Swiss experience a cautionary tale on quota abolition

“Five years after the quota system was abolished, producers still have no stable market conditions in the long run.” That is the conclusion of the study presented recently in Brussels of the consequences of Switzerland abolishing the milk quota system in 2009.

In the study the author, Dr. Therese Haller from the Bern University of Applied Sciences, School of Agricultural, Forest and Food Sciences, exposes key results for the Swiss milk market. In addition, the study also presents findings for the future development of the EU milk market, which will similarly be abolishing its own system shortly.

As the study shows first for Switzerland, the increases in milk volumes caused by the abolition resulted in Swiss industry milk having lost about 24% of its value by 2010/2012 compared to the average farm-gate price of 2000/02. Cheese dairy milk lost 15% of its value and organic milk 19%. So far no effective private law measures to stabilise farmgate prices have been implemented because the disunity among the market stakeholders is too great.

“The decision to abandon the quotas was based on studies and expectations that have proven to be totally wrong”, says a critical Werner Locher from the Swiss milk producer organisation BIG-M. “The continuing poor prices have forced many farmers out of milk production – even some that actually had good farm structures“. That is why the stock of dairy cattle decreased and this decrease was jeopardising farming throughout the Alps in particular. “This way they’re chopping down one of the vital pillars of Swiss tourism. If the producers are not paid cost-covering prices this has repercussions extending far beyond agriculture”, says Locher.

The study indicates, the concentration of processors as opposed to producers in the Swiss market increased following the abolition of quotas, further exacerbating the producers’ position in the market. Between 2003 and 2012, the four largest milk processors increased their processing volume by 38% and their share in the Swiss milk market from 44-56%.

According to the study, another adverse factor for the entire Swiss milk market is the distribution of growth in volumes after the abolition of quotas. It is concentrated in the cheap segments butter and milk powder, which can often only be exported at a loss. Another development in the Swiss milk market referred to in the study is the fact that the gap between mountain and valley regions has widened since the abolition.

Romuald Schaber, President of the European Milk Board (EMB), sees clear parallels between the Swiss situation and the planned abolition of quotas in the EU. “Even if the developments are not all transferable 1:1, it is nevertheless a fact that the EU also has very difficult times ahead.” The market, and the producers in particular, would be left to their own devices. Schaber describes the expected consequences as follows: “Without effective mechanisms – without cost-covering prices – large numbers of farmers in the EU will also have to give up very quickly. In the end, entire regions will simply be left without any milk production.”

 

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