Milk Crisis Continues as EU Ministers Weigh Response

7 October 2009

As dairy farmers continued to pour millions of litres of milk onto their fields in protest, agriculture ministers from across the EU met in Brussels on Monday to discuss the recent plunge in milk prices that has stunned dairy producers. The lunchtime gathering, which was called by the Swedish government, was not intended to provide a final solution to the crisis. But the gathering did provide EU farm commissioner Mariann Fischer Boel with an opportunity to brief ministers ahead of a more formal meeting high-level meeting scheduled for 19 October.

In addressing ministers, Fischer Boel lamented that expectations of the meeting were too high and that they were unlikely to be met by the proposals offered. She described three proposals that would allow EU member states to pay individual dairy farmers €15,000 as a crisis measure, change rules on buying up milk quotas to raise prices, and include the dairy sector in existing European measures to address market disturbances. For the longer term, Fischer Boel said she would like to create a 'High-Level Group' of experts to make policy recommendations on the transition to reduced EC support on dairy.

European farmers were not satisfied with the outcome of the Tuesday meeting. The European Milk Board (EMB), the largest organisation of dairy producers in the EU, has repeatedly called for a 'reasonable dairy policy'. Sieta van Keimpema, Vice President of the EMB, told Bridges that European policymakers should bring the supply of milk into balance with demand, reduce production quotas, and otherwise overhaul the bloc's policies so that dairy farmers would not continue to lose 30 to 50 percent of their incomes, as they have since last year.

The EU's proposals attempt to address fundamental problems in the dairy sector. As such, the proposed 'High-Level Group' will be chaired by the EU Director-General for Agriculture and Rural Development, Jean-Luc Demarty, and will discuss the possibility of creating a futures market in dairy products, strengthening farmers' bargaining power in the supply chain, and implementing new policies to  increase competitiveness, among other measures. The EMB commented that the involvement of farmers groups, such as itself, would be essential to finding solutions that are tenable to farmers.

It is unclear how the potential new emergency measures will affect the industry. But Van Keimpema of the EMB   was not impressed with the proposal to allow member states to give farmers €15,000 each. "Every measure that is put back to national level is bad," she said, adding that "we didn't start EU [Common Agricultural Policy] to go back to national policy." Such a shift, she said, would unduly distort competition.

But Micheal Mann, spokesperson for EU Commisioner Fischer Boel, told Bridges that the Commision proposed the €15,000 figure because it was at a level that they deemed would help the farmers without causing too much disruption in the market.

The EU, which is engaged in an ambitious plan to reform its Common Agricultural Policy (CAP), has come under sharp criticism from some farmers for recently enacted cuts in agricultural  support. According to the EMB, the decline in milk prices, which was triggered by both a strong euro and a fall-off in global demand, demonstrates the EU's now-limited ability to shield farmers from volatility in international markets.

But European officials say their policies have had some positive impact. Citing the increase in average EU milk prices, which rose from 25 cents per litre in July to 26 cents in August, Fischer Boel declared that the EU's "measures are working!"

European farmers are members of one of  the world's most subsidised and protected agriculture sectors. Earlier this year, under the threat of declining dairy and poultry prices, the EU reinstituted export subsidies to help farmers. However, under a draft trade deal now being negotiated at the WTO, the EU would have to phase out these measures by 2013. The current CAP reform process requires the EU to reduce quotas by one percent each year, and eliminate production quotas for dairy by 2015.

At WTO headquarters in Geneva, the EU's export subsidies came under heavy criticism from efficient agricultural exporters like New Zealand and Australia at a recent WTO Agriculture Committee meeting. Observing that world milk prices were stabilising and that the export subsidies were intended to be temporary measures, delegates from Australia and New Zealand questioned their European counterparts on why the export subsidies had not been removed. Brussels responded by suggesting that prices had not improved enough and that it would wait until they had. A delegate present at the meeting said she hoped that the continuation of European export subsidies did not mean that Brussels has begun to waver in its commitment to completing the Doha Round talks. But Mann declared that the reinstatement of export subsidies "does not in any way change our commitments."

Criticism of European export subsidies has also come from civil society. The measures are "ruining the structure [of dairy production] in other countries" as well as in the EU, says van Keimpema of the EMB. "This policy is bringing poverty in EU and the third world," she added, as European milk surpluses are being "bought by EU and dumped in third world countries... ruining farmers."

Export subsidies are one of the most contentious issues in agricultural trade policy, but European dairy production quotas are arguably far more important in determining prices within the trading bloc.

Marit Paulsen, the Swedish Vice-Chair of the Agriculture Committee and Member of the European Parliament, told Bridges that the 27-nation bloc needs short-term solutions that do not result in long-term problems. Perhaps more importantly, she called for an 'exit policy' from whatever strategies the EU eventually implements to address the milk crisis.

But milk production definitely has a future in the European Union, several observers commented, although it will continue to need the help of supportive government policies. Paulsen cautioned that "price volatility will be even greater in the future" and that the industry will require "further market based solutions such as favourable loans and mutual guarantee schemes." Mann pointed out that there will be "growing demand in the future" and that the EU was committed to the CAP reform process.

But for now, all observers are looking ahead to the meeting on 19 October, when ministers will decide which proposals they will implement. In the meantime, the Agriculture Committee of the European Parliament is expected to issue a non-binding opinion on the issue.

ICTSD reporting.

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