EU scraps automatic dairy intervention

Automatic intervention buying-in of skim milk powder (SMP) was ruled out at last Monday’s EU Council of Agriculture Ministers, writes Stephen Cadogan.

The council decided to set the quantitative limitation for buying-in skimmed milk powder at a fixed price at zero tonnes for 2018.

For dairy farmers and milk processors, this is a very significant departure from the usual system allowing the commission to buy in at least 60,000 tonnes of butter and 109,000 tonnes of skim milk powder (SMP) between March 1 and September 30, at set prices of €2,217/tonne and €1,698/tonne respectively, to put a floor under the dairy market. Normally, it is only when these volume limits are reached that product must be offered into intervention through an tendering process.

The EU’s Trade and Agriculture and Rural Development Commissioners Cecilia Malmström and Phil Hogan at this week’s meeting with Mercosur representatives to progress a trade deal with South American countries. Earlier this week, EU agriculture ministers agreed to scrap automatic dairy intervention.

However, the effect of last Monday’s setting the quantitative limit at zero for 2018 is that buying-in at a fixed price will not be activated automatically.

According to the commission, the safety net will still function, in the form of buying-in SMP through a tendering procedure, deciding on a case by case basis how much to buy and at what price level.

This intervention in the dairy markets in 2018 had been anticipated by farmers, who warned it could depress milk prices.

But the commission said it is necessary, to make sure that the safety net is used in a timely and prudent manner, “not just to react to market disruptions, but also to avoid them in the first place, whenever possible”.

At the council meeting of Agriculture Ministers, European Commissioner for Agriculture and Rural Development Phil Hogan warned the milk production growth seen in late 2017 is not sustainable.

He said, “The balance that has cost us so much to achieve might soon be in jeopardy. This message has to get across to the sector.”

The commission proposed and the council agreed the measure, “in order to avoid a drop in prices and a consequent worsening of farmers’ standards of living”.

This proposal has been broadly supported by member states, including Ireland, in recent council meetings.

Ireland’s support for the reduced dairy intervention buying was recently defended by Agriculture Minister Michael Creed.

He said Irish support is for 2018 only.

Mr Creed said: “This was originally presented by the commission as a long-term approach. We did not want that, and in the debate we managed to change it to a short-term approach for what we believe is a short-term problem. This does not in any way mean walking away from the instrument of intervention as a policy principle.”

He said the glut of 390,000 tonnes of SMP in intervention has a value of nearly €600 million even at current depressed prices, and it is a huge damper on prices, and “business as usual would exacerbate the difficult price for the product”.

“Ireland recognises that the current situation in respect of existing stocks cannot be allowed to persist indefinitely.”

Skim milk powder prices fell from €3,240 per tonne in January, 2014, to €1,400 now.

The commission sold some 2,000 tonnes out of intervention in January at €1,190 per tonne, representing an estimated loss of about €500 a ton.

Last Monday, the EU Commission warned against unduly increasing milk production, because oversupply in the market together with the accumulation of SMP stocks at EU level could endanger market stability.

It is estimated that unless drought in New Zealand has a marked effect, there could be 3.2 billion litres in liquid milk equivalents extra compared to 12 months ago hitting markets from October 2017 to March, 2018.

Last Monday, agriculture ministers also invited the EU commission to come forward with concrete suggestions on how to dispose of SMP stocks, and to consider French proposals such as disposal by auction, or use of SMP for the most deprived, to combat undernutrition among hospital patients and residents in retirement homes, or for animal feed.

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