Peasants Hitting the Road Producing Milk Making the Difference




Strategies to survive – milk or milk factories?

Which milk, in which agriculture, in which society.

Policy brief written by Federica Sperti

for Centro Internazionale Crocevia

April 2016


Where we are on “milk production crises”

On 1st April 2015, the EU regime of milk quotes finished.

At the same time there has been an increase of the global milk production; a decline of the export due to the trade sanctions to Russia and to the reduction of the demand of China; a decrease of an average of 20% of the price of the milk at the barn in Europe and around the world; a concentration of production in the Northern Europe. The 90% of the milk produced in Europe is still consumed in Europe.

According to the data collected and presented to the last meeting of the European Milk Market Observatory, on 27th November 2015, the production of the European Union in the first nine months of 2015 increased of 1.5%; on September 2015 the deliveries of milk grew of 3% respect to 2014. This growth of the milk production has as consequence a growth of skimmed milk powder (SMP) and butter. The global production increased of 2.5% compared to 2014 thanks to USA and EU increasing production. On September 2015, the price of the milk at the barn was of 29.9 cent/kg, the 13% less than the average prices in the last five years and, in average, the prices on the global market are gradually decreasing.

The European Union stock for SMP and cheese is above the normal levels, soon the drying towers will be full, with the obvious consequence of pressure on the market relating to cheese products. In general, at European level, there is a flexion on consumptions, with the exception of UK (+2.6%).

The expansion of the global market is limited. It should have grown, but it did not.

The direct consequence is that there is no structural reason to regulate an internal market according to the global market. More strong attention needs to be given to this political point.

Milk farms, following the EU livestock and dairy policy, pay the most dramatic price in collapse. Running after milk prices at farm gate, imposed by input industries producers and dairy industries and retailers,  to compensate increasing capitalization give, as result, an increasing debt crisis of milk farms.


The failure of the European dairy policy, chronicle of a crisis foretold

The destructive illusions of the global dairy market

 Between 2003 and 2015, instead of improving the market regulation in place since 1984, the EU has destroyed its own dairy policy deregulating the quota systems, allowing national quota increasing and liberalizing after. Nevertheless, doing this it has only aligned its own dairy policy to the other policies that have changed since 1992, according to the WTO rules defined by the Uruguay Round. This is an ideological approach to the matter, based on the prerequisite that the market decides the prices and the offer adapts to the demand. Since 2003 the volatility of prices of milk is increasing, forcing many producers to stop or to slow down the production. In 2014, the following overproduction led to the decrease of prices with a concentration of production in big dairy industries.

For the geographic concentration, in the last ten years (2003-2013) 4 million farms in Europe have closed (27.5%). Despite this crisis, the European Union does not take repair measures, just because it does not move from its ideology. The “milk package” adopted in 2013 did not produce any solution: the Contractualization according to rules that are just support for industrial dairy transformation  (fixed farm gate prices under the real cost of production, obligations and quality requirement just as mean of reduction  industrial transformation cost, and association of producers – as a mean to concentrate and control milk offer by quasi monopolistic milk industries – (fragility of producers)  was planned, without any positive  influence on the farm gate price of milk. It can be said that the European Union has made a step back. The market now is in the hands of the downline sector (industry, large retail).

Farms are resisting to the crisis just because they are less depending on the global market: they produce their own forage and reduce the dependence on external factors (for example cultivating leguminous plants). They resist to increase capitalization and they reduce debt position; they reduce the total farm milk production investing time in the processing and in the local sale (more added value). They are engaged in strict regimes (“cahier de charges”) for the production of quality milk and cheese, investments in particular productions; in this way they manage to have a better  balance between price and cost of production and they are less depended on the global market milk price.


Global Market

The global dairy production in 2014 was related to Asia (28%), European Union (24%), North-Central America (18%), South America (11%).

The milk global market represents the 7% of the global production (55 million of tonnes), in recent years it increased of about 2 millions of tonnes per year. The three main actors in this market are the European Union, New Zealand and United States that together provide the large 70% of the total market. In 2014, just these three countries produced 11 million tonnes more of milk that correspond to an increase of 20% on the global market.

The greatest responsibility is in the hand of the European Union, which increased its production of 6 million of tonnes so, considering the trade sanction of 2 million tonnes to Russia, its increase

amounts totally to 8 million tonnes on the global market. The demand of China remains uncertain and difficult to foresee, therefore the possibility of China to absorb the surplus production is uncertain as well, butit was New Zealand to determine the price of 160 euro/ton reached in 2014.          IndeedNew Zealand controls the market of milk powder and butter, with just 2.5% of milk production of the country but 1/3 of the global market. It can produce at a lower cost for reasons linked to its history (lands grabb to  indigenous peoples ) and its nature (grazing all over seasons, without feed complement, and farms with 300-400 cows and 1-2 working units).

Fonterra, a New Zeland transnational “cooperative” and company strongly specialized (milk powder and butter) collects and exports more than 90% of the New Zealand production. It controls the future market of the milk powder and it is investing in huge dairy factory – farms and plants for the production of milk powder –  in China, India, Brazil, Argentina and EU.

Also the  USA can lower the cost of production through the employment of Mexican workers, with lower wages and no social protection, less environmental obligations and guaranteed margins (milk price and feed cost) without ceiling. This conduces to the growth of production and an intensive livestock industry. A recent policy guarantees to the milk producers a high operative margin. This assurance policy is financed in part by the USA budget and in part by the same dairy producers.

Note: The Dairy Price Index consists of butter, SMP, WMP, cheese, casein price quotations; the average is weighted by world average export trade shares for 2002-2004.

In conclusion 

  • The sector of milk production is fundamental and strategic for agricultural production; providing incomes  to the small farms and improving the quality food consumption
  • It is necessary to consider a sustainable agriculture conducted by family farms, with a smaller scale than dairy industries. It is necessary to call into question the current rules of the international market (WTO, 1994) which defined the current dairy policy.
  • There is still a need to give priority to the European internal market and to the export of high value added products, in order to develop resilient farms.
  • It is not enough to concentrate on what to produce and at which cost, but even who produces and where, what kind of products and how, and, finally, which is the destination of the production: global or local markets?   
  • Small-scale milk producers need to build specific agenda for them to resist to market power and to develop a transition strategy, increasing autonomy of dairy production. Access to land for grazing, rotation and protein production remain a central element of any resistance, alternative or transition policy. CAP has no provision of such vision.

Proposal from Confederation Paysanne and ECVC:

Conféderation Paysanne and ECVC have set a European programme of Dynamic and Solidarity  Management of Production (DSMP).

 A minimun price paid to the producer, variable because it’s based on the cost of production.

This is equivalent to a guarantee of minimal margin to the breeder.

  • A guarantee of price/margin until an amount given according to the asset, and on European scale until an amount destined to the inner consimption (90% of the production).
  • A maximum price determined, justifying the system to consumers and taxpayers. Given that the prices get combined from he high of the tunnel, this indicates that the world market is growing : those who wish can increase their own production.
  • A withdrawal threshold, when the world prices are high, would permit to finance the prevention of crisis, when the price approaches the lower limit of the tunnel. That would constitute a countercyclical fund of supply. The withdrawals would be growing along the volume of production.
  • When the crises prevention indicators let the alert system of the Obsrevatory spring into action, a mandatory mechanism of reduction of the volumes is taken in place. This commitment will be implemented in different way in terms of the amounts produced by the company. The farms with major volumes and those with the greatest increase during a reference period will have to contribute farther to the reduction in accordance with the small farms.
  • The financial contribution of the mechanism will be ensured mailny by the major exporting coutries. The Member States in deficit (inner production < consumption) will contribute less to the dynamic and jointly management system of the European production.
  • Waiting the effects of the reduction of the amounts, measures of market release can be opened : limitate intervention on the volume set at a level that is close to the minimum prices, support to the utilisation of milk powder for the feeding of calves.