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The privatisation of EU dairy policy

9 December 2010

European Commission legislative proposal on MILK: Entrusting a deregulated milk sector to dairy processors, inter-branch associations and producer organisations will not provide the solutions required to overcome the continuing crisis in dairy farming. Producers first and foremost require a strong European public policy that regulates production and market that also stimulates the dairy regions .

Although most producers still continue to sell their milk at prices below production cost and many dairy farms have gone bankrupt or are struggling to survive in difficult circumstances, the European Commission is proposing EU disengagement from the sector and the privatisation of dairy policy: They propose this be done by leaving the sector to its economic players, in a deregulated framework that has lost any claim to legitimacy in the global crises.

The only reaction of the EU to the large-scale demonstrations held by farmers over the last two years, has been to draw the farmers into the trap of joint management of the sector – a sector where there will be an ever fewer number of dairies and supermarket chains than producer organisations. This is due to the proposed constraints on producer organisations. It is impossible for producer organisations to carry any weight as long as production remains deregulated and prices depend on international markets determined by a tiny proportion of production . The example of the fruit and vegetable sector, where it is necessary to belong to a producer organisation to gain access to European funding, demonstrates that these producer organisations do not prevent low prices being paid to producers.

Dairy cooperatives intended to strengthen the bargaining power of milk producers control over half of European production. In Denmark and Holland for example, a single cooperative almost monopolises the market. Yet this has done nothing to prevent the dairy crises in either of these countries. These huge cooperatives that often operate beyond national level frequently fail to pay their producers any more than private dairies. As they will not be not bound by the same constraints as those being proposed -in the name of competition- for the producer organisations, they will be able to maintain their position of oligopoly or monopoly. This proposal is liable to prove harmful to small cooperatives.

As for inter-branch associations, the examples of Spain and France show that they have not prevented the dairy crisis.

Contracts between producers and dairies as currently proposed, will fail to help producers, as long as there is no European regulation of production or the market. Indeed they are a request of dairy industry that wants to guarantee its supplies, as well as speculate on future’s markets. The fact that many dairy farms have been forced to either stop farming or to convert to other kinds of production (such as maize that is being grown for biogas in Germany) is leading some dairies to fear that there will be a shortage in milk supply.

At the end of the report accompanying the proposal, the Commission mentions that: “In case of serious imbalance, as a further tool to stabilise the market and as an exceptional measure…, the Commission could consider…. a “ disturbance clause” … that would allow milk producers, on a voluntary basis, to reduce their deliveries against compensation.” This is recognition that a deregulated dairy policy with supply management runs a high risk of leading to new crises. This proposal is in contradiction with the increases in the European quotas and the plan to phase them out. Instead of the proposed reduction that is at the taxpayers expense, it would be easier to decrease the European quotas.

The Commission should act first and foremost in the interest of the European citizens, rather than supporting the interests of industry and trade: It is proving to be very aggressive in its attempt to enter the Canadian dairy market through the current EU-Canada trade negotiations, whilst Canada rightly wants to maintain its own supply management.

Maintaining this export priority even though the EU is not “competitive ” (apart from quality cheeses) and requires massive soya imports to support intensive milk production, is disastrous for both European producers and those in countries outside the EU.

It is contradictory to maintain the objective of restructuring dairy production (page 7 of the report) combined with the phasing out of quotas, while simultaneously talking in the CAP communication about the “territorial challenges”. Many less-favoured areas that rely on multifunctional sustainable dairy family farming are liable to see production become concentrated in regions where production costs are lowest and in large farms that have good contracts with dairies.

We need a genuine public European dairy policy that truly addresses the root causes of the crisis . To put the dairy policy into the hands of the sector, in an unregulated framework, increases the likelihood of future agricultural crises.

1 the regions suitable for milk production from an agro-climatic point of view

2 only 6% of global production is traded on the international markets.

3 Whilst the price of milk is lower than the production cost, and whilst exports are made at prices lower than European production costs, we can not talk about competitiveness: that only works with trade subsidies or direct payments.

4 See ECVC proposals on this website.

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