Will Hogan prove a hero?

The outgoing farm commissioner, Dacian Ciolos, has said his farewells to the European parliament’s agriculture committee. For someone who had hoped to serve a second term, before he was let down by his own government, this was something of a bitter-sweet session. He will inevitably feel there are jobs left unfinished as his five-year term ends, but one thing he will be glad to escape from is the growing crisis in the European dairy industry.

Figures from the European Commission show milk production is set to hit a new record of 146m tonnes this year. Given what is happening to milk prices these will loom large for the incoming farm commissioner, Ireland’s Phil Hogan. After weeks of talking about policy and his ideas in that area, he is about to learn a harsh fact of life: 80% of the job of being a farm commissioner is about fire fighting, while only 20% is focused on genuine policy making. With the Russian food import ban and disastrous milk prices across Europe, and indeed globally, his honeymoon will be very short indeed.

As someone from a dairying region in Ireland, Mr Hogan will be reminded of this when he goes home, given that the Irish dairy industry and the government that nominated him as commissioner have high hopes for dairying.

Dairy farmers are increasingly being caught in a perfect storm. China has turned off the buying tap, because it has high stock levels and will not buy on a falling market, and the Russian food import ban has taken a market away that was worth €1 billion a year for cheese alone. This is all happening while global production is up by around 5% and demand is just about stagnant. Add into that equation the fact that we are six months away from the end of quotas and this is not an issue the new commissioner will be able to avoid.

There are limits to what the Commission can do. However there are a growing number of voices in the industry, along with the Polish government, making a case for the return of export refunds. This reflects the reality that the private storage scheme on offer is not sufficient for the problems that perfect storm has brought. There are even now reports of farmers new to dairying unable to find a buyer willing to give them a milk contract.

In making decisions Mr Hogan will have one single question: how far off is recovery for global markets? Present poor prices will force down global output, but that is a slow way to rebalance a market, and for many the lag between production falling and prices recovering might prove too long for their businesses.

When milk prices began to dip the expectation was that it would be short-lived. This was based on world demand, led by China, remaining buoyant. But a dip became a slump and forecasts of recovery later this year, or in the early months of 2015, now look optimistic.

One of the reasons for this pessimism is what has been happening at the Fonterra auction in New Zealand, which sets the prices at which dairy commodities are traded globally. When it remained unchanged at the start of September – the first time since April it had not fallen – people hoped the market had bottomed out. But that optimism was short-lived, as two weeks later, at the next auction, prices plunged by another 7%.

It is these problems that will confront Mr Hogan early in his term as commissioner, and already it is clear that he will be under mounting pressure to reintroduce export refunds to try to kick-start markets, not least in China.

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