study of measures against market imbalance: what ......• e.g. usa and institutional catering, food...
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Study of Measures against Market Imbalance:What Perspectives after Milk Quotas in
the European Dairy Sector?
Dr Aurélie Trouvé,Reader in economics
In AgroParisTech (Paris Institute of Technology for Life, Food and EnvironmentalSciences)
Study financed by the French Ministry of Agriculture
Aurélie Trouvé, Marie Dervillé, Daniel-Mercier Gouin, Thierry Pouch, Xavier Briot, Andrea Fink-Kessler, Jean-Christophe Kroll, Pierre Lambaré, Olivier Rat- Aspert; with the support of RoelJongeneel.
http://agriculture.gouv.fr/sites/minagri/files/study_of_measures_against_market_imbalance_-_summary.pdf
• Rapid and recent deregulation of dairy markets• high and new instability of market prices• sharp drop in prices (2007-2009 and since 2014)
Method of analysis• existing literature• statistical and budget analyses• targeted interviews with administrative and political
representatives, representatives of the agricultural professionand the milk industry, in Belgium, Germany, the Netherlands,Ireland and France.
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a
1. Confronted with aCrisis in the DairyIndustry, WhatEuropean Measures arein Place?
A structural crisis ofoverproduction• Increases of production were underestimated (even with dropped
prices)
• Shortage of outlets (contraction of the Chinese demand in 2015,repercussions of the Russian embargo since the summer of 2014among others…)
Questions the anticipations of authorities when deciding on theabolition of milk quotas
Long-lasting drop in the income of farmers (in 2015 in France,around ¼ farmers with negative revenues !), erosion in theinvestment capacity of producers, an obscured economic horizonbeyond one year, restructuring of the production, geographicconcentration…
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Exports 201466 Mo t
EU+3,2 Mo t
USA+1,2 Mo t
NZ-0,3 Mo t
European Union, main responsible forinternational surpluses in 2015
Concentration of milk production in areas ofstrong milk density
Source : Economie de l’élevage n° 460, sept. 2015
Production of milk in 2014 (t/km2) Variability of milk from 2007 to 2014
•No notion of crisis in the text of the single CMO• market “imbalance”
•Measures for resolving the crisis, not adapted toa structural crisis ?• Mainly ex-post• Mainly based on private initiatives
Public storage (single CMO)Very low level of activation
• for a farmgate milk price generally estimated at 220 €/tonne• Very few activated since 2007
No longer plays a stabilising role (even if the activation periodwas prolonged since 2014)
• Private stockage (single CMO)Questions on its efficiency Capturing aid by private dairy processors, without transfer to the price paid to
producers,• speculative behaviours, with opposite effects on prices to those expected
• Article 219 in case of serious imbalance on the markets Used since 2014 (direct aids, extension of period of storage…)
Article 222 Implemented in 2016 : voluntary reduction of production in exchange of subsidies But very small amount of subsidies + increasing production in some other
countries
• article 226 : European reserve in case of crises• Insufficient annual amount
• Mutual fund (Article 39 of 2nd pillar)• only implemented in 3 RDP’s, linked to some limits
• European Milk Market Observatory• real advance in terms of dairy market transparency• However, data precision is sometimes missing
• Article 221 : never activated !
Measures not going far enough to counter the current crisis
France Germany Netherlands Irlande Poland
Production‘000 tonnes 23 700 30 000 12 500 5 500 12 200
Production2008-2014 +6 % +14 % +14 % +14 % +16 %
Part àl’export. 40 % 45 %
(2011) 65 % 90 % 25 %
Part ofcooperative
s for thecollecting
55 % 70 % 95 % 90 % 70 %
Increased production in someEuropean regions
• Specific systems to regulate – in a concerted way – producer/collectorrelations and the way value added is shared, or even a certain stabilisation ofagricultural income:• thanks to the large co-operatives with quasi-monopoly on collecting milk (e.g.
Netherlands, Ireland, Northern Germany and, to a lesser extent, Poland)• thanks to contract benefitting from producers having organised themselves in POs
and PO associations• e.g. Southern Germany• On the contrary in France, a very bad assessment of these contracts (weakness of POs)
• other specific advantages for some regions• particularly low production costs in Irland• major policy in support of biogas production and string co-financing of 2nd pillar in
some parts of Germany• …
In some regions (already benefitting from high dairy density, productivesystems with lower production costs) : the end of milk quotas as anopportunity to greatly increase production again
However, increasing difficulties and tensions due to the drop of prices,with• exacerbated competition between export countries• relations between producers and collectors/dairy processors becoming more
tense and to the disadvantage of farmers
• Some isolated and marginal measures/tools for stabilizing the farmrevenues• In Ireland, e.g. Glanbia : for a certain volume, contracts with prices indexed on
production costs and where variations are mitigated• In Netherlands : upper limit on the number of cows per hectare for
environmental reasons
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4. Milk Regulations in ThirdCountries : which lessons ?USA, New Zealand, Canada,Switzerland
Public regulation of markets• Two extremes but coherent systems :
• New Zealand (no public regulation of markets, 95% of production for exports)• Canada (very strong regulation of markets, focused on national market)
• In between : EU, USA• A particular case : Switzerland (with very strong direct subsidies !)
L’organisation de la mise en marché• des organisations centralisées (Canada et USA)• une coopérative dominante (Nouvelle-Zélande)• la contractualisation en Suisse et en France
United States New-Zealand
Canada Switzerland European Union
Control of supply None None Quota adjustedto the local demand
None None
Intervention Price None None Based onproduction costs
None Determinedat a low level
a priori
Interven-tion onthe market
Dairy ProductDonation
Programme – lowimpact
None Linked toIntervention price
Delegated to joint-trade organisation(necessary power)
Linked to interventionprice and private
storage
Direct Payments
Dairy MarginProtection
Programme –conter-cyclical
programme
None None Very considerable Considerable
Control of ImportsTariff Quotas andOut-of-Quota TarifRates
NoneTariff Quotas and Out-of-
Quota Tarif Rates
Tariff Quotas andOut-of-Quota TarifRates
Tariff Quotas and Out-of-Quota Tarif Rates
Public Subsidiesfor Exports None None None
Yes (Chocolate Act)Provided for in the
single CMO butprevented by the
Nairobi WTOAgreement
Same prices for producers• per MMO in USA• per province in Canada• For all members of Fonterra in New-Zealand
Variable prices according to dairies in some EU countries andSwitzerland
Only EU – especially in some countries – let farmers negociatingalone or in little groups with big industries
Milk Price DeterminationMechanisms
United States New- Zealand* Canada Switzerland France
Price Paid byDairies
According to usage bydairy product
category
Determined byFonterra
According to usage bydairy product
category
According to usagein each product
segment
Variable from onedairy to another,
sometimes bysegment
SupplyingDairies Private
negociationPrivate
negociation
Collectivenegociation. Priority
given to moreprofitable categories
Privatenegociation
Privatenegociation on the
basis of formerquotas
Basis forDetermining
Prices
Wholesale price ofdairy products and
price differentialbetween pre-
established categories
Global market price Production cost Target prices ofjoint-trade
organisation
Reference tointerprofes- sional
indicators
Competitive pricebetween dairies
Process forDetermining
Prices
Monthly minimumprice per category
determined by MMOwithin the framework
of a federal law
Price announced byFonterra and
adjusted accordingto the market
Collective negociationper province. Fixedprice by adjusted
category according tothe intervention price
According toincrease in value on
each one of thethree segments
(A, B and C)
Prices generallydetermined by
dairies and adjustedaccording to the
market
ProductionPrice
Minimum priceadjustment per MMO
Unique price anddividend according
to shares held byFonterra
Price adjustment byprovince
Weighted averageof prices A, B and Cby dairy processor
Variable accordingto dairies
• Recommendation n°1 – Regulating production volumes in case of crisis: acurrently indispensible system to counter overproduction• Increasing intervention prices→ without volume regulation systems, problems of
stimulation of production beyond the absorption capacity of markets• national, regional or company systems for controlling supply : not coherent in a
perspective of internationalised marketFor a co-ordinated effort and a true incentive on the European scale, to be launched in
case of crisis through Article 221 of the single CMOSubsidies in case of reduction of production : not sufficient, considering the
experience of the third countries examined (high volume increase from otherproducers, reacting to better prices)For penalties at the level of collectors failing to respect the requested temporary
reductionsOther possibilities…support systems, such as intervention prices, only reserved to producers who respect the
limitation of volumes ?establishment of maximum animal loading, adjusted according to certain parameters, as has
been suggested in the Netherlands ?
• Recommendation n° 2 – Establishing systems complementing incomes incase of crisis• Study of futures markets in USA : does not represent a price risk management tool
as efficient for producers as some believe→ not lead to stabilising prices or toguarantying a price level ensuring the durability of dairies
• Counter-cyclical payments in the United States to be explored further for the CAPafter 2020 ?
• Reinforcing mutual funds, with its terms requiring modification in order to beefficient
• Reinforcing the European crisis reserve and modifying the yearly budgeting.
• Recommendation n° 3 – Specifically supporting farms in disadvantagedareas, small and middle farms as well as those offering moreenvironmental or social services, within the framework of direct aidsystems
• Recommendation n° 4 – Supporting local products and the food demand• E.g. USA and institutional catering, food donations over a given period creating
outlets.
• Recommendation n° 5 – Focusing on the external trade policy
• The substantial level of customs duties applied to dairy products must bemaintained, including within the framework of bilateral free-tradeagreements.