Summit highlights depth of dairy crisis

Phil Hogan
Phil Hogan

If the EU farm commissioner, Phil Hogan, is still in denial that there is a crisis in the dairy industry he would have been left with no doubts after the UFU dairy summit this week. It is true that other sectors of agriculture are also suffering from the weakness of the euro and poor prices, but the perfect storm the dairy industry is in gives it the unenviable title of being the worst off sector of local farming.

One of the big problems is how dramatically fortunes have reversed over the past year. Go back to the early part of 2014 and milk prices were booming, meaning it was green lights all the way for expansion. Today prices have dropped by almost a third, those investment plans mean debt that is difficult to service and farmers are now trying to find a way to make their cash flow stretch through the autumn and winter.

The summit underlined the need for the industry to work together – and the point was rightly made that this is not the time for politicians, processors or indeed farmers to indulge in point scoring, but instead to find a way through to 2016 that will leave farm businesses intact.

The focus in the coming weeks will move to Brussels and to what Mr Hogan can and will do to tackle the problem. The first step would be for him to accept there is a crisis, and this is something he seems reluctant to do. In advance of the September 7 special farm council on market problems, which will also bring a big farm protest to Brussels, he has been meeting a number of farm ministers. He has already met ministers from the Baltic States that had a big export trade to Russia. They have made the case for special aid for their dairy farmers, through the contingency fund that has provision for helping alleviate the impact of the ban. Hogan is likely to agree to this on September 7 – which seems unfair to others whose dairy industries are also suffering as an indirect result of the Russian trade ban.

Hogan will also meet the Irish farming lobby and the Spanish agriculture minister next week, but there are no signs, to date, of lobbying by the UK minister, Liz Truss, for a review of intervention. This is disappointing but no surprise, and Hogan is still resolute that increasing the intervention price, from the present paltry 16 pence a litre equivalent, is not the answer.

To bolster his case he points to the limited use being made of intervention, with just a few thousand tonnes of milk powder tendered despite the state of global markets. That however misses the point that it is not being used because the price is too low to make it a realistic alternative to over-supplied and weak global markets.

This is a key goal of the UK farming lobby, but Hogan will take a lot of convincing to change his stance – not least if there is no political pressure exerted on him from London. If that does not happen, farmers will be right to ask what was the point of the recent crisis meeting with the DEFRA Minister Liz Truss. Her focus seems to be on getting an effective futures market going, so that farmers can spread their risk. But she misses the point that for that to happen farmers need to survive the coming autumn and winter to allow them to remain in milk production.

With or without a better intervention price this crisis will eventually end – the questions being how long until that happens and how bad the fallout will be for farming families. Just as certain as the end of the crisis is that it will happen again, because of the volatility of dairy markets. Given how badly the entire industry has been damaged by a year of plummeting prices the call for an effective futures market needs to be taken seriously.

At the same time farmers, either through links to their milk buyer or at a regional level, need to have better decision making processes about when and how to cut production when prices are on their way down.

Equally important is the question of how funds can be held back in the good times, which are increasingly short, to help maintain prices through tougher times. That means the one industry approach of this week’s summit needs to become a permanent feature of the local dairy industry.