French dairy firms Sodiaal and Entremont Alliance announced Tuesday a merger of activities, a move they claim is due to financial pressure brought on by reforms to the EU's system of agricultural subsidies.
The milk and cheese manufacturers are examples of yet more European industry players clamouring against the 2003 Common Agricultural Policy (CAP) reforms, arguing that the cut in subsidies to dairy farms is rendering their business unprofitable.
In a joint statement, executives from the two companies said they were regrouping the Sodiaal subsiduary Sodiaal Industrie and Entremont Alliance's Cofranlait, which produce baby milk, elaborated milk ingredients and nutritional supplements, in order to stay afloat.
"The constitution of this group will allow create a new company large enough to absorb the effects of the CAP reforms," they said.
The merger will bring together a number of plants and greater human expertise, leading to the consolidation and development of the milk industry in France as well as overseas, the executives claimed.
The CAP reforms, adopted 26 June 2003, made massive changes to the farm subsidies system, in an attempt to make the market more competitive and less reliant on EU subsidies.
However the new "single farm payments" system has been criticised by farmers, manufacturers and certain MPs, who claim that it is unprofitable and complicated.
Milk prices have fallen sharply since 2004, with France having the lowest in Europe.
In January a number of French dairy firms pledged to respect a recommended national milk price to ease price cutting, however Sodiaal refused to comply, causing rows across the industry.
Last month, Joop Kleibeuker, the head of the European Dairy Association (EDA), told DairyReporter.com that once the new CAP is implemented, the production of raw dairy products will be less protected, and consequently reduced.
Kleibeuker also stressed that the EU's recent revocation of subsidies on all exported dairy products is an indication of where the industry was moving.
Though the measures are only a temporary reaction to increasing demand, "there is a clear development within European dairy for no market support," he said.
The UK National Farmers' Union (NFU) has also criticised the reforms, telling a European Parliament Committee in May that the conditions are "a nightmare for farmers".
The NFU argued that there is now too much red tape, as food firms and farmers now have to comply with over 20 regulations, many of which are broken for infringements as minor as lost ear tags on animals.
However, Mariann Fischer Boel, the European Farm Commission, said last week however that the CAP will stay in place for the foreseeable future.
Speaking at the Royal Welsh Show, Boel argued that the decoupling of farm subsidies from production levels, will continue, and special measures must be taken to ensure that it occurs across all EU countries.