Transparency key for EU dairy post-quota

The View from Europe: Transparency is vital in the EU dairy sector beyond 2015 so that changing trends can be identified at an early stage and market signals between member states are conveyed without delay.

This is according to a European Commission report out this week on a high-level European-wide dairy conference, which was held in September where more than 500 stakeholders in the industry took part.

The conference, entitled ‘The EU dairy sector: developing beyond 2015′, took place at the initiative of Dacian Cioloş, European Commissioner for Agriculture and Rural Development.

It brought together the key dairy supply chain stakeholders, as well as representatives of the EU institutions, member states, including Ireland, and experts from research and economic bodies.

The purpose of the conference was to explore the new challenges and the most likely trends that will be faced by the EU milk sector and whether additional instruments were needed and feasible taking into account the end of the quota system in 2015.

Experts presented the results of various studies carried out on the milk sector, all stressing the challenges represented by the end of milk quotas in 2015 such as grasping the opportunities of new international markets, managing extreme volatility and maintaining milk production in certain fragile areas.

The six independent experts co-ordinated by Ernst & Young came to the conclusion that a reinforcement and timely use of existing Common Agricultural Policy (CAP) tools would be appropriate to accompany the milk sector beyond 2015.

While the European Milk Board called for more market regulation, presenting the idea of confining price fluctuations within a tunnel and operating a supply management system.

Meanwhile, the Movement for a World Agricultural Organisation underlined as well the need for a stronger safety net in the context of extreme volatility and presented a price-based management system.

In terms of market balance and competitiveness, the report into the conference stated that the future of the EU internal market balance will depend on developments on the world market, which are expected to bring new opportunities for the European milk sector even if some participants warn that such opportunities can only be genuine if they generate enough added value for farmers to cover their production costs.

The conference also heard that volatility, both for dairy product prices and for input prices, is one of the major challenges for the years to come and most of the participants expressed their concerns about its possible impacts at producers’ level.

“The instruments currently in place in the single CMO (safety net) proved to be effective in the past and could be reinforced in periods of serious crises and better targeted. In that respect, a prompt intervention in the market should be ensured, in order to avoid that the measures are taken too late. For some participants, current instruments are not enough to cope with volatility, and therefore to ensure a decent (cost-covering) price for farmers,” the report noted.

In addition, there were some positions favourable to adapting the market tools to production costs, for example the strengthened use of safety nets, voluntary or compulsory freeze of milk production and of milk products, commodities notably, in times of crisis and counter-cyclical payments.

The conference heard that some participants are of the view that a supply management solution might ensure that actors take on board their responsibility in times of crisis.

Many independent experts and participants at the conference felt there was an unbalanced distribution in added-value throughout the supply chain.

“Producer organisations should have an appropriate size to be effective, in particular to deal with the higher concentration of dairies,” the report noted.

In terms of transparency, the idea of implementing a European observatory announced by the European Commission was broadly welcomed.

“The observatory should be able to monitor the margins, facilitate information at producer level and take into account the diversity of the milk sector.

In terms of sustainability, the conference heard that there was a need to find instruments to counter potential negative effects in most vulnerable regions.

Experts presented the divergent developments expected between regions: 25 per cent of countries/regions likely to produce more, 50 per cent of countries/regions expected to produce less, they said.

Some concerns about the sustainability of the two emerging production models had been expressed with, on the one side, environmental, animal welfare and financial limitations and, on the other side, production drop or abandonment, loss of employment and decreasing vitality of rural areas affecting many regions.

It was also noted that better tools should be in place to encourage young people and that the economic and social fabric in the various regions of Europe should be maintained.

In addition the importance of co-operation between farmers was stressed.

“As regards the territorial dimension of the EU milk production, some experts consider that EU farms will continue with the existing trend, while others consider that milk quota expiry, associated to more volatile and decreasing prices and increasing costs of inputs, will accelerate differences between European regions. In some of the most affected regions, milk production plays a significant role.”

At the conference it was raised that the richness created by milk production must be redistributed throughout the EU, notably to counterbalance the transport handicap of outermost regions with some participants underlining the need to compensate handicaps and to use at best the new instruments of the reformed CAP.

In conclusion, the conference report stressed the need for transparency with a large consensus, so that changing trends can be identified at an early stage and market signals are conveyed to all actors involved without delay.

The conference report will be transmitted to the Council of the EU and the European Parliament, before the end of the year.