Industry groups and governments in several member states of the European Union are trying to devise creative ways to help their struggling dairy producers remain in business, while still containing a burdensome supply of milk that has sent the price of some dairy products to six-year lows.
Dairy interests in Austria, the Netherlands, France, and Norway are all trying to figure out how to stop the overflow of milk while supporting their dairy producers now that quota no longer exists.
“A slow and deep rumble seems to be moving across Europe as the severity, magnitude and staying power of the dairy downturn takes hold,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.
“Banks, cooperatives, processors, and competing producers throughout the world are waiting anxiously to see if European dairy producers will finally respond to market conditions nearly one year after the end of quota,” Dorland says.
The most extreme call to action has occurred in Austria, where the protest group IG Milch is calling for a reintroduction of milk quotas throughout the European Union. IG Milch also wants a minimum retail price of 0.5 euros per liter for conventional milk and 0.6 euros per liter for organic milk to cover producer production costs. Currently, a liter of conventional milk costs about 0.31 euros in Austria, while a liter of organic milk costs 0.44 euros.
France recently attempted to gain support among EU nations to pressure the EU Commission to take additional steps similar to those implemented last summer, when the EU provided €420 million in emergency support to help agricultural producers, with dairy producers receiving the bulk of the aid.
The Netherlands-based FrieslandCampina, one of Europe’s largest dairy co-ops, paid members €14.1 million to limit milk production between January 1 and February 11. “The bonus in the Netherlands worked to reduce milk production by 35 million kilograms, or 77.2 million pounds, over the six-week period,” notes Dorland.
For the past 12 months, she notes that subsidies to European dairy producers have buffered many producers from the true impact of the region’s 4-5 percent increase in milk output and its influence on world dairy prices. “But the coffers to support European dairy producers may be drying up,” Dorland adds.
For instance, Norway, a country with a closed milk system and Western Europe’s largest producer of crude oil, is considering lowering payments to farms as the nation copes with the impact that significantly lower oil prices are having on its economy.
A recent report by the Organization for Economic Cooperation and Development (OECD) notes that farmers in Norway get an average of 570,000 kroner ($64,000) a year, which translates into an average cost 10,400 kroner ($1,168) per Norwegian household each year. This type of legislation in Norway has led to Tine SA dominating dairy-product distribution in Norway, leaving little competition and high food prices. “These levels of high support are likely to become increasingly untenable over time,” OECD said in its Economic Surveys: Norway 2016.
“As Europe contemplates its next move, there are troubling signs the downturn may not be over yet. Products like cheese, butter, and milk powder are signaling that further price softness could be on the horizon Northern Hemisphere milk production rises seasonally,” says Dorland.
From January 1 through February 7, 29,810 metric tons of skim milk powder, or 27 percent of the 109,000-metric ton capacity, has piled up in Intervention stocks.
“Mounting EU stockpiles of skim milk powder, butter, and cheese could ultimately cast a long shadow over a market recovery,” Dorland adds.