Every day things seem to get worse in farming.
Prices are on the floor for every commodity; the currency situation is getting worse rather than better, and the European Commission is not showing signs of bending to pressure over the dairy crisis. Locally we have had a reminder of the pressures on the public sector, which will bring big cuts to AFBI’s research work, leaving key parts of the industry worse off than their competitors in having access to ways to make their businesses more efficient.
The week just past did bring one day that was a reminder of what this stage of summer should be like, but that was short-lived. However a bigger positive was the result of the global auction of dairy products, known as the Global Dairy Trade (GDT) auction. This rose by almost 15 per cent. Whether that is a trend or a blip only time, and future auctions, will tell – but it does at least reverse the losses since the last upward move in the GDT in December.
All markets do eventually turn, and it would be great if this really was the start of what dairy farmers have been wanting for the best part of a year. They are however acutely aware that there have been false dawns in the past. Even when markets do turn there are enormous debts to be cleared before farmers can even think about a return to normal conditions. On top of that, even if global conditions are improving, dairy farmers will continue to suffer the problems other enterprises are experiencing because of the weakness for the euro and closure of the Russian market. However in a storm, anything that even looks like calmer conditions has to be welcome.
Ironically the GDT auction rise may well play out as well with the farm commissioner, Phil Hogan, as it does with farmers. Despite the pressure he is under to act, he has continued to make clear that he is against any review of intervention, and has deemed special export refunds for dairy products costly but ineffective. He will now use the GDT auction result to claim he is right, in his view that global markets will settle. That may or not be the case, but what is clear is that the European market needs a floor to stop things getting worse, and an intervention price set in 2005 is not an adequate floor. That is true, and has been for a long time, regardless of what is now happening on global markets.
With a big protest planned for September 7, which will bring thousands of farmers to Brussels to coincide with a special farm council on market problems, Hogan needs to do more than offer sympathy and assurances that markets will correct themselves with time. The key to how he will play the dairy issue is what happens at the next GDT auction on 1 September, since a further rise then would make Hogan a lot more bullish. It is difficult to read now what he will do, but he will resist pressure from some groups for a back-door return of milk quotas. What they want is a trigger price, when farmers cut production and schemes encourage heifers into beef rather than dairy. That makes sense, but it is something farmers need to do themselves, and the Commission will resist becoming involved.
Come September 7 it is possible to guess now what Hogan might say. He will be diplomatic, but he will continue to resist pressure to review intervention, especially if he believes global markets are settling. He will promise more action to make the Milk Market Observatory (MMO) more effective, and to deliver an effective and functioning futures market for dairy products to allow farmers to spread risk. If under pressure he might promise a review of intervention as part of a longer term strategy, but not to solve current problems. He will say much about developing new export markets for all products – an area where the EU has had considerable success since the Russian ban, but which is still difficult for UK traders because of the strength of sterling. Hogan may also allow early payments in October rather than December, but that may be difficult given that some member states delayed submissions until June. Whatever he does, how he responds to the September 7 protest will define Hogan as a commissioner in the eyes of many farmers.