Milk farmers sour as EU quota end brings global price crash

A dairy cow is milked in a cowshed on a farm near Marburg, Germany on May 18.
A dairy cow is milked in a cowshed on a farm near Marburg, Germany on May 18. PHOTO: REUTERS

RENNES (AFP) - A surge in milk production since the EU lifted milk quotas has skimmed profits for dairy farmers, leaving them sour as authorities struggle to get to grips with the crisis.

Last year the European Union finally got rid of its three-decade old milk production quotas that it had imposed to eliminate the milk lakes and butter mountains that had plagued the bloc's farmers in the 1980s.

While farmers in several EU countries had been looking forward to tapping into rising demand for dairy products in developing countries, particularly in China, that growth slowed and there was soon a glut on the world market.

"Europe's responsibility is overwhelming in the surge" in milk available on the global market, said Christophe Perrot, an economist at the Livestock Institute in Paris.

"Since 2013, the EU has supplied an extra 10 million tonnes on a market of 66 million tonnes," he said at a recent farmers conference in the western French city of Rennes.

This has led to a slump in prices - by a fifth to a third - that has hammered farmers across the globe.

In France all farmers are now selling milk at a price lower than their costs. Meanwhile in New Zealand, the world's top exporter, 80 per cent of farmers are selling at a loss according to the central bank.

In March, the European Commission, the executive of the 28-nation bloc, allowed member states to temporarily cut production on a voluntary basis as an emergency exception to rules guaranteeing economic competition.

But milk production has continued to climb.

The issue is likely to dominate a meeting of EU agricultural ministers on Monday and Tuesday, but EU leaders are only expected to heap pressure on the Commission, the bloc's executive body, to step up its efforts.

According to a draft seen by AFP, EU leaders will call on "the Commission to urgently implement all necessary support measures including, where appropriate, financial support to assist farmers..." However, farmers meeting here at a recent Peasants Confederation conference want a full return to quotas, believing voluntary measures will be insufficient.

"We need mandatory production controls", as is possible under EU rules, said Laurent Pinatel, a spokesman for the Farmers Confederation.

Getting rid of the overproduction won't be easy.

Milk production shot up 4.3 per cent overall in the EU in the 2015-2016 season, the first without quotas, according to Perrot.

And cooperation may also be difficult to achieve.

In major producer countries like Germany, France and Britain, the milk processors may tend to adjust their purchases to market conditions, particularly their more profitable domestic markets.

But countries like the Netherlands, Ireland and Denmark "export more than two-thirds of their output and don't want to leave any market opportunity for their international competitors," said Perrot.

The result is "exacerbated competition between European countries to find non-EU markets" for their products, said Aurelie Trouve, an economist at the AgroParisTech institute.

That is despite 85 per cent of European dairy output being consumed at home, according to Thierry Roquefeuil, head of the National Federation of Milk Producers.

At the moment, each country is trying to address the most urgent problem of farmers facing the squeeze from the low prices, said the economist Christophe Perrot.

At around 200 euros per tonne on the international market, the price of milk is about 20 per cent lower than what it averaged in the 2007-2014 period in France, Germany and the United States, according to Perrot.

For farmers in Ireland and New Zealand, it even represents a drop of around 33 per cent.

Domestic prices can be much higher, with French farmers receiving on average 309 euros per tonne in March, according to agriculture ministry figures. That is still a 4.5 per cent drop from March 2015, before quotas were lifted.

Irrespective of any action or lack of action taken by European leaders, there are reasons for hope. Unlike, say, meat eating, "consumption of milk is growing faster than the world population" said Perrot.

And production, even if at a higher level, seems to be coming about in the EU and New Zealand.

While some analysts see the market rebalancing later this year and prices recovering, Aurelie Trouve is less optimistic.

"We consider that the EU is in a crisis of structural overproduction, while EU institutions see it as a cyclical crisis over two to three years," she said.