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EC reviews experience of strengthening dairy supply chains

22 August 2014

In June 2013 the EC posted a review of its experience of implementing its 2012 “milk package”, aimed at improving the functioning of milk-to-dairy supply chains. The report noted that compulsory contracts had been introduced in 12 member states, containing specific elements on: price, volume, duration, payment arrangements, milk collection and specific force majeure provisions.

France has the shortest minimum contract duration (5 months) and Spain the longest (12 months). The majority of member states favour contracts of a minimum of 6 months. Contracts have mostly been made compulsory in “member states where the cooperative structure of contractual relations between producers and processors in the dairy sector was less pronounced”.

The report noted that voluntary codes of conduct were favoured in the UK and Belgium. In the UK, this provided “similar conditions [to] those specified in the milk package”, covering 85% of raw milk production. In Belgium, 98% of processors and the three largest farmers’ organisations are covered by a code of conduct which includes provisions on: milk quality, notice of termination, sustainability commitments and the role of producer organisations.

The importance of strengthening producer organisations to enhance their bargaining power was highlighted in the Commission report. In this context an EU-wide legal framework has been established for the creation or strengthening of producer organisations.

The European Milk Market Observatory (EMMO) has also been created, to gather and disseminate “market data and short-term analysis for the dairy market, with the involvement of producers, processors, trade and retail, as well as independent experts”.

To date, the enhanced safety net provisions for the dairy sector have not been put to the test; however, doubts have been expressed over “the capacity of the EU regulatory framework to deal with episodes of extreme market volatility or with a crisis situation after the expiry of the quota regime”. It is hoped that the EMMO will provide the basis for “coping better with crisis situations and market volatility” by providing an early warning of the need to invoke safety net measures.

The EU’s Agriculture Commissioner, Dacian Cioloş, has highlighted the importance of continuing to work “on the best ways to tackle the challenge of price volatility in the future”.

While farmers’ representatives maintain that “written contracts help to give producers some stability and a fairer balance,” some recognise that the implementation of the EU milk package is still in its infancy. In this context, in July 2014 the EU farmers’ organisation Copa-Cogeca called for further discussions on “how to deal with the increased price volatility on dairy markets in a market-orientated way”, in ways “complementary to the milk package provision”. 

Editorial comment

Managing the effects of price volatility in the global dairy sector at farm level is a major preoccupation for EU milk producers. Potentially ACP governments could learn some useful lessons from current EU efforts to strengthen the functioning of dairy supply chains, notably in:

  • the contractual framework for relations between milk producers and dairy processors;
  • the need for strengthening the bargaining position of milk producer organisations;
  • the need to promote transparency in the functioning of milk markets.

The issue of promoting greater transparency in the functioning of milk markets is particularly pertinent in an African context when one considers the central objective of EU dairy sector policy, which is related to assisting EU dairy companies to serve expanding global markets for dairy products. This is likely to give rise to increased volumes of EU exports of milk powders, which could potentially weaken the bargaining position of milk producers within dairy supply chains.

How milk powder imports are managed by the importing country governments is likely to influence whether commercial incentives for expanded local milk production emerge in response to the rising African demand for dairy products.


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