The European Commission reports a ‘rather positive outlook’ for the dairy market, with big potential for exports following the end of milk quotas on March 31, 2015.
Roger Waite, Commission spokesman for agriculture and rural development, told DairyReporter.com it has been following the milk sector closely to ensure a smooth transition to a post-quota era. Its latest report is optimistic about the future.
“In world markets, there is likely to be a significant increase in demand, in particular in Asia,” he said.
“Producers elsewhere in the world – US, New Zealand – for various reasons are limited in the amount they can respond to this. So when the EU gets rid of quotas, there’s significant demand, and yes we can expand and take on new markets.
“The EU dairy market is in a good situation, particularly in terms of these opportunities for more exports. This is not just for butter and skimmed milk powder: there is also the cheese sector in particular – we are the world champions in cheese.”
Although the Commission has a positive outlook, it remains cautious because the removal of quotas will be a big change. In particular, preventing a repeat of the 2009 milk crisis has to be considered.
“The crisis situation [with the removal of quotas] would be that we suddenly find prices plummet, because liberalization sees a mass increase of production that can’t be exported,” Waite said.
“The concern is the people worst affected are not those that have expanded, but those in sensitive regions.
"This might be milk producers in the mountains somewhere, where the dairy sector plays an enormous social role [such as employment]. That’s what we’re worried about.
“Markets are always unpredictable. You can’t be totally prepared, but we should be in a better situation to see problems coming than we were in 2009.
"From our perspective we feel we’ve improved the situation, and will listen if there’s anything more to do.”
Preventing another crisis
Waite says the Commission is looking ahead over the long term – an important lesson from the 2009 crisis.
A European Milk Market Observatory was launched in April to provide market transparency and track changes in the post-quota market, to warn if a crisis looms. The observatory is open to all members of the supply chain, as well as policy makers and the Commission.
Another measure is the Commission’s ‘milk package’, which was adopted in 2012 to prepare the sector for a more market-orientated and sustainable future.
Member states have the option to make written contracts between milk producers and processors compulsory, and farmers have the possibility to negotiate contract terms including the price of raw milk collectively via producer organisations.
The report says contracts between farmers and processors have been made compulsory in 12 member states (Bulgaria, Croatia, Cyprus, France, Hungary, Italy, Latvia, Lithuania, Portugal, Romania, Slovakia and Spain), while in some others (Belgium, United Kingdom), codes of good practice have been agreed between farmers and processor organisations.
The Commission reports it is addressing concerns regarding the capacity of the EU regulatory framework to deal with extreme market volatility or a crisis situation after the end of quotas. Ensuring a balanced development of milk production across the EU is another issue to address.
Milk quotas were introduced in the EU in 1984 to address the problem of over-production in the region. Although Waite agrees a crisis following the removal of quotas looks unlikely, with export possibilities boding well for European producers, he warns against complacency.
“Past experience shows it only needs one food scandal somewhere," he said. "But we remain optimistic, the future of the dairy sector is fairly positive.”