Voluntary milk reduction or not?

Last week, the European Milk Board took action throughout Europe for voluntary milk reduction instead of the current intervention policy, which has been supplemented with broader competition rules.

Don't act afterwards
According to the European Milk Board and the European Committee of the Regions, the Commission's plan to tackle the growing private storage crisis has proven rather ineffective. The 2015-2017 crisis was only stopped when the volume reduction program was coordinated by the European Commission at the end of 2016, which subsequently brought an abrupt end to the decline in milk prices.

Ulrika Landergren, President of the European Committee of the Regions, emphasizes the great importance of timely action. "Acting from the start instead of afterwards is less costly. The decision of the Council of EU Ministers only makes sense if the storage measure proposed by the Commission is limited and is supplemented by an EU volume reduction programme. If that does not happen, then stocks will have a price-depressing effect on farm milk for a long period of time.”

This spring, milk production is certainly several percent higher than last spring, regardless of the drop in demand that is now plaguing the market as a result of the corona crisis. A few percent extra milk can have major effects on the milk price in the world's largest dairy market, which is the EU, even without the corona crisis. Moreover, not only the EU, but also Russia and the United States are producing several percent more milk than in the spring of 2019.

More milk without quota
Without a voluntary milk reduction, dairy farmers will continue to increase production while maintaining the current EU support package. After all, producing more milk is the only way to increase the profit margin in the quota-free era if the margin per liter of milk decreases. Moreover, the Netherlands is no exception to the trend of several percent extra milk compared to last year, in the EU and worldwide.

On the contrary, despite the phosphate quotas and the discussion about herd decline, national milk production is increasing. After all, in terms of infrastructure, Dutch dairy farming is in better shape than ever before. Never have there been so many large-scale modern stables as there are now. In these stables it is easier to do a lot of milking compared to the cramped cubicle stables of the XNUMXs and XNUMXs. This difference becomes even greater in the summer when heat stress comes into play.

If FrieslandCampina had not had milk regulations in force, milk production might have increased even further. Dairy processors in other major dairy-producing EU countries are also hinting to their members/suppliers that too much additional milk supply is unwise. In France, a milk reduction scheme was collectively applied in April. 

Arguments for the EU approach
The European Commission defends its strategy by pointing out that private storage is less expensive compared to voluntary milk reduction and that intervention works faster with less paperwork. Normal market signals about the balance between supply and demand also persist, in contrast to a period of voluntary milk production across Europe.

These are arguments that argue in favor of the current European approach. Moreover, voluntary milk reduction also means that many cows have to be sent to slaughter again. That is not good for the image and it disrupts the beef market. Last but not least, in November 2016, the recovery of the dairy market had also started without a voluntary milk reduction, says the European Commission. It happened to fall at the same time, it is said. 

No one knows for sure. What is certain is that the milk price rises when supply decreases and the milk price can come under long-term pressure if there is a large stock of dairy products in the warehouses.