No celebrations, but optimism

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

Add into that equation the weakening of sterling, which has made UK dairy exports more competitive, and there are faint signs recovery might be in the air. That has to happen some time, and analysts are now more bullish than for some time 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 will 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. That means it is time for the industry to stop talking prices down. Suggestions this week that prices here could fall as low as 12 pence a litre through the peak season ignored the logic of a slowly recovering global market and the impact of the weakening of sterling.

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 is 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 is 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 clear they will not be reducing production. Their view is that this would not improve prices, and more fundamentally that their industries have waited thirty years to expand and are not going to be blown off course now. A supply reduction could only work if it was compulsory and not voluntary and applied to all EU member states. No matter how that is dressed up it would be a return of milk quotas by the back door, and despite French pressure for that to happen this is a red line issue for the Commission and most member states, and it is a red line they will not cross.

Members of the European parliament, including the chairman 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 is 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 euro agreed, less that 40 per cent has reached farmers. Just eleven member states, including the UK and Ireland, have done so. Some of those and others have said they will exercise the option to top up the EU payment from their national budget – an option rejected by the UK from the outset.

This is prompting cynics to conclude, wrongly, that the agricultural markets crisis cannot be as serious as farmers say. Farmers know that is not the case, but even the farm commissioner, Phil Hogan, has said it is ‘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.

This is a bizarre situation and no doubt the member states that have not paid out the funds have their reasons. Whether that is down to bad planning or poor administration is not the issue – the fact is that it leaves farmers at risk of being accused of crying wolf over a crisis that is very real.

Whatever the rights and wrongs may be of this failure to pay out the funds, additional funding is not coming from Brussels. MEPs pressing for more funding for agriculture must know the arguments against the case they are making have been strengthened by the failure of many member states to pay out aid that was agreed nine months ago.