Milk cost study shows gap between production costs and producer prices

By Jim Cornall contact

- Last updated on GMT

European milk producers expect costs to rise in the coming winter due to drought-induced feed shortages.
European milk producers expect costs to rise in the coming winter due to drought-induced feed shortages.

Related tags: Milk, European union

According to the latest study by the Bureau for Rural Sociology and Agriculture (BAL) – What is the cost of producing milk? – the average milk production cost over five years in six European countries was between 41 and 46 cents per kilogram of milk.

However, producer prices during the same period were on an average between 32 and a maximum 35 cents per kilogram of milk.

Study author Dr Karin Jürgens, said, "European milk producers are squarely in the red every month.  If this dilemma is not solved, it will become increasingly difficult for dairy farmers – both large and smaller ones – to continue to produce milk in Europe."

According to the European Milk Board (EMB), in 2017, production costs in all six countries inclusive of remuneration and average net investments were significantly higher than milk prices and were between 43.39 cents/kg (Germany) and 48.89 cents/kg (Luxembourg). And even without taking into account the necessary net investments, the average cost shortfall over five years is significant and between 14% (Denmark) and 27% (Belgium and France).

EMB costs
Milk production costs (in blue) and net investments (in grey) compared to farm gate milk prices (in red). ©EMB

Chronic situation

Erwin Schöpges, dairy farmer from Amel in eastern Belgium and EMB president, said the figures confirm the chronic tense situation on farms.

"We dairy farmers do not even recover our incurred production costs – forget about remuneration for our work. We can only keep our farms alive thanks to complementary income from activities outside of farming!" ​Schöpges said.

European milk producers also expect costs to rise in the coming winter due to drought-induced feed shortages.

The production costs study was recently presented to the experts of the European Commission's Milk Market Observatory (MMO).

EMB costs2
Overview of milk production costs: subsidies are considered as an income and are deducted from the costs. Necessary net investments should be added to the total cost. ©EMB

"They took note of the red figures on our milk production balance sheets, but there was no outcry regarding the imbalance within the food supply chain,"​ Schöpges said, adding he was disappointed by the participants’ lack of reaction.

"It is now up to EU policy-makers to have the will to include an effective crisis mechanism in the future Common Agricultural Policy."

The BAL study is based on EU-wide comparable and representative data compiled by the European Commission (data from the Farm Accountancy Data Network – FADN and agricultural price indices). Labour costs are calculated on the basis of agreed standards for the respective country. They also consider the worker's level of training and qualifications as well as country-specific wage agreements for farm managers. In the cost calculations, subsidies are deducted from total costs and net investments (10-year average) are also shown.

Milk production costs still not covered in Germany

The EMB said the quarterly cost figures for Germany show only 80% of production costs were covered in July 2018, while in April it was 78% and 88% in January. Production costs in July amounted to 43.28 cents; however, producers only received 34.56 cents for their product.

EMB german costs
Evolution of milk production costs in Germany from 2009 to July 2018. ©EMB

Johannes Pfaller, dairy farmer from southern Germany and EMB executive committee member, does not see any convergence of farm-gate milk prices and production costs in the medium term either. "Milk prices are far from covering our production costs. In addition, the costs of animal feed will rise in the coming winter due to drought-induced crop failures,"​ Pfaller said, adding it is now even more important to lay down the conditions for a stable milk market as part of the Reform of the Common Agricultural Policy.

EMB german ratio
Price-cost ratio (shortfall). ©EMB

 

Related topics: Markets, Pricing Pressures, Fresh Milk

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