing the role of producer organisations, which may require some modification of EU competition rules. Commissioner Cioloş also felt that issues related to the functioning of the dairy supply chain needed to be addressed, with greater transparency being ‘key to building a stronger industry’. He argued that ‘competitiveness, transparency and market orientation’ should be the three key elements in a profitable and sustainable future for EU milk production.
A combination of traditional trade-policy tools (export refunds), traditional market-management tools (intervention buying) and expanded direct-aid payments has been used to reverse the crisis situation in the EU dairy sector. In total, the measures taken in response to the crisis required the deployment of an additional €600 million, on top of the estimated €5 billion in direct-aid payments disbursed to EU dairy farmers under the single payment scheme. These measures have ensured that periodic price declines have not translated into a fundamental undermining of the basis of milk production in the EU. Nevertheless the EC is of the view that additional support needs to be made available to strengthen the position of producers’ organisations in the supply chain, with measures also being undertaken to promote transparency in the functioning of the supply chain.
In this context, and given the far greater importance of agriculture to many ACP economies, the question arises of what policy tools ACP governments have available to them to prevent periodic price declines (in an era of heightened price instability) from undermining the basis for agricultural production in the affected sectors.