Is the worst over for UK dairy?

There was a small lift in the milk price at the Global Dairy Trade (GDT) auction in New Zealand in April. The increase was modest, but it followed a similar increase two weeks previously, and that’s the first time this year the auction, which is the barometer of world dairy trade, has delivered two consecutive increases.

Add to that equation the weakening of sterling, which has made UK dairy exports more competitive, and there are faint signs that recovery might be in the air. That has to happen some time, and analysts are now more bullish that the final price New Zealand farmers will receive for milk can rise.

This is not yet a cause for celebration – cautious optimism would be more appropriate. It would be foolhardy to believe we’ll see a rapid price recovery and the rest of this year will remain difficult. However, it could well be that things have finally stopped getting worse and that means it’s time for the industry to stop talking prices down.

Even faint evidence that prices can stabilise will be another nail in the coffin of the European Commission’s voluntary milk supply reduction option. This has been a proverbial damp squib, since there’s no compensation available unless member states provide it from their own national budgets. The more useful thing the Commission did, in parallel, was lift the ceiling on the intervention, and that will have a more meaningful impact.

A supply reduction programme looks tempting, but what’s on offer has to be seen in the context of the real market, rather than economic supply and demand theory. Led by Ireland, the countries in the EU that have contributed most to the present over-supply have made it clear they won’t be reducing production. Their view is that this would not improve prices, and more fundamentally their industries have waited 30 years to expand and aren’t going to be blown off course now. A supply reduction could only work if it was compulsory and applied to all EU member states. No matter how that’s dressed up, it would be a return of milk quotas by the back door, and despite French pressure for that to happen, it’s a red line issue for the Commission and most member states, and it’s a red line they will not cross.

Members of the European Parliament, including the chair-man and past chairmen of its agriculture committee, have been saying the Commission must do more. To them that means putting more money into tackling the crisis. But there’s a big problem: the aid package funds agreed last September, on an emergency basis, have not yet been distributed by a number of member states. Of the €420 million agreed, less that 40% of it has been distributed to farmers – only 11 member states, including the UK and Ireland, have done so.

This is prompting cynics to conclude, wrongly, that the agricultural markets crisis can’t be as serious as farmers say.

Farmers know that’s not the case, but even the farm commissioner, Phil Hogan, has said it’s “very difficult” for him to go looking for additional funds when the money from the crisis reserve, set aside nine months ago to help farmers, has not been spent. Whether that’s down to bad planning or poor administration isn’t the issue – the fact is that it leaves farmers at risk of being accused of crying wolf over a crisis that is very real.

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