Ministers Agree Milk Contractual Relations

EU - European agriculture ministers have backed European Commission proposals over contractual arrangements relations in the milk and milk products sector.
calendar icon 15 December 2010
clock icon 6 minute read

The arrangements were discussed at the European Agriculture Council meeting earlier this week where the council said that most delegations welcomed the Commission proposal highlighting the measure allowing the producers to join together to negotiate and establish contracts with the dairy companies.

The importance of the role of inter-branch organisations and of increased transparency were also stressed.

However, the commission said that some countries also said that the proper functioning of the single market should in any case be guaranteed.

The Council has now ordered its preparatory bodies to conduct an in-depth examination of the proposal.

The Council also noted the information provided by the future Hungarian Presidency: the appropriate working party will start the examination in January and an exchange of views is envisaged during the Agriculture and Fisheries Council in March.

This Commission proposal follows the report and recommendations of the High Level Group (HLG) on Milk and the Presidency conclusions on this report, as supported by a large majority of delegations.

These conclusions invited the Commission to submit by the end of the year its response to the first three recommendations of the HLG, concerning:

  • enhanced contractual relations between milk producers and dairies;
  • producers' collective bargaining power; and
  • the possible role of inter-branch organisations in the dairy sector, and to respond rapidly to the HLG recommendation on transparency.

As regards relations between milk producers and dairies, the council said heard that concentration of supply is often much lower than at processing level. This results in an imbalance in bargaining power between these levels.

The proposal provides for optional written contracts to be drawn up in advance for deliveries of raw milk by a farmer to a dairy which would include the key aspects of price, the timing and volume of deliveries, and the duration of the contract.

To rebalance bargaining power, it is further proposed to allow farmers to negotiate such contract terms, including the price, collectively, via producer organisations.

The proposal provides for a legal basis in agricultural law to this end. In order not to destabilise the existing situation, a size limit is proposed.

Inter-branch organisations cover part or all of the supply chain: farmers, processors, distributors and retailers. They can potentially play useful roles in research, improvement of quality, promotion and spreading of best practice in production and processing methods.

It is proposed to apply the rules of existing inter-branch organisations in the fruit and vegetables sector with appropriate adaptations, to the dairy sector. They would contribute to improving knowledge and transparency of production and the market.

In response to the crisis in the dairy sector in 2009, in October of that year the Commission set up an HLG on Milk to discuss mid-term and long-term arrangements for the dairy sector, given that quotas are due to end on 1 April 2015.

The HLG published its report mid-June and recommended several measures: those for which the Commission presented this proposal, and others in relation to market instruments, quality and labelling as well as innovation and research.

The Council took note of the Commission’s quarterly report on the dairy market (17244/10), presented by the Commissioner in charge of Agriculture and Rural Development, Dacian Ciolos.

The EU dairy market is in much better health this year than last year. Prices paid to milk producers have recovered from their record low levels in spring 2009: the EU weighted average price has regularly increased (32.5 c/kg for September 2010 vs 27 c/kg mid-2009) and is higher than any monthly average price between 2003 and 2006 (only during the price hike in 2007 was such a price reached). A very recent trend of stagnation should be closely followed.

EU average prices for dairy products continue to be largely above intervention levels. A slightly weaker trend has been observed over recent weeks in EU prices for dairy commodities, with some exceptions. World prices continue to be at historically high levels, without taking account of the price spike of 2007.

EU milk production has been constantly increasing since spring, and cumulative levels for the period January-September 2010 are 0.8 per cent higher than in the same period of 2009. This increased milk production has been converted mainly into value added products (such as yoghurts and cheese) that experienced an increase in production levels in line with good demand, while dairy commodities (butter, skimmed milk powder and whole milk powder) achieved lower production levels. Compared to quota levels, first estimates show that milk deliveries from April to September 2010 are 6% below quota for the EU-27.

Public stocks for butter and skimmed milk powder have decreased: only remain 190 000 t of skimmed milk powder remain - of which 94 000 t are committed to the most deprived persons' scheme in 2011 - and 1 500 t of butter, committed to this scheme as well.

As a reaction to the crisis in the dairy sector, the Commission committed in May 2009 to report every three months on the situation in the dairy market.

Conditions for Phasing Out the Milk Quota System

The Council took note of the information provided by the Commission on the evolution of the market situation and conditions for phasing out the milk quota system (17243/10).

The milk sector went through a period of high price volatility from 2007 to 2009. Since then, the market situation has improved and prospects are broadly positive. Overall, the milk sector is gradually heading towards more market orientation.

Phasing out the milk quota system ("soft landing") is already on track in an overwhelming majority of Member States. The main two indicators (quota prices and production level compared to quotas) are well orientated in most of the Member States. Except in three Member States (DK, NL and CY) where they remain high, milk quota prices have a very low value: already zero in some Member States, and decreasing in most of the others, being expected to reach zero in 2015.

Milk quotas have ceased to work as a production limit in most Member States and market orientation is already the leading principle in a number of them. Under these circumstances, the report concludes that there is no reason to revisit the Health Check decisions with regard to the gradual increase in quotas and the end of the quota regime on 1 April 2015.

However, in order to increase awareness and reinforce the responsibility of operators in the dairy chain to better take into account market signals and adapt supply to demand, transparency should be enhanced, as recommended by the HLG on Milk.

On 20 November 2008, the EU agriculture ministers reached a political agreement on the Health Check of the CAP. Conditions were proposed for phasing out the milk quota system by April 2015.

A 'soft landing' was ensured by increasing quotas by one percent every year between 2009/10 and 2013/14. For Italy, the 5 percent increase was introduced immediately in 2009/10. In 2009/10 and 2010/11, farmers who exceed their milk quotas by more than 6 percent will have to pay a levy 50 per cent higher than the normal penalty.

The regulation No1234/2007 on the "Single Common Market Organisation (CMO)", provides in its article 184 that a first report on conditions for phasing out the milk quota system had to be presented by the Commission before 31 December 2010. A second report is to be presented by 31 December 2012.

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