Dairy Policies to Protect Producers Under Criticism

In 2009, the global dairy market suffered as prices paid to producers plummeted, yet input costs escalated. With dairy businesses in the US and the EU suffering, the US government paid out subsidies to help producers cope with tough times. In the EU, a high level support group was established to determine how the producers position in the supply chain could be strengthened.

Last year, the US proposed the Dairy Security Act 2011, its aim to create a stronger dairy net for US producers. In brief, the Act would stabilise the dairy market and protect producers margins through a voluntary insurance programme.

The EU's high level support group proposed a number of measures, through the Milk Package, to strengthen producer power and protect them from future market collapses. This focuses on contractual agreements between producers and processors as well as supporting producer organisations.

Last week, both policies came under criticism from producer representatives.

US

A recent USDA report highlighted the issue of small farms declining, with the numbers of herds milking less than 1,000 cows falling. In contrast, larger farms with more than 1,000 cows were increasing in size, numbers and percentage of production.

Commenting Jerry Slominski, from the International Dairy Foods Association, said that the Dairy Security Act would further increase the rate at which small farmers leave the business.

The Act requires that payments be reduced under supply management, which is likely to have a harsher impact on smaller farms.

“It’s pretty easy to see how the small farms will get squeezed out of business faster by this new government programme,” said Mr Slominski.

EU

The European Milk Board (EMB) has said that the EU milk package will only consolidate the weak market position of dairy producers. Whether contracts are voluntary or not is left down to individual member states to decide - this decision by the EU has come under heavy criticism by farming unions, who believe that contracts should be obligatory in every country.

The milk package also refers to a European price monitoring instrument, however, EMB President Romuald Schaber says that this is not enough. He believes that the costs of milk production, market supply and demand must also be ascertained, along with milk prices, in order to monitor the milk markets.

With regards to producer organisations, he said that the pooling limits of 3.5 per cent of milk production across the EU and 33 per cent nationally are much too low. Processors, as bargaining partners, already have a market share triple that size.

Over the past few months, a number of mergers have been made in the EU dairy processor industry, which could cause further concern to milk producers wanting to gain more bargaining power.