Spanish dairy sector severely hit by price slump

- Last updated on GMT

Related tags: Milk, Dairy farming

Speculation on milk prices is keeping them at an artificially low
level and could cause the collapse of the Spanish dairy sector,
warns the organisation which represents the interests of some of
Spain's smallest farms.

A 15 per cent drop in milk prices is taking a major toll on the Spanish dairy sector, which has lost some €300 million this year alone. The industry has blamed speculators for pushing prices down to unnaturally low levels.

The crisis has reached such proportions that 12 Spanish dairy companies are being forced to close every day because of the low levels of profitability in the sector, according to a report in the Cinco Dias​ newspaper citing figures from the UPA organisation, which represents the interest of Spain's smaller farmers.

Since last December, the price of a litre of milk has dropped by four cents, which, in conjunction with the sharp fall in beef prices because of ongoing concerns over mad cow disease, means that each Spanish dairy farm has lost around €6,000 so far this year. For the dairy sector as a whole, this figure reaches around €295 million, and is set to rise to €337 million by the end of the year.

Some 72 per cent of the losses are related to the fall in milk prices, the UPA's research shows. But what is most distressing is that the UPA could find no logical reason for the decline in prices.

The Spanish dairy industry has been struggling to meet domestic demand for some years, and around 20 per cent of the market is supplied by imports. Furthermore, it is only the farm gate price of milk which has declined; retail prices have remained largely unchanged, and if there has been any decline in prices, it has been around 3 per cent, a far cry from the 15 per cent drop in producer prices.

Finally, Spain already has some of the lowest milk prices in the EU, with only farmers in Belgium, Ireland and the UK receiving less for their milk, yet much of the market is being supplied by producers from countries where milk costs more - for example, around 600 tons of milk is being imported each day from Portugal, where milk costs six cents a litre more.

All these factors suggest that the prices are being kept artificially low, the UPA claims.

With Inlac, the organisation set up a few years ago to help correct distortions in the market instead going into a process of almost terminal decline following the collapse of many of its member co-operatives, the UPA said that the only recourse was to seek tax breaks for the dairy sector from the Spanish government.

Related topics: Markets, Pricing Pressures

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