Dairy Industry – Serious Challenges
29th June 2009
Meath East TD Mary Wallace has this week expressed her concern for dairy farmers in the light of the ongoing low prices and weak markets for dairy products.
Deputy Wallace has expressed her support for the work of Agriculture Minister Brendan Smith and for his success in the reactivation of the dairy market management mechanisms. The Minister has consistency pressed the Commission and Commissioner Fischer-Boel on the importance of these supports to restore confidence and to put a floor under prices.
Deputy Wallace explained this week that it is thanks to the hard work of Minister Smith that supports were re-activated at the start of the year and at the June EU Agricultural Council Meeting Minister Smith has raised again his concerns that supports now are need to be extended beyond the end of August as this is an exceptional market situation and an appropriate response is warranted.
Note to the Editor
The European dairy industry is facing serious challenges at present, having fallen back considerably from the record high prices they reached in 2007, as international markets for dairy products remain extremely weak.
The turmoil in the international financial and banking sector resulted in a reduction in demand and a number of other things conspired to reduce prices in 2008, including
• An increase in global supply, in response to high prices in 2007; and
• The recovery in New Zealand production from a drought-related decline
As a result of the current low prices, we are all agreed that farmers are facing severe difficulties with producer prices below the cost of production. It is vital, therefore, that the EU Commission’s efforts to stabilise the situation continue and, where possible, be intensified.
Common Agriculture Policy
The CAP has evolved over time and recent reforms have changed the EU policy framework within which the dairy sector now operates. While world market forces have a major influence on the price paid for milk, the CAP contains measures to be used to manage the dairy market.
In the Eu, measures such as export refunds and internal subsidies have been suspended since 2007 as prices were at exceptionally high levels.
In the CAP Health Check negotiations last year, the Minister for Agriculture argued very strongly, and ultimately successfully, for the retention of the dairy market management mechanisms. Since the conclusion of the negotiations, the Minister has repeatedly pressed the Commission and Commissioner Fischer-Boel for the early introduction of supports to restore confidence and to put a floor under prices.
Following the Minister’s consistent intervention, the EU Commission has, since the beginning of the year, re-activated a range of support measures to help stabilise the dairy market
• In January 2009, private storage aid for butter was introduced, two months earlier than normal and the Commission also reintroduced export refunds to support the export of dairy products outside the EU and signalled its intention to put a floor under the market;
• In March 2009, public intervention schemes for butter and skimmed milk powder were opened, which allowed the purchase of product to set limits at fixed prices. Since then, the Commission has continued to buy butter and SMP into intervention and EU prices have stabilised, albeit at a low level.
• Ireland, with other Member States have continued to stress the importance of continuing to accept butter and SMP into intervention at levels close to the intervention purchase price under a subsequent tender system when the mandatory limits have been reached.
The Commission response to date has been measured and effective, insofar as the activation of the market management mechanisms have assisted in stabilising the market, but at a low level. This is an exceptional market situation and an appropriate response is warranted.
Scope for Future Action
Ireland believes that there is scope for further action and at this week’s EU Agriculture Council, Minister Smith pressed the EU Agriculture Council, Minister Smith pressed the EU Commission on a number of fronts
• In the current market situation, where cheese prices have dropped considerably, the “free-at-frontier” price for cheese, that is blocking the use of export refunds should be removed. This is a self-composed technical impediment that is no longer warranted and which is hindering exports of Irish Cheddar, in particular
• Intervention purchases of butter and skimmed milk powder should be extended beyond the end of August.
• Given the ongoing weakness in the market situation, the extension of these schemes would greatly assist the sector and give it a much-needed boost.
• In addition, there is greater scope for exports of dairy products outside the EU and more export refunds which would greatly improve the export potential of the Community, would be of great benefit in this regard.
Milk Quotas
The Milk Quota regime exists as a supply control mechanism under the CAP, and quotas are due to be abolished in 2015. Quotas were increased by 2 per cent in the 2008/2009 year following a market report by the Commission. Under the Health Check in 2008 it was agreed to increase quotas for all members states by 1 per cent each milk quota year from 2009 to 2014 in preparation for their eventual expiry in March 2015. It was also agreed to conduct a review of the sector by the end of 2010. There have been calls from some countries and organisations for a reversal of the quota increases, or at least to bring forward the review to 2009.
It has been suggested that the EU quota increases are the cause of the current low prices for milk. This is an entirely flawed argument. The fact is that milk production is below the level it was at before the quota increase took effect in 2008.
If EU production is to be constrained by quotas, it will prevent Ireland from benefiting from future upturns in dairy markets and, in that scenario, the only winners would be our global competitors, of whom there are many.
Ireland does not support calls from some Member States for an early review of the milk quota increases, agreed as part of the CAP health check. A reappraisal of quota policy is no substitute for market measures, and will only distract from the key issue of getting commercial markets back on track.
European Council
At last week’s European Council in Brussels, the Heads of State and Government discussed the current situation in the dairy market and asked the EU Commission to present an in-dept market analysis within the next two months, including options for stabilising the dairy market, while respecting the outcome of last year’s CAP Health Check.
The Taoiseach contributed to this important debate and the fact that it took place at all was an indication of the seriousness with which the issue for milk prices is now being taken right across the Community.
Conclusion
The key issue for the Irish dairy industry at present is to get commercial markets back on track and this can best be achieved by mobilising all the support mechanisms available under the CAP.
To that end, Ireland welcome the steps implemented by Commission so far to stabilise the situation and encourages the Commission to continue its efforts to stabilise and stimulate the market.