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Preventing Future Crises in the European Milk Sector

Prof. Dr. Ludwig Theuvsen discusses the need for instruments to prevent future crises in the European milk sector. He highlights the impact of low milk prices, volatility in world market prices, and the risk of farmer liquidity. He emphasizes the importance of focusing on liquidity problems, exploring the potential of the US Dairy Margin Protection Program, and analyzing the effectiveness of a similar program in the EU. Other suggestions include financial support for sustainability standards, market power restrictions for large retailers, and avoiding politically-induced sales decreases. Theuvsen concludes with remarks on insurance against margin risks, improving CAP and competition law, and avoiding regulation of milk quantity or higher intervention prices.

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Preventing Future Crises in the European Milk Sector

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  1. The future of the European milk sector: What instruments are needed to prevent future crises?Prof. Dr. Ludwig TheuvsenGeorg-August University of GoettingenDepartment for Agricultural Economics and Rural Development Brussels, 27 January 2016

  2. 14 short remarks on the European milk sector:1. The milk sector is a very special sector and deserves more attention and safety measures than other agricultural sectors.2. In the recent past, low milk prices could be observed about every three years as a consequence of strong supply and weak demand.3. High volatility of world market prices strongly influences the liberalized European milk market.4. Low milk prices increase farmers‘ risk of becoming illiquid. Prof. Dr. Ludwig Theuvsen

  3. 5. Many discussions focus on the regulation of the quantity of milk produced in the EU (for instance, EMB‘s Market Responsibility Programme). These concepts widely ignore the integration of the European dairy sector into world markets and are doomed to fail.6. Solution for dairy farmers must focus on solving their liquidity problems.7. Future exchanges do not work well in Europe and will not do so in the near future.8. The US Dairy Margin Protection Program deserves more scientific and political attention. Prof. Dr. Ludwig Theuvsen

  4. 9. So far it is widely unknown whether a similar programme would work in the EU and which consequences it could have. More in-depth analyses are urgently needed.10. Higher intervention prices should be avoided due to unintended incentive effects.11. The EU should think about financial support for the implementation of sustainability standards within the CAP. 12. It is necessary to further restrict the market power of large retailers.13. Politically induced decreases of sales should be avoided in the future. Prof. Dr. Ludwig Theuvsen

  5. 14. To summarize: - Insurance against margin risks: yes - Improvement of CAP and competition law: yes - Regulation of the quantity of milk produced in the EU or higher intervention prices: no Prof. Dr. Ludwig Theuvsen

  6. Thank you very much for your attention! Prof. Dr. Ludwig Theuvsen Georg-August University Göttingen Department of Agricultural Economics and Rural Development Platz der Göttinger Sieben 5 D-37073 Göttingen Telephone: +49-551-394851 Theuvsen@uni-goettingen.de

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