Stephen Cadogan: Member states should revise dairy cow owners’ subsidies

Irish dairy co-ops reckon the voluntary milk supply reductions given the green light by the European Commission won’t succeed — even if farmers are paid 10c per litre of milk volume reduced, as suggested last week by ICMSA.

Stephen Cadogan: Member states should revise dairy cow owners’ subsidies

It is wrong to expect that voluntary reduction might bring global supply and demand back into line, and lead to a resurgence in milk prices, according to ICOS.

The co-ops organisation says a voluntary reduction measure can only be implemented by co-ops (or producer organisations), rather than national organisations, and both the European Commission and Irish government have said they will not fund such a scheme.

The word from co-ops is that they have enough on their plates trying to sustainably develop their businesses and support their suppliers over this difficult period, without weakening their balance sheets further by funding a voluntary milk supply reduction “that is doomed to fail”.

And short of spilling milk out of the bulk tank, the only way a farmer can reduce milk supply is to either cull cows or bull less heifers. ICOS poses the question: if the farmer culls cows, what will he do when markets improve (hopefully early next year), and he doesn’t have the stock to capitalise on the upturn?

If he bulls less heifers, the supply reduction won’t take effect until three years’ time, by which time the dairy markets will surely be in a better place.

And if Irish farmers pull back production, Irish exporters would have to withdraw from world markets, and leave the pitch clear for the New Zealanders and the Americans, who can guarantee consistent supplies.

Finally, what about the €1 billion of farmers’ money invested in processing capacity, innovation and routes to market over the past three of four years, ask ICOS officials?

They warn that a voluntary supply reduction by Irish farmers, however well meaning, would have no effect on the world supply-demand balance.

Furthermore, it would do untold damage to the industry that those farmers have struggled to build up over the past few years.

There’s another obstacle to voluntary reduction that ICOS didn’t mention, but which CAP expert Alan Matthews recently highlighted.

That’s the coupled support to milk producers which 19 EU states opted for in the 2013 CAP reform.

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

For example, France has elected to pay its dairy farmers a coupled premium of between €34 and €86 per cow — even though the country has led recent calls to curtail the EU milk supply.

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.

Mr Matthews pointed out that member states can opt to revise their subsidy coupling decisions by August 1, with applicability from 2017.

Doing that could be key to reducing the EU milk supply enough to rebalance the market.

Although some countries need coupled aid to support milk production in their disadvantaged regions, France, for example, elects to support all of their dairy farmers with coupled aid.

There is also coupled aid for nearly all the dairy cows in Poland (€57 per cow), Italy (€31-39 per cow), Spain (€61-142 per cow), the Czech Republic (€126 per cow), Lithuania (€82 per cow), Hungary (€300 per cow), Slovakia (€201 per cow), and Malta (€244 per cow).

In 2013, an increase in coupled supports helped talks chairman Simon Coveney get the CAP reform over the line, although they were opposed by member states such as the UK.

Ireland gets coupled support only for a relatively small acreage of protein crops such as beans.

In other countries, generous coupled support increased significantly in 2015. Although production-limited, they undoubtedly played a part in greatly boosting EU milk production.

EU decisions on the €830m of this aid being paid out in 2016 should part of the response to the dairy slump.

In tandem, as suggested by ICOS, all parties must work together to counter milk price volatility.

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