Anna Elena Maria Ferrari 

The present agricultural policy is almost exclusively made at European Union level, but it is managed at national and regional level. In 1984, the EU introduced milk quotas to limit milk production in every member State, in order to end structural surpluses that outreached by far the demand. The limitation was both in terms of quotas for individual farmers and quotas for the member State as a whole. Exceeding them would have brought to million euros worth fines from the EU, which has happened to many member States. Therefore, if farmers wanted to expand, they needed to buy quotas from others who were closing their own their activity, sometimes also getting into debts. Last year, milk quotas were removed, in the name of a beneficial and open competitiveness in the European and global market.

EU: Milk quotas vs free market

Along the years, farmers complained fiercely against the milk quotas system. So also say Mr Piloni and Ms Bianchessi, Italian farmers in the Northern region of Lombardia:  “Quotas contributed to undermine entrepreneurial spirit because the only way to increase your quantity was to buy quotas from somebody else”.  Therefore, the end of quotas should have caused a better situation for the farmers. In reality, not really. “At least previously it was easier to access credit because banks considered milk quotas as having their own values”. Now, these ‘rights to produce’ are waste paper. For many farmers, the only reaction was to try to cut down on expenses.

In general, the situation in Italy has worsened since 2015. Until 2015, milk quotas, by limiting the internal offer, kept the EU internal milk prices on higher levels. In the newly free market, however, there has been a surplus of milk quantity. Consequently, in Italy the milk price/liter to the stables dropped from 0,44  euros in 2014 before the quotas’ end, to 0,37 in 2015, until around 0,32 nowadays, according to data from a dossier of Coldiretti, the Italian biggest farmer association. In the same period in Italy, more than 1000 stables closed down and around 34.000 struggle to survive with struggle.

War on milk: multinational corporates imposing their prices

In a non-regulated market, it doesn’t take long for the ones who have strong contractual power to take advantage of the general milk surplus. Multinational corporates and in general the milk industry, who purchase and collect the milk from the stables and transform it, can easily impose their prices on farmers, at the level that is more convenient for them. At the same time, they increase prices for the consumers through the supply chain. For example, according to Coldiretti’s dossier, last year consumers paid beyond 30% more than Germany and 20% more than France (at least for fresh high quality milk).

On the Italian market, the names of the dairy-sector-industry  are, for instance, the French dairy multinational Lactalis, then Auricchio, Granarolo etc…the list is long.

It is not easy to assess what factor impacts more – the surplus or the multinationals- but then, if we assume that it is not the multinationals’ fault, farmers should be able to sell their milk to somebody else for a higher price and not feel restricted to a single collector. In reality, there is not much alternative to find other collectors because milk expires soon and cannot be stored. The milk industry can threaten not to collect the milk and in Italy cancellations happened from time to time. On their side, milk collectors could simply buy cheaper milk abroad. This is what has been called ‘the milk war’.

As a result, there have been undeniable tensions between milk collectors and milk producers, in a spirit that has been far from being collaborative, followed by producer’s protests. Ettore Prandini, President of regional federation Coldiretti Lombardia, one of the organization representing the farmers, states: “Multinationals, not having a direct link to the production territories, want to act on the product that eventually costs less, but is also less valuable on the qualitative side. Moreover, products also tend to become more homogenized”. He continues: “Undoubtedly, this penalizes those countries that differ themselves on the quality and on control system, like Italy.” Prandini believes that the obligation to indicate the origin of the product is one of the ways to avoid speculation and consumers’ damage.

A complex situation beyond national sphere

However, EU prices in the dairy sector can become low also because of other reasons: for instance, a weak demand of those products from importers, especially of China, in comparison with an increasing supply. Professor Roberto Pretolani (University of Milan, Faculty of Agricultural and Food Science), referring to the Italian market, tells: “Lactalis or Granarolo or Auricchio, but also a small private cheese factory or a dairy producer headquarter, are not ‘the bad guys’. In the global balance of the markets, they just buy the most convenient raw material, both national and imported, and they are in turn pressed by big production that requires discount, promotion etc”.

His colleague Professor Alessandro Olper further explains that farmers still receive remarkable support from the EU agricultural through protective measures such as custom duties for non EU countries, aid for different products, subsidy to improve supply management.

New forms of associations: OP

Competition among farmers of other EU countries and market’s rules is quite difficult. For many Italian farmers the real problem are the costs of labor and material, higher in Italy than abroad. Part of the solution would be to gather together. For instance, both farmers Sergio Piloni and Ms Bianchessi are members of OP Mondolatte, founded in 2013 in Cremona municipality, North Italy. OP stands for ‘producers organization’; these types of organizations were legally strengthened by EU regulation 261/2012 with the aim of improving supply concentration and rebalance the contractual power inside the supply chain. OP Mondolatte collects around fifty associated farmers from Libera Associazione Agricoltori Cremonesi, an association to support farmers in the territory of Cremona. The main purpose of OP Mondolatte is to provide consultancy to the members in the delicate phase of the raw material negotiation with the milk industry, especially in case members receive cancellation or in phase of renewal of the contract. The higher amount of milk volume treated at association level, rather than just individually, protects a bit more from the risk that the milk will not be collected. However, they are not the final solution to the problem because their dimension is too small to allow them to influence the market.

Some solutions and a truce

What are the possible solutions?  Valorization of the milk transformed in cheese and more innovation, as well as cooperative forms of product transformation and commercialization. Unfortunately, these are long strategies for the future and not a fast solution to farmers’ problems.

The necessity to act quicker was answered at EU level.  Last 18th July 2016, a new package of 500 million euros to sustain European farmers was announced by the European Commission. 150 million euros are directed to pay the farmers that reduce their milk production (in comparison to the previous year). Basically, it is an incentive to the voluntary decrease of the dairy production, in order to bring down the surplus experienced in the first part of the year. Every farmer of each member State could access to it in equal conditions with the others and the intervention will last from October 2016 until March 2017. The EU Commission also approved other measures worthy 350 million euros, like new funds to be mobilized at national level.

In the words of Commissioner for Agriculture Phil Hogan, the intervention is directed towards the recovery of prices of dairy products, so that the farmers can live of their own work. The aim is to sustain food security and high quality as well.

This recovery has somewhat happened, with the price of the milk that has slightly raised in Italy, along side with a new agreement with the multinational Lactalis.

The impression, however, is that the milk war has not ended, but it has just moved to a temporary truce.

Anna Elena Maria Ferrari

Read this article on The New Federalist.

The contents of this article are the sole responsibility of the author, and can under no circumstances be regarded as reflecting the position of ALDA and the European Union.