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Commissioner Hogan engages with dairy industry at EDA congress

By Jim Cornall+

13-Dec-2016

European Commissioner for Agriculture and Rural Development Phil Hogan addresses dairy company leaders, and responds to their questions, at the EDA Congress in Nice.
European Commissioner for Agriculture and Rural Development Phil Hogan addresses dairy company leaders, and responds to their questions, at the EDA Congress in Nice.

At the first open session of the European Dairy Association (EDA) annual congress in Nice, France, from December 1-3, there was dialog and discussion on the state of the European dairy industry.

The session, ‘Our European Dairy Ambition,’ was a round-table discussion featuring a keynote speech by EU Commissioner for Agriculture and Rural Development, Phil Hogan, followed by four speakers, who had opportunities to ask questions of the commissioner.

Participating were Daniel Jaouen, general manager, chairman of the board of directors, Lactalis; Peter Stahl, CEO of German company Hochwald SE; Peder Tuborgh, CEO of Arla Foods amba; and executive vice president of Finnish dairy cooperative, Valio, Elli Siltala.

Difficult times

Hogan agreed with EDA president Michel Nalet, who mentioned in his opening speech that this has been a very difficult time for the dairy sector.

Hogan said that restoring health and balance to the sector has been the priority from day one.

“I have tried to do everything I can to support this sector. President Nalet has said that we seem to be close to the end of the crisis - I am cautiously optimistic that this is true - but now we must work together to continue this recovery and do our best to make sure that a crisis of this magnitude cannot happen to the same deep extent that it has.”

Storage scheme

He noted that in the past two years, 24 regulations have been adopted to support the dairy sector, in addition to other horizontal measures.

“This includes opening, extending and enhancing private storage aid schemes to dairy products, extending public intervention periods for butter and skimmed milk powder (SMP), increasing the ceilings for buying in of butter and SMP at fixed price, targeted aid for dairy farmers and farmers in other livestock sectors, authorizing agreements and decisions on the planning and production in the milk sector, exception of adjustment aid and aid for milk production reduction scheme,” Hogan said.

He said that more than €1bn ($1.08bn) has been mobilized in emergency measures over this two-year period in addition to the €56bn ($60.4bn) a year that is paid to the agricultural sector.

“I'm sure that you appreciate that in the time of ongoing European economic difficulty, and in the midst of one of the worst difficulties that we've had in migration and refugees, this wasn't easy to get this to work,” Hogan said. 

Signs of recovery

Hogan said that the signs of recovery were good news.

“Global demand, most notably for butter and cheese, started to pick up in mid-2015, the long-awaited reaction from the supply side finally materialized in the EU in June, and this has translated into better dairy prices, which have substantially increased in the Union.

“Since May, we've had 69% increase for butter, 23% for SMP and 30 to 50% for various cheeses. And EU butter prices have now hit historic records of 2013 at €4,210 ($4,544) per tonne.”

He added prices for butter and cheese are expected to remain robust through early 2017.

“As long as we produce what the market demands, recovery is always guaranteed.”

Intervention

He said that the voluntary reduction scheme for milk is an example of where farmers voted with their feet, with 58,000 participating.

“As long as we produce what the market demands, recovery is always guaranteed.” Commissioner Phil Hogan

“I am now looking for everybody to work together and show commitment towards equilibrium in the market.

“I believe the public intervention mechanism has played its role and has helped your industry in stabilizing markets and removing surpluses in an overwhelmingly imbalanced scenario. 

“And this was done in the full knowledge of the fact that this removal is temporary and bought-in product has to find its way onto the market one day or other.”

He noted that earlier this year, he twice gave instructions to increase the volumes under which public intervention of SMP takes place at a fixed price, to give certainty to the sector in general and the dairy sector in particular. 

“The uptake has been massive, to the extent that some 30% of one year of European Union SMP production has been sold to public stocks. Member States have put forward €600m ($648m) for buying that product. And it's true that it will be recovered once the product is sold, but until that moment arises, the financial burden is not insignificant.

“I'm positive that we can all agree on something - none of us wants to see intervention taking place again next spring. The sector as a whole must think strategically, and market signals must echo throughout the chain so that production matches our outlet options.”

Trade missions

He said industry and the Commission needed to work together to build sector resilience to cope with future shocks.

Hogan mentioned travels he has been undertaking in conjunction with businesses over the past year – to Mexico, Columbia, Japan, China, Hong Kong, Indonesia and Vietnam – to find new market opportunities for dairy products. 

“Conscientious consumers and customers throughout the world recognize the quality and value of our European food traditions,” Hogan said.

“EU agrifood exports increased by 5.7% in 2015, a welcome dynamic that had a direct impact on job creation, particularly in our rural areas.”

"Success abroad means success at home." Commissioner Phil Hogan

He said that the first nine months of 2016 confirmed this positive trend.

“Exports reached a record monthly value of almost €11.5bn ($12.4bn), exceeding September of previous years by about €500m ($540m). So we can build on this positive foundation, because success abroad means success at home.”

Finland and Russia

The first of the business leaders to address the Commissioner, after giving a brief company overview, was Valio’s Elli Siltala.

She spoke of Finland being the most northern agricultural country in the world, and asked how future policy would help areas where farming was more difficult.

Hogan noted that the EC does have €56bn a year, every year, going to farmers, and it's the only fully-funded policy in the EU. He also pointed out that the region already gets special assistance.

“I can assure you that there are plenty of other people looking at other priorities at the moment who feel that this part of this budget should be going elsewhere.

“Migration is one of the issues which of course affects every country, directly and indirectly. So in the absence of MS finding themselves in a position to have a coordinated and common agreement, what should happen?

“It falls to the European institutions to try and resolve this issue, because it has to be resolved otherwise we're all going to suffer the consequences.”

Brexit raises its head

The Baltic states and Finland also led Hogan to raise the issue of Brexit, a recurring theme of the session.

“Brexit on the financial side is equally as big an issue if not bigger, in terms of the net contribution of between €8bn ($8.6bn) and €10bn ($10.8bn) every year that the UK gives to the European programs. 

“So the answer to your question will be dictated, first of all, by what is the overall budget, and how much is the percentage that I will be able to have, and then we will develop the programs.”

Russia

Siltala mentioned how the Russian market, which consisted of over 20% of Valio’s sales, vanished overnight.

Hogan agreed, noting that 250,000 tonnes of cheese was going to Russia before the embargo.

He said that among his first initiatives was assisting dairy farmers in the Baltic States and Finland, as these were the member states most directly affected. 

“But at the end of the day 95% of the volume and value of products that was going to Russia from Europe have now found new markets around the world.

Responding to questions on Russia, Commissioner Hogan said he saw no end in sight to the embargo. Pic: ©iStock/MattZ90

“And this is the way we have to be; we cannot rely fully on having a situation in the future where we're totally dependent on one market.

“And I would say this also applies to China. Everybody wants to go to China - there's a good reason for it – but nevertheless we have to continue diversifying so that we don't end up in a situation where, because of a reduction in demand in China on one particular day, we are now stuck with storing products again that we have not a market for.

“So Russia has given us that lesson to have diversification in the marketplace.”

No end in sight

Hogan admitted he saw no end to the Russian situation.

“I think we have to be realistic about the fact that sanctions will remain,” he said. 

“It takes two to dance, and Mr Putin has not chosen to dance. There are many products that are not embargoed that they have also refused to trade, so they are playing silly games with Europe.  Mr Putin is an expert at it.

“And he is engaging in a lot of rhetoric with the help of social media and other media outlets in order to show that Europe is the one that is the problem and not he.” 

Brexit (again)

Arla has a part of its business in the UK, and Peder Tuborgh said that there was a sense that the single market may be under threat from Brexit.  

“The UK is a very important market, as you all know; it's a €4.5bn dairy market, much larger than Russia in terms of our exposure,” Hogan said.

He noted that earlier he had spoken of 250,000 tonnes of cheese going to Russia, yet 450,000 tonnes of cheese heads to the UK.

“The British market is a lot bigger issue than perhaps people have realized to date. 

The uncertainty of Brexit found its way into the discussion several times. Pic:©iStock/AlexLMX

“We have two years to make sure we get this one right in the UK. Again, it will take two to dance. 

“The political position is that if you're outside the club, you cannot expect to be better off. Why would you be in a club of 28 member states if you are going to better off outside? So the other 27 have a big responsibility,” Hogan said.

He noted that it was impossible to make predictions, as the British proposition is not known yet.

“Unfortunately, this is going to be a big distraction for the next couple of years - an unwelcome distraction.

“It's going to mean that the two years is going to be about principles in my view. There's no way you can disentangle a MS (member state) of the size of the UK from the EU, which is the biggest disentanglement since the Second World War, in two years. That's not possible. 

“There will have to be transitional arrangements on various matters, whether they are financial or trading.  But of course, the trading - the UK will not be able to enter into a free trade agreement with each individual MS until such time as they have the exit already negotiated.”

Avoiding other ‘Brexits’

Tuborgh asked whether there would be a scenario of a domino effect of ‘Brexits’.

Hogan said promoting the benefits of the union was critical.

“The Commission does it every day, but the Member States do not do it.

“If you have a MS like the UK, their political people for 35 years telling everybody in the UK that Brussels is a problem, Europe is a problem, then they turn around a week later and ask them to vote yes to stay in.

“It's not so easy to convince people who have been fed on a diet of an anti-Europeanism in relation to everything that was wrong, rather than promoting the benefits of the European single market.

“And this is happening in too many MS, where MS national politicians are saying if they have any particular domestic difficulty in their MS, then the problem is Europe.”

Hochland

Hochland CEO Peter Stahl asked about sustainability, questioning Commission policy on supporting farmers in cutting down production.

"It's not sustainable for a farmer to be getting 20-22 cents a liter for their milk. They won't survive." Commissioner Phil Hogan

Hogan countered by saying, “Well first of all, I have to look after the farmer. I know you do too. But it's not sustainable for a farmer to be getting 20-22 cents a liter for their milk. They won't survive.”

He noted four countries in particular in the EU post-milk-quotas that decided to drive on and ignore the signals.

“And it certainly hampered and made it difficult for every other farmer in every other MS to understand what was happening. We had more and more farmers going out of business.

“There was an explosion of milk in the first quarter of 2016 in Germany, the Netherlands and in Ireland and Poland, so those four countries were responsible for 80% of the increase, and I can assure you that not all of that was going for exports outside the EU.”

Need for intervention

Sustainability is not just about the companies, it's about farmers, Hogan said.

“The only way we could drive up milk prices was to bring about a situation where Europe intervened to create a situation where we had to manage demand and supply, by driving demand if we could, but also managing supply.

“I was the only one that you were competing with for most of this year, but the beneficiary was the farmer. So if you didn't do it, I had to do it, in order to protect the farmer.

“Every company tried to make sure that farmers didn't participate in this scheme.”

Hogan said, “I would actually invite the EDA, arising from this experience, to come forward with proposals to me in the context of the next reform, about what extra tools the farmer needs for market resilience.”

Hogan also fielded questions on the TPP, Japan, Canada and the US during the session.

Other events

The congress also included a variety of breakout sessions on the dairy economy and sustainability, a gala dinner and the EDA General Assembly.

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