Milk: 2nd Hearing of the EU High Level Group

Hearing of the EU High Level group on milk – February 2nd , 2010 Position of the European Coordination Via Campesina 1. Are the existing market instruments appropriate? The objective of market instruments must be to maintain a fabric of family dairy farms in the European Union which make a living primarily from their production through fair milk prices and to offer consumers dairy products at fair prices. Today the market is managed primarily according to the interests of dairy industry and big retailing sector (management of surpluses, low farm prices) • Intervention It is necessary to keep intervention as a safety net in times of crisis, but in order for it not to become a permanent outlet supply management is necessary. However, the EU has been moving in the opposite direction since 2003. It is also necessary to act on the level of imports/exports(see below). • Dairy quotas should be used and improved. Quotas should be regularly adapted to demand. However, the EU has done the opposite by regularly increasing them since 2003 without taking demand into account - with the objective of lowering the farm milk price and reducing the commercial value of the quotas for a “soft landing” in 2015. Today it is necessary to cancel the annual increase planned until 2012 and to decrease the quota for 2010/2011 to adapt it to demand. Let us remember that dairy quotas (up until the reform of 2003) strongly decreased European expenditure in the dairy sector (from 6 billion in 1984 to 2,7 billion euro in 2004). However, they did not prevent the disappearance of many dairy farms as: • the European quota was fixed at a level generally higher than European demand making it possible for industry to apply pressure to reduce farm milk prices, • the implementation of quotas by the Member States with great “room for manoeuvre” (for example by establishing a commercial value for quotas), was done in order to concentrate production in larger dairy farms. • The distribution of quotas remained unfair between Member States (in particular in Southern and Eastern Europe) as well as between producers and between regions, which led to the disappearance of many farms. It is thus necessary to maintain and improve supply management tools in order to meet the objective mentioned in the first paragraph above. • The management of dairy quotas and more generally of supply management must be organized by public authorities, in dialogue with farmer’s organizations and the other actors in the sector. • Export subsidies must be removed. Exports at prices below production costs, thanks to export subsidies or decoupled direct payments allotted to milk producers, must be prohibited. In exchange the EU must have the right to protect itself from imports at low prices by adjustable tariffs. It is necessary also to call into question the obligation to import 5% of production (WTO agreement 1994) and the fact that decoupled direct payments are regarded as non trade distorting: this is false since they allow the EU (through export subsidies) to export at prices below our production costs, which often ruins milk markets and producers of third countries. • A maximum of multifunctional family dairy farms should be maintained, well distributed in the regions with dairy agro-climatic vocation, and supported with local processing facilities. We oppose any programme of support for farmers to go out of business: no to the restructuring of production. 2. Which new tools could be developed to help farmers better face market risks in order to reduce their income volatility? Could such tools be WTO green-box compatible? This question cannot be approached without reminding ourselves that the WTO green box is an artifice developed by the EU and the USA at the time of Uruguay Round in order to continue to export at prices below their production costs without be accused of dumping by third countries – at the expense of countries without a significant agricultural budget. This has been achieved by committing to remove export subsidies in the medium term (a partially respected commitment), then to lower their internal prices to those of the world market (1) and to replace export subsidies with direct payments to farmers, who are forced to sell at prices below their production costs (this has been at the heart of CAP reforms since 1992). The green box was invented as somewhere to place these decoupled direct payments (so called “non distorting”) (2) without any ceiling and outside the framework of negotiation. The CAP reforms since 1992 then consisted in moving more and more EU support into this green box (decoupled payments of the 1st pillar, development of the 2nd pillar). For third countries, nothing changed: the EU, as before and with these new instruments, continues to export agricultural produce at prices below its production costs, which prevents them from producing themselves. The green box and the WTO agreement did nothing apart from disguising the economic dumping of the EU and other rich countries. The market is a forgery. It is thus not a question of developing tools compatible with the green box. It is a question of developing agricultural policy instruments which guarantee fair and stable prices for producers and consumers, and a sustainable mode of dairy production which answers climatic challenges. If the EU wants to defend a legitimate dairy policy on an international level, if it wants family dairy farms to continue to exist in many regions of Europe, then it is necessary to change the current logic. In order for milk producers to be able to make a living primarily from their production and from their work, it is necessary to maintain fair and stable farm prices. For that it is necessary to prevent the formation of structural surpluses and to rebalance the distribution of added-value between retailers, the processing industry and producers. The following instruments must replace the existing ones: ◦ Improved supply management adaptable to the evolution of European demand, well distributed between Member States, regions and producers according to the objective oultined in the 1st paragraph. ◦ Binding tariffs taking the European average of sustainable production costs as a reference with a end to any directly or indirectly subsidized exports (see above) ◦ Allocate direct payments – with a ceiling per producer - to the dairy farms of the less-favoured agro-climatic regions, which have higher production costs than the reference indicated above. ◦ De-intensify dairy production when it is too intensive and too dependent on importation of plant proteins and other inputs. Support the cultivation of plant proteins in Europe and complimentary modes of dairy production which spare inputs and greenhouse gas emissions. ◦ Define minimum farm milk price to be applied in case of crises below which dairies cannot buy milk from producers. Establish an obligatory transparency of margins along the dairy and retailing sectors. 3. A futures market for milk? The volatility of prices is not by chance, but the consequence of specific agricultural and trade policies which we call into question and which do not answer the current challenges the EU is confronted with. It is not therefore a question of adapting markets to volatility of prices, but of implementing a dairy policy which leads to stable prices from which all the dairy sector and consumers will benefit. Consequently if the EU proposes to invent a future’s market for milk, it does not want - in spite of the financial, economic and ecological crises - to call into question the current destructive framework and takes price volatility as a constant, instead of making stable and remunerative prices an objective. 1. The majority of dairy farms will not have the financial means to be covered on the futures markets (payment of deposit to the clearing house, financing of calls for additional cover (margin calls) from the clearing house) - these become very expensive in the event of strong variation of prices). Moreover - can we ask producers to become analysts of financial markets? (3) 2. In fact primarily investment funds, large retailers and the dairy industry will see an interest in a futures market for milk. For the milk industry, this would go hand in hand with the setting up of a contractual system with milk producers. Indeed, being able to be based on fixed contract prices, the dairies will be able to control their supply costs, which puts them in an ideal position to release a gain in value with sales on the futures markets. Contractualisation and futures market are two instruments favourable to financial companies and industry - not to producers! 3. Futures markets amplify price volatility, especially because of the interventions of speculators and to a lesser extent by the operations covering the price risk in the sector. To prioritise futures markets in managing price risks is thus likely to amplify price volatility - unfavourable to the producers. Is this justifiable, especially as most of the producers will not be able to intervene (themselves or via a trader) on the futures markets? 4. The risk exists of an increased concentration of international traders and the milk processing industry: The abrupt variations of the courses which occur regularly on futures markets do serious damage. Each time this occurs some traders (who are sometimes also processing industry) potentially go bankrupt, because financially cannot comply with the colossal calls for additional cover to the clearing house of the futures market. This contributes to reinforce the concentration of international traders and possibly of milk industry. What increases theoretically at the same time is the imbalance of power inside the agro-food sector - to the detriment of farmers. (1) Let us remember that in the WTO economic dumping at export is defined not as an export at prices below production costs but below the internal market price of the exporting country. (2) there is no farm direct payment which is really decoupled from production (3) The operations covering price risks on futures markets are not infallible. Indeed for farmers to cover themselves against price risks, it is imperative a priori that before the physical sale of the goods on the real market, the evolution of the prices reaches at one time or another the level of objective price they had set. However this condition is not guaranteed.