CTA
Small fontsize
Medium fontsize
Big fontsize
English |
Switch to English
Français
Switch to French
Filter by Agriculture topics
Commodities
Regions
Publication Type
Filter by date

High feed costs highlight importance of new EU dairy sector initiatives

28 May 2012

The Spanish small farmers’ union (UPA) has described the situation in the Spanish dairy sector as ‘critical’, with ‘sky high production costs crippling producers’. Since 2009, diesel prices have risen by 40%, feed costs have increased by 17% (with a further 12% increase expected in April 2012), while the cost of electricity and animal medications has also increased. According to a UPA milk producer, prices have not risen to the same degree, resulting in ‘many farmers …making huge losses’.

This is despite the reported preferential access which Spanish dairy producers enjoy to low-duty feed imports from Latin America.

EU farmers’ organisation Copa-Cogeca meanwhile argues that Spanish dairy farmers are not the only ones suffering, with similar trends apparent across Europe in recent months. In the context of macro-economic difficulties, serious problems are faced in passing production cost increases on to processors and retailers.

This provides the background to appeals from the European Milk Board for MEPs to press for an abandonment of the 1% increase in milk production quotas, which it is feared will lead to milk prices ‘plummeting’. It also provides background to the pending implementation of the ‘European milk package’, and the EMB’s call for the introduction of obligatory contracts, with prices reflecting milk production costs.

However, the issue of milk contracts is far from straightforward. The French milk producers’ association (APLI) has written to the French President complaining that while contracts must run for a minimum of 5 years, such contracts ‘do not have to specify a minimum farm-gate price that would cover costs of production’. This, according to APLI, places milk producers at a disadvantage.

Despite the current difficulties, new dairy sector trade opportunities are emerging. For example, cheese exports to Russia in 2011 grew by 15%, with a further expansion of 6% per annum expected up to 2016. Given that per capita dairy consumption levels in Russia are a quarter to a third lower than EU levels, there would appear to be considerable scope for further growth in EU exports to this market.

Press analysis also suggests that the FTA agreement with Peru and Colombia will remove previously high tariffs on EU dairy exports. In the case of Colombia, the FTA agreement will allow up to 500 tonnes of duty-free dairy product exports from the EU each year. However, tariffs for butter and fresh cheese will not see any reductions, according to press reports.

Editorial comment

In some parts of the EU, the economic crisis, combined with rising input costs and the current downward pressure on global dairy prices, is giving rise to ‘price stickiness’ at the retail and consumer levels. In the longer term, however, global prospects for the EU dairy sector are held to be favourable, with enormous scope for increasing global consumption of dairy products.

This highlights the importance of both measures to strengthen the functioning of dairy supply chains (intended ultimately to reduce the financial burden to the public purse) and the EU’s evolving safety-net policy (which is intended to sustain EU dairy production during price downturns, in order to equip EU dairy processors to capitalise on longer-term rising price trends).

This latter dimension highlights the external implications of the EU’s evolving dairy sector policies. These external effects of EU policy measures are potentially of significance in ACP countries and regions where efforts are underway to expand dairy production for national, regional and international markets (e.g. in East Africa).

This suggests a need to get to grips with the external effects of EU policy measures on ACP countries where dairy sector development initiatives are in progress. This would be consistent with the EU’s treaty commitment to ensuring policy coherence for development. In view of the nature of EU safety-net measures and the structure of EU exports, this requires particular attention to be paid to trade with ACP countries in skimmed-milk powder.

Comment

Terms and conditions