A guide to dairy intervention

Dairy herd
Dairy herd

What is Dairy

Intervention?

Intervention schemes are market support measures designed to help to stabilise prices for certain agricultural products, including Butter and Skimmed Milk Powder (SMP).

When the product prices reach a low level because of surplus production, the European Commission may instruct the RPA to buy some of this surplus stock and store it on their behalf. This desired effect of Intervention is to remove surplus product from the open market and thereby stabilise prices.

How do Dairy

Intervention schemes work?

Once intervention is opened, traders are invited to offer eligible product for sale into intervention. The Commission then decides whether or not the bid is accepted. If accepted, the applicant will be contracted to deliver this stock to public intervention storage and in return, they will receive a price related to the agreed intervention price for that product.

When is Intervention open?

Usually intervention is open from 1st March to 31st August each year. However, the current campaign is to be extended until 31 December 2015 due to the current turmoil in the dairy sector.

How is Intervention

triggered?

Intervention is triggered when product prices reported to the European Commission fall below a certain level, known as “reference thresholds” and product is bought in and thereby stored; Butter - €2463.90 per tonne; SMP - €1698.00 per tonne.

There are two stages, the buying in and the resale.

Buying in of Product to Intervention - There are two stages in the “buying-in” Intervention process; Standing Intervention (known as buying in at a fixed price). This will apply until which point that a volume ceiling is reached and product will then be bought in via tendering process known as Competitive Tender. The Intervention Ceilings are 50,000 tonnes for butter and 109,000 tonnes for SMP.

Sale of Products from Intervention - Product bought into Intervention is then sold back to the open market via a tendering process.

When was Intervention last used?

It was last used during the 2009 dairy crisis and at the time, we called for the Commission to careful manage the sale of product back out of intervention and onto the open market. The release of product was managed in such a way that the Commission actually made as much as €1 billion profit from the sale and this should dispel any idea that Intervention is another “subsidy”.

Current intervention levels - According to UFU calculations, the Intervention Price in Northern Ireland is c. 13.5ppl.

Current Intervention Stock Levels – Since mid July, nearly 6,000 tonnes of SMP has been offered for Intervention in Europe, with almost 500 tonnes from the United Kingdom.

Why have the Commission refused to review

Intervention to date?

EU Agriculture Commissioner Phil Hogan has opposed any review of intervention prices to help dairy farmers, warning that it “would give the wrong signal” to the dairy markets and that any strengthening of intervention would not be in the interest of milk producers.

UFU Dairy Intervention Report

In early July I wrote the UFU Dairy Intervention Report, making the point that Intervention Reference Thresholds have remained unchanged for over seven years despite on-farm production costs rising by almost 50% over the same period. The UFU report stated that Article 7.2 of Parliament and Council Regulation 1308/2013 states that Reference Thresholds must be kept under review to take into consideration changing production costs.

We made it clear that whilst we fully accept and understand that the intervention system is not intended to provide an alternative to real market forces, it should provide a genuine safety net and as it currently stands, present “reference thresholds” are inadequate. Consequently, we stated that the Intervention Reference Thresholds should be based on a formulaic production costing mechanism which would allow farmers to cover a substantial portion of their basic production costs.

In light of this information, we urged the EU Commission to carry out the review as a matter of urgency.

What could be the effect of a review of

Intervention?

A review of Intervention will send a clear signal helping to stabilise prices and provide a much needed floor to the market. Should the Commission review and increase the threshold levels it will raise market returns and inject much needed revenue into the supply chain.

UFU Policy position

The policy landscape has changed inexorably since 2011 when we first called for the Threshold levels to be reviewed in the CAP Reform negotiations. We were the only farming union to call for a review and now we have the support of all the devolved regions which will strengthen our position.

The UFU are now once again calling for the Commission to act now before it is too late.