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 Environmental Sciences) [email protected] 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 Roel Jongeneel. http://agriculture.gouv.fr/sites/minagri/files/study_of_measures_against_market_imbala nce_-_summary.pdf

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Page 1: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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)

[email protected]

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

Page 2: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

• 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.

Page 3: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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Page 4: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

[email protected]

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1. Confronted with aCrisis in the DairyIndustry, WhatEuropean Measures arein Place?

Page 5: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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…

Page 6: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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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

Page 7: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 8: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

•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

Page 9: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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)

Page 10: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

• 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

Page 11: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

• 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

Page 12: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

[email protected]

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2. Dairy-Related CAPat Work in a FewEuropean Countries

Page 13: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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 %

Page 14: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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• …

Page 15: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 16: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

[email protected]

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4. Milk Regulations in ThirdCountries : which lessons ?USA, New Zealand, Canada,Switzerland

Page 17: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 18: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 19: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 20: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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

Page 21: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

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5. Recommendations

Page 22: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

• 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 ?

Page 23: Study of Measures against Market Imbalance: What ......• E.g. USA and institutional catering, food donations over a given period creating outlets. • Recommendation n° 5 – Focusing

• 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.