In spite of current high butter prices, the EMB said the dairy sector remains in its chronic poor state because the Common Agricultural Policy (CAP) lacks a mechanism to prevent crises.
Sieta van Keimpema, vice president of the EMB, said forced cuts are usually made at the cost of animal welfare (in terms of lifespan), as well as the farmer and his family's living and working conditions.
"It is an impossible situation for the last link in the milk production chain, which has received no consideration in policy to date. Major distortions in competition on the dairy market have, for many years, led to prices that are significantly lower than inherent production costs," van Keimpema said.
Farmers ‘don’t need subsidies’
A study published last week, which calculates milk production costs in five key milk-producing countries, documents this deficit.
The report, ‘What is the cost of producing milk?’, was published with analysis by the Büro für Agrarsoziologie und Landwirtschaft (BAL), and was commissioned by the EMB.
It states since 2012, the annual average deficit in France has been 21%, in the Netherlands 23%, in Germany 22%, in Belgium 24%, and in Denmark 17%.
The EMB said farmers are not asking for subsidies to produce milk, they need a mechanism that would safeguard the sector from further crises.
EMB’s proposal is to complement the Milk Market Observatory with a permanent mechanism – its Market Responsibility Programme (MRP) – which could temporarily limit or reduce production in the event of crises.
MRP outline
The MRP works on the basis of a Market Index, comprising the trend in product quotations, milk prices and production costs (margin), which the EMB said enables crises to be anticipated.
If the index is more than 100, prices are covering the production costs, the market is stable, and no action needs to be taken. If the index falls below 100, costs are not being covered.
The MRP is then implemented in three phases.
When the Market Index falls by 7.5%, an ‘early warning’ is announced and private storage is opened, and incentive programs are announced for extra consumption.
If the Market Index falls by 15%, this is considered a crisis. A reference period is defined, there is a call for tenders regarding voluntary production cuts (at least 5%), and bonuses for reducing production.
There is also a market responsibility levy from the first kilo for farms increasing production, and universally applicable reduction in the supply of milk by 2-3% for a defined period.
The third phase, the obligatory cutback phase, occurs if the Market Index falls by 25%.
This sees a universally applicable reduction in the supply of milk by 2-3% for a defined period.
The EMB said if the index trend continues towards 100 points and the Monitoring Agency’s forecasts for the further market development are positive, the crisis can be declared over.