EU Ministers Approve €500 Million Farmer Aid Package

17 September 2015

EU agriculture ministers have approved a €500 million aid package to be disbursed to the farm sector, following a series of protests staged by thousands of farmers across the bloc against falling dairy and livestock prices.

An extraordinary meeting of the Agriculture Council was convened last week in Brussels to review this package of aid measures, with a subsequent meeting held this past Tuesday to discuss the terms in further detail. The European Commission said the aid was intended to help farmers deal with cash flow difficulties, as well as to stabilise markets and address problems with the functioning of the supply chain.

The decision to distribute aid, said European Commission Vice President Jyrki Katainen, is meant as a “robust and decisive response” to what some farm groups say is a crisis in the industry. The dairy sector is facing a “state of emergency,” the UK’s National Farmers Union has said, after a 20 percent fall in the wholesale price of milk in the past year.

What’s in the package – and what’s not

However, the Commission appears to have resisted calls to raise the intervention price for milk – which some fear could distort markets both in the EU and abroad.

Commission officials say that while the response aims to address an exceedingly difficult market situation, this type of aid is not the ideal solution to the problem.

“We owe it to farmers to make it clear that this is not the appropriate policy response to the current situation,” Katainen told ministers last week, insisting that increasing the intervention price would not increase farmer incomes.

“In terms of the clear market orientation of the CAP, the Commission does not believe that increasing the price for public intervention is consistent with that approach. And market orientation is a necessary foundation of our policy, to secure the future of European farmers,” the Commission Vice-President added.

Member states will be able to advance up to 70 percent of direct payments under the terms of the aid package. This would include, officials say, voluntary coupled support – which essentially links subsidies to the type or volume of farm production – as well as young farmers’ payments. Eighty-five percent of area-based rural development payments may now also be advanced.

Under current rules within the EU’s Common Agricultural Policy (CAP), member states would otherwise be limited to advancing a maximum of 50 percent of direct payments and 75 percent of rural development aid.

Other measures included in the aid package involve new private storage schemes for dairy protein products and pigmeat; additional funding to promote both of those products; more efforts to tackle non-tariff barriers in third countries; and setting up a high-level group to focus on issues such as credit for farmers and financial and risk hedging instruments, among others.

Supply, demand questions

Global dairy prices have been plummeting for the past several months. On the one hand, supply has been plentiful as a result of good weather boosting production. Farmers say they are also struggling to adjust to the deregulation of the dairy market, following the removal earlier this year of EU milk quotas that had been in place for the last few decades.

"The crisis originated with the sky-high milk prices in 2013 and the good grain harvests which meant feed prices were low,” said Alan Matthews, Professor Emeritus of European Agricultural Policy at Trinity College Dublin, in comments to Bridges.

At the same time, demand has fallen due to a number of global factors. For example, Russia – one of the EU’s biggest markets for dairy exports – has set an embargo on European food products as retaliation for the bloc’s sanctions over the crisis in Ukraine. Meanwhile, a global oversupply of milk, droughts in certain member states, and decreased demand from China have all contributed to create a milk glut, the Commission noted in its market analysis, resulting in difficult conditions for many dairy farmers.

"Global demand crashed, meeting the surge in supply, so prices have collapsed," continued Matthews.

The crisis has prompted high-profile demonstrations in Brussels and Paris as the bloc’s agriculture crisis continues to deepen. In the UK, farmers have boycotted supermarkets over low prices, while their Lithuanian equivalents have dumped 30 tonnes of milk to highlight their precarious situation.

Reactions

Following the news, British farming leaders have complained that the measures are insufficient and expressed disappointment that the European Commission is not intervening in the market to raise dairy prices. The milk intervention price that would trigger the Commission to buy milk and milk powder stands at €1.698.

Czesław Adam Siekierski, who chairs the European Parliament’s Agriculture Committee, said last week that while the plan is welcome in that it could alleviate some of the burden farmers are facing, it “might very well fail to deliver if it is not accompanied with additional measures, including e.g. increase of intervention prices for dairy products, which are not up-to-date.”

EU farm group COPA-COGECA has also called for an increase in the EU milk intervention price, with Secretary-General Pekka Pesonen referring to such a move as “crucial.” The group has also called for other measures such as export credit insurance for the bloc’s beef, pork, and milk markets.

However, some experts questioned whether the move to support farmers could create perverse incentives in the future. Matthews, for example, wrote in a series of blog posts that there was a risk that dairy industry participants might refrain from preparing for adverse market conditions if they come to expect taxpayer assistance when prices fall.

“In other words, why bother to prepare for a rainy day when we know that we can always tap into the EU budget when times get tough?” Matthews asked rhetorically.

ICTSD reporting; “Dairy Farmers at the Barricades,” BLOOMBERG, 10 September 2015; “EU says milk price still ‘reasonable’,” EU OBSERVER, 26 August 2015; “EU refuses to increase intervention prices,” THE INDEPENDENT, 9 September 2015; “UK farmers join Brussels protest over milk and meat prices,” THE GUARDIAN, 6 September 2015; “Global factors put pressure on UK dairy,” FINANCIAL TIMES, 19 August 2015; “EU dairy farmers get rude awakening in post-quota market,” REUTERS, 28 August 2015.

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