Managing production after quotas - Milk glut is at root of 20% fall in prices
Central Statistics Office (CSO) figures show that Irish milk output rose 18.5% to more than 6.5bn litres in the year from April, 2015. Belgium and the Netherlands increased output by 14.2% and 11.9% while Europe’s largest producers, Germany and France, increased production by a pretty conservative 3.7% and 1.3%.
However, the machinations of the market economy and oversupply meant that, according to Teagasc’s latest figures, dairy farm incomes fell by 4% to an average of €63,020 on foot of an almost 20% fall in milk prices. These remain, from very many perspectives, pretty decent incomes. Milk prices have fallen for more than two years and were originally blamed on a fall in demand from China and embargoes that closed the Russian market to EU dairy products. The Chinese market is not expected to rebound any time soon and Putin’s Russia has used the embargoes as a driving force to increase domestic production so that market may have been lost, or at least a proportion of it, for the longer term.
However, it is hard not to think that overproduction is not at the root of the fall in farmgate milk prices. This pretty basic supply-and-demand equation led EU Farm Commissioner Phil Hogan to suggest that European producers have been a major player in the downward spiral in prices — a suggestion that drew the sternest response from the Irish Creamery Milk Suppliers’ Association.
ICMSA boss John Comer challenged that view and suggested that Mr Hogan was completely wrong in attempting to “make farmers responsible for the dairy farmer income wipe-out when the blame for the current crisis lay squarely with the EU Commission, national governments and processors”.
Mr Comer’s response may be heartfelt but it is very difficult to see how it can fit with the reality of our open market economy — even if that means producers are paid less than the cost of production, an unhappy situation made possible only if milk buyers are faced with a glut. This reality applies to all commodities and most services.
It is easier to have sympathy with the argument that large retailers have become too powerful and set prices to serve their needs rather than any idea of equitable profit sharing. It is not as easy to be sympathetic to the suggestion that Government intervenes to try to control retail prices to benefit producers. Which other workers can rely on such protection? Can the long-serving Tesco workers facing pay cuts? Such an intervention would have consequences for consumers facing higher prices and retail staff facing tighter conditions. The market cannot, as it were, make fish of one and fowl of the other. Ireland’s farm sector is vital to our economy and society but, like so many other institutionalised groups, it may be trapped in structures, cultures and relationships that no longer serve it as well as they once did.
