Fischer Boel holds the line on milk

Regular readers of this blog will know by now that I don’t count myself among Agriculture Commissioner Mariann Fischer Boel’s greatest fans. I think she fudged what turned out to be a very costly reform of sugar subsidies, bears a share of the responsibility for the collapse of the Doha Round, missed a golden opportunity to reform the CAP during the ‘health check’ and – perhaps above all – has failed to articulate an intellectually robust vision for the future of European agriculture policy. She is stepping down soon and this task will fall to her successor. However, I will give credit where it’s due and she’s doing a fine job of holding the line against protesting dairy farmers seeking more government aid.

Yet again the tractors blockaded central Brussels this week with a few thousand farmers hurling eggs and chestnuts to reinforce their calls for a bail out. Dairy farmers across Europe are hurting because of low prices for which there are two – perhaps three – main reasons.

First, after a significant price spike during the ‘food crisis’ of winter 2007/08, prices have fallen back dramatically. Some of this is due to the lagging nature of the upward supply response, as farmers increased output to make the most of higher prices, both in the EU and elsewhere. While fresh milk is not traded globally, butter and milk powder are, so what dairy farmers in New Zealand do can have a big effect on fresh milk prices in the EU. Second, the global economic downturn has seen a reduction in demand for dairy products in the middle classes of developing countries like China and India. Third, and while there is less in the way of concrete evidence on this point, it has been suggested that imbalances of power in the relationships between farmers, milk processors and retailers means that prices received by farmers are depressed.

Commissioner Fischer Boel is holding the line against any new EU-funded bail out for the dairy sector. What she is in effect doing is passing the responsibility back to national governments, offering them the chance to use national state aids, in the knowledge that finance ministers are rather less enthusiastic than farms ministers when it comes to opening the coffers for the benefit of a group who are already in receipt of more handouts than most. This move is yet another indication that national co-financing will play an ever greater role in the future of EU farm aid, something that I have argued for.

At the same time as saying a polite but firm ‘no’ to dairy farmers she is also setting up an inquiry into the dairy supply chain to find out whether there is any evidence of abuse of market power. This is a good thing. Farmers have long been the victims of a highly concentrated retail sector but even if there is a smoking gun it’s hard to see what remedy can be applied. Perhaps supermarkets can be persuaded not to use dairy products as a ‘loss leader’ to attract customers though that presents its own problems, such as higher prices for shoppers. The inquiry will report to Mrs Fischer Boel’s successor by June 2010.

At the most basic level we are witnessing a shake-out of the less competitive dairy farmers in the EU and in my view there is very little that can, or should, be done by governments beyond the provisions of the welfare state that apply to all citizens and businesses. The fact that the shake-out has been delayed for so long by a system of milk quotas that kept high cost farmers in business is not be a reason to pour new money into the sector. While manning the blockades and trashing their own produce, farmers argue that they deserve special help because the future capacity of Europe to produce milk is at stake. I disagree. It is certain that we will see fewer dairy farms in the future, but those that do remain in business will be larger and more succesful, the result being that production will remain at relatively constant levels, varying in line with demand and global supply. We may well worry about the growth of grotesque livestock mega-farms as seen in the United States and there needs to be a regulatory framework in place to ensure Europe avoids going any further down that path. But one thing is for sure, the raw milk that goes into the daily pinta or Europe’s world-beating variety of cheese is never going to come from New Zealand.

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