The milk war

, by Anna Ferrari

The milk war

In 1984, the EU introduced milk quotas to limit milk production in every Member State to end structural surpluses that by far exceeded the demand. Last year, milk quotas were removed in the name of a more open and competitive European and global market.

The present agricultural policy is almost exclusively made at European Union level, while implemented at the national and local levels. In 1984, the EU introduced milk quotas to limit milk production in every member state, in order to end structural surpluses that outreached by far the demand. The limitation was both in terms of quotas for individual farmers and quotas for the member state as a whole. Exceeding them would have brought million euros worth of fines from the EU, which has happened to many member states. Therefore, if farmers wanted to expand, they needed to buy quotas from others who were closing their own their activity, sometimes also getting into debts. Last year, milk quotas were removed, in the name of a healthy, that is to say competitive and open, market.

EU: Milk quotas vs free market

Along the years, farmers complained fiercely against the milk quotas system. Mr Piloni and Ms Bianchessi, for example, two Italian farmers in the northern region of Lombardia: “Quotas contributed to undermine entrepreneurial spirit because the only way to increase your quantity was to buy quotas from somebody else”. Therefore, the end of quotas should have caused a better situation for the farmers. In reality, not really. “At least previously it was easier to access credit because banks considered milk quotas as having their own values”. Now, these ‘rights to produce’ are waste paper. For many farmers, the only reaction was to try to cut down on expenses.

In general, the situation in Italy has worsened since 2015. Until 2015, milk quotas, by limiting the internal offer, kept the EU internal milk prices on higher levels. In the newly free market however, there has been a surplus of milk quantity. Consequently, in Italy the milk price/liter to the stables dropped from 0,44 euros in 2014 before the quotas’ end, to 0,37 in 2015, until around 0,32 nowadays, according to data from a dossier of Coldiretti, the Italian biggest farmer association. In the same period in Italy, more than 1000 stables closed down and around 34.000 struggle to survive with struggle.

War on milk: multinational corporates imposing their prices

In a non-regulated market, it doesn’t take long for the ones who have strong contractual power to take advantage of the general milk surplus. Multinational corporates and in general the milk industry, who purchase and collect the milk from the stables and transform it, can easily impose their prices on farmers, at a level that is more convenient for them. At the same time, they increase prices for the consumers through the supply chain. For example, according to Coldiretti’s dossier, last year consumers paid beyond 30% more than Germany and 20% more than France (at least for fresh high quality milk).

On the Italian market, the names of the dairy-sector-industry are, for instance, the French dairy multinational Lactalis, then Auricchio, Granarolo, and more…the list is long.

It is not easy to assess what factor impacts the most: the surplus or the multinationals, but then, if we assume that it is not the multinationals’ fault, then farmers should be able to sell their milk to somebody else at a higher price and not feel restricted to a single collector. In reality, there is not much alternative to find other collectors because milk expires soon and cannot be stored. The milk industry can threaten not to collect the milk and in Italy cancellations happened from time to time. On their side, milk collectors could simply buy cheaper milk abroad. This is what has been called ‘the milk war’.

As a result, there have been undeniable tensions between milk collectors and milk producers, in a spirit that has been far from being collaborative, followed by producer’s protests. Ettore Prandini, President of regional federation Coldiretti Lombardia, one of the organisations representing the farmers, states: “Multinationals, not having a direct link to the production territories, want to act on the product that eventually costs less, but is also less valuable on the qualitative side. Moreover, products also tend to become more homogenised”. He continues: “Undoubtedly, this penalises those countries that differ themselves on the quality and on control system, like Italy.” Prandini believes that the obligation to indicate the origin of the product is one of the ways to avoid speculation and damage to consumers.

A complex situation beyond the national sphere

However, EU prices in the dairy sector can become low due to other reasons: for instance, a weak demand of those products from importers, especially of China, in comparison with an increasing supply. Professor Roberto Pretolani (University of Milan, Faculty of Agricultural and Food Science), referring to the Italian market, said: “Lactalis or Granarolo or Auricchio, or small private cheese factory are not ‘the bad guys’. In the global balance of the markets, they just buy the most convenient raw material, both national and imported, and they are in turn pressed by big production that requires discount and promotion”.

His colleague Professor Alessandro Olper goes further, explaining that farmers still receive remarkable support from the EU agricultural through custom duties for non EU countries, aid for different products, and subsidies to improve supply management, which all have protectionist effects on the market.

New forms of associations: OP

Balancing competition among farmers of other EU countries and the market’s rules has proved quite difficult. For many Italian farmers the real problem are the costs of labour and material, higher in Italy than abroad. Part of the solution would be greater collaboration and coordination between the producers. For instance, both farmers Sergio Piloni and Ms Bianchessi are members of OP Mondolatte, founded in 2013 in Cremona municipality, North Italy. OP stands for ‘producers organisation’; these types of organisations were legally strengthened by EU regulation 261/2012 with the aim of improving supply concentration and rebalancing the contractual power inside the supply chain. OP Mondolatte collects around fifty associated farmers from Libera Associazione Agricoltori Cremonesi, an association to support farmers in the territory of Cremona. The main purpose of OP Mondolatte is to provide consultancy to the members in the delicate phase of the raw material negotiation with the milk industry, especially in case members receive cancellation or face difficulties in contract renewal. The higher milk volume being treated at association level, rather than just individually, provides greater protection from the risk that the milk will not be collected. However, these measures are not the final solution to the problem because their dimension is too small to allow them to influence the market.

Some solutions and a truce

What are the possible solutions? Valorisation of the milk transformed in cheese and more innovation, as well as cooperative forms of product transformation and commercialisation. Unfortunately, these are long-term strategies for the future and do not provide a quick fix to the farmers’ problems.

The necessity to act quicker was answered at EU level. Last 18th July 2016, a new package of 500 million euros to sustain European farmers was announced by the European Commission. 150 million euros are directed to pay the farmers that reduce their milk production (in comparison to the previous year). Basically, it is an incentive to voluntarily decrease dairy production, in order to bring down the surplus experienced in the first part of the year. Every farmer of each member state could access the supplies on the basis of equal conditions with the others; the intervention lasting from October 2016 till March 2017. The Commission has also approved other measures totalling up to 350 million euros, which will surplant other new funds currently being mobilised at national level.

In the words of the Commissioner for Agriculture Phil Hogan, the intervention is directed towards the recovery of prices of dairy products, so that the farmers can live of their own work. The aim is to sustain food security and high quality as well.

This recovery has somewhat happened, with the price of the milk that has slightly raised in Italy, along side with a new agreement with the multinational Lactalis.

The impression, however, is that the milk war has not ended, but has just moved to a temporary truce.

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