The situation of the dairy sector in the EU

1. The situation of the dairy sector in the EU Bence Tóth, European Commission

2. DG AGRI, unit L2Economic analysis of EU agriculture • Commodity market analysis: short-term and medium-term projections(including biofuels, GMOs) • Policy and impact analysis (CAP reform, enlargement) • Socio-economic analysis: • development of agricultural income • farm structure • Rural development analysis: • rural development outlook • Cooperation with the academic world, DG JRC and the OECD • Statistical coordination with Eurostat

3. Situation of August 2007 Source: http://www.nytimes.com/2007/08/31/business/worldbusiness/31iht-wbmilk.4.7338847.html

4. Sitiuation of September 2009 Source: http://www.europeanmilkboard.org/gallery.html

5. Milk price paid to producers since 1977

6. Milk price paid to producers

7. Milk price paid to producers(EU15 and EU10)

8. Milk price paid to producers(July 2008 and 2009)

9. Milk delivered to dairies

10. Dairy commodities output: comparison of Jan-Jun 2009 and Jan-Jun 2008

11. Cheese production

12. Cheese exports

13. Cheese price

14. WMP production and price

15. WMP exports

16. Butter production and price

17. Butter exports

18. SMP production and price

19. SMP exports

20. Intervention stocks since 1992

21. The protein surplus Factors behind the higher increase in SMP production and intervention stocks relative to butter

22. Impact of production change on fat and protein availability in 2009 (from 2008)

23. SMP market balance 2003-2009 2009 Outlook

24. Milk fat and protein surplus based on intervention (+PSA) offers

25. Policy responses (on-going) • EU dairy farmers receive € 5 billion direct paymentsannually. This year, 70 % of direct payments can be made as early as 16 October, instead of 1 December as usual. • We expect to spend € 600 million on market instruments (public intervention, aid for private storage, export refunds) over 12 months. • Our rural development policy – now worth more than € 14 billion a year following the CAP Health Check and the Economic Recovery Package - offers a long list of measures which national governments can use to make the dairy sector more competitive and help it to restructure. • We’re reinforcing the School Milk Scheme which Member States can use to distribute dairy products in schools. • We’ve opened a new round for dairy product promotion programmes.

26. Policy responses (planned) • In the short term • allow Member States to offer farmers up to € 15 000 in state aid under the Temporary Crisis Framework; • give the Commission new powers to take rapid temporary action against market disturbance in the dairy sector through a streamlined procedure; • temporarily change the rules on certain milk quota buy-up schemes to give them more influence on production and restructuring. • Longer-term issues under consideration • a possible legal framework for contractual relations between milk farmers and the dairy industry; • the possible usefulness of an EU dairy futures market; • ideas for cutting production costs and spreading innovation; • the “balance of power” in the dairy sector supply chain (a Commission report is due by the end of this year).

27. Possible recovery in Q4? • Price increase of September • Declining intervention offers in Q3 • Increased export licence applications in Q3 • Seasonal decline in milk production • Relative improvement in economic outlook

28. Medium term perspectives The March 2009 Baseline

29. Milk supply: growth remains below potential EU milk production, deliveries to dairies, dairy cows

30. Cheese: demand prospects remain favourable and drive production growth EU production, consumption and trade (mio t)

31. Butter: declining production lead to the disappearance of public stocks by 2012 EU production, consumption, trade and intervention stocks (mio t)

32. SMP: lengthy de-stocking from intervention with little support from exports (facing strong competition) EU production, consumption, trade and intervention stocks (mio t)

33. DG AGRI Publications • Dairy market situation 2009 (22/07/2009) http://ec.europa.eu/agriculture/markets/milk/report2009/index_en.htm • Prospects for agricultural markets and income in the European Union 2008-2015 (03/2009)http://ec.europa.eu/agriculture/publi/caprep/prospects2008/index_en.htm • Impact Assessmentofthe Health Check Proposal for a Gradual Phasing-out of Milk Quotas http://ec.europa.eu/agriculture/healthcheck/ia_annex/d2c_en.pdf

34. Annex

35. Dairy market and consumer price developments since 1997(Jan 1997=100)

36. Number of milk producers in the EU

37. EU income from manufacturing of Cheese/Wheypowder, SMP/Butter and WMP/Butter in EUR

38. Annex – baseline assumptions

39. Policy assumptions • CAP in its current (post Health Check) form • Phasing out milk quotas • Intervention mechanism reduced to wheat, butter and skimmed milk powder • Further decoupling until 2012 • SAPS maintained until 2013 (inclusive) • Abolition of mandatory set-aside • Increased modulation • World trade remains in conformity with the Uruguay Round Agreement on Agriculture

40. Macro-economic assumptions • Economic crisis beclouds the short-term outlook • Medium-term prospects remain favourable • EU GDP growth around +2.1% per year • USD/EUR exchange rate to stabilise around 1.35 • EU inflation around 1.9% per year • EU population growth would slow to 0.3% per year • Crude oil price fluctuates between 78-85 USD/barrel • World GDP growth above 3.6% per year • High degree of uncertainty as the economic outlook remains subject to a number of (mainly downside) risks

41. Assumptions for USD/EUR exchange rate and GDP growth (compared to assumptions in March 2008)