Stephen Cadogan: Another half billion euro attempt to solve dairy crisis

Only the outline of the EU’s latest €500m aid package, aimed mostly at dairy farmers, has been announced.

And it is the detail to come later that will determine how successful it is.

It’s a two-part package. The EU-wide measure for farmers who voluntarily reduce milk deliveries will be funded with €150m.

And there will be €350m, adjusted and distributed at member state level, to help “vulnerable livestock farmers” with cash-flow problems.

This aid will be “conditional on the respect of certain commitments”.

With regard to those “commitments”, one could presume that if the EU is willing to spend €150m to reduce milk deliveries, it will take measures to ensure the €350m part of its package will not in any way encourage increasing milk production.

That can explain why the €350m (the funds can be matched with national top-ups up to 100%) is expected to be aimed more specifically at the EU’s smaller farmers (most Irish farmers will probably qualify, due to our relatively low dairy herd size).

If these funds are directed more towards smaller farmers, perhaps the €150m fund to voluntarily reduce milk deliveries will be weighted towards larger scale dairy farmers.

That remains to be seen, but it might suit the Irish dairy industry, with our co-ops opposing supply management as an EU tool to manage dairy markets, and IFA saying the €150m package “must not disadvantage Irish farmers”.

But we have to wait for the details, and in this context, ICMSA President John Comer is right to call for the EU package to be implemented immediately, before the traditional EU holiday break.

Unfortunately, the announcement last Monday looked like a stopgap to placate dairy farmers, including the thousands who protested in Brussels this week.

And it could be September before the €500m package even begins to take shape.

Then, one of the vital details will be how the €150m is distributed per litre of reduced milk deliveries (it will be the same in each member state).

Realistically, it must be enough to encourage milk cutbacks by the most competitive milk producers, who have contributed most to the EU’s 5.5% growth of milk production from 2015 to 2016 (for January to April).

They will need an offer greater than the marginal cost of producing milk, in order to voluntarily reduce production.

So far, we know the €350m scheme will include support for small farms, extensive production methods, environmental commitment, co-op projects, quality measures, and for financial training.

It is significant that the new package allows member states paying voluntary coupled support per cow to dairy farmers the possibility to derogate from the obligation for recipients to maintain the size of the herd in 2017.

That could have a major milk delivery reduction effect.

This year, 18 member states will pay almost €830m in coupled support to their milk producers.

It is paid for 11,600,000 of the dairy cows in the EU-28, and ranges from €27 per head to €728 per head.

Their farmers only receive the payments if they continue to maintain these cows, and thus continue to produce milk.

Decoupling would allow them get rid of dairy cows cows and still get the €27-728 per head payment.

More detail is needed, but the EU must take care not to greatly accelerate the culling of dairy cows which is already underway in some member states.

So far this year, dairy and beef cow slaughterings are up 4% in the main EU countries, and by 11-12% in countries like Spain, Denmark, and Poland. 

Slaughterings are up 6-8% in the Netherlands and Germany, and 10% in the UK. Ireland, in stark contrast, has had a 4% fall in cull cow slaughterings.

The prospect of millions of dairy cows across the EU entering the beef supply in 2017 would strike fear into the hearts of beef farmers.

Then the fragile beef market could follow the dairy market into crisis.

Irish Cattle and Sheepfarmers Association president Patrick Kent has complained about aid flooding to the dairy sector while the beef sector is cast adrift.

He could have much greater grounds to complain if this dairy package triggers an avalance of cow beef into the market in 2017.


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