Here’s why the Commission won’t budge on intervention prices

The European Commissioner for Agriculture and Rural Development Phil Hogan has been clear all the way through the current dairy market downturn that he is against raising intervention prices.

He doesn’t believe that such a measure is the right response to what is expected to be a relatively short-term market imbalance, recalling that the co-legislators reconfirmed the intervention price level as recently as 2013.

Hogan said it would send a wrong signal to the marketplace, as operators would not be encouraged to reduce milk production.

According to the Commission even a relatively small increase would bring intervention prices close to the average ‘operating costs’ for some EU dairy farmers, hence creating an additional outlet for their production and moving away from the market orientation that has underpinned the CAP reform process since the 1990s.

The Commission argues that the enhanced PSA system for SMP and cheese will prove a more effective and efficient instrument for reducing the current oversupply on the EU market.

Last week, Ireland offered 261t of skimmed milk powder (SMP) to EU public intervention last week becoming the eighth country to do so.

According to the figures from the Milk Market Observatory (MMO) Ireland joins Belgium, Denmark, Latvia, Lituania, Finland, UK and Poland to use the measure this year with over 14,000t of SMP offered to date. It was the first time Ireland used intervention for dairy product since 2009.

How does public intervention function?
  • One of the traditional safety net measures of the CAP is public intervention, whereby if market prices drop to a particular reference threshold, operators can then sell it to the Commission at this level.
  • For dairy, the reference price is equivalent to 21.7c/L and intervention only covers the basic products of butter and Skimmed Milk Powder (SMP).
  • The product then belongs to the Commission, and it is the Commission which is then responsible for selling these volumes back onto the market in future when prices have recovered.
  • Under current rules, there is an annual limit of 30,000t of butter and 109,000t of SMP on public intervention purchases. If there is still demand for intervention above these volumes, then this should be done via a tendering system, where the Commission has the right to reject offers according to the price that is offered.

The Commission is against reintroducing quotas too

The end of milk quotas was first agreed in 2003 and came to an end last March.

There have been calls from some quarters for some form of supply controls to be reintroduced to deal with the dairy markets current problems.

However, according to the Commission while it is very unfortunate that this year’s end to EU milk quotas coincides with an upturn in production in other main producing countries (USA, Australia, New Zealand), a drop in demand in China after several years of constant growth, and the Russian import ban.

The Commission remains convinced that the medium to long-term prospects for the dairy sector are very positive.

Any return to quotas or production controls will hinder these mid-term prospects for the EU sector, it says.

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