29 July 2016
Article by Edward Armstrong, National Assembly for Wales Research Service
The farming industry has been going through a period of volatility, with the prices paid to farmers falling below the cost of production. This has been specifically bad for the dairy sector, with farmgate milk prices in May 2016 15.1% lower than the same month last year.
In response to this the European Commission (EC) has announced that it will provide a €500 million support package for farmers across the EU, including the UK. This is in addition to a similar package provided in September 2015 and discussed in a previous blog post. Here we discuss the new EU stimulus package and how the money could help farmers across the UK and Wales.
What is causing the European farming crisis?
The European farming crisis has been caused by a number of factors that have driven oversupply across the market and reduced the prices paid to farmers. Within the dairy industry, these include the scrapping of EU milk quotas which has increased the amount of milk in the EU market, particularly from countries such as Ireland and the Netherlands. There has also been a weakening in the Chinese export market and an ongoing Russian import ban on EU food produce.
In the UK, the farming unions have also blamed inequalities in the supply chain, with milk processors and supermarkets paying prices that fall below the cost of production.
What is in the European support package?
Although the UK has recently voted to leave the EU, legislation and policy associated with agriculture will remain in place until such time as the UK formally withdraws from the EU.
On 14 March, the EC activated “exceptional measures” to provide a support package to help EU famers and safeguard the EU internal market, specifically with regards to the dairy sector. On 18 July it was announced that this package is to be worth €500 million, the second of such packages following the first unveiled in September 2015. Discussions are expected to be finalised on 25 August with legislation likely to enter into force in mid-September 2016.
The support package is primarily focused towards the dairy, pigmeat and fruit and vegetable sectors and is intended to be “highly adjustable” so Member States can tailor the money depending on their own situations.
How will the package help farmers?
The key aim of the package is to address the supply/demand imbalance in the market and subsequently increase the prices paid to farmers for their produce. In order to achieve this, the EC has put forward a package comprising:
- €150 million to be used to reduce oversupply in the dairy sector by incentivising an EU-wide voluntary reduction in milk production. This is in order to remove 1.1 million tonnes of milk from the market. Farmers will receive €0.14 per kilo of milk not supplied on the market;
- The remaining €350 million will be allocated nationally as “conditional adjustment aid”. This requires Member States to apply measures of their own choosing to reduce supply. Member States will be allowed to top-up these funds by 100%;
- A range of additional technical measures which aim to provide greater flexibility for Member States (for more details see the EC press release).
This is in addition to the other measures put forward on 14 March. These include:
- Enabling producers, interbranch organisations such as processors and cooperatives in the diary sector to establish voluntary agreements on their production and supply;
- Doubling intervention ceilings for skimmed milk powder and butter from 109,000 tonnes and 60,000 tonnes to 218, 000 tonnes and 100,000 tonnes respectively;
- The Agricultural Markets Taskforce was launched and should deliver conclusions and recommendation in autumn 2016 on how to strengthen producers and improve the balance in the food chain;
- An aim to open up new markets, increase promotion and work to end export bans with Russia.
The precise details of these measures are expected to be finalised over the coming weeks. A comprehensive range of measures was also introduced with the 2015 support package and briefly discussed in our previous blog post.
How much money are the UK and Wales getting?
The amount of money each Member State receives is dependent on factors such as the level of production. The UK is the third highest beneficiary with €30.2 million (£25.3m) worth of funds, behind only Germany (€58.0m) and France (€49.9m).
The amount of money that Wales will receive has not yet been announced, however it is likely to be similar to the £3.2 million received in the previous support package. Payments to farmers with this package were based on how much milk they produced in 2014-2015, averaging £1,800 per dairy farm.
What has been the reaction to the support package?
NFU Cymru has welcomed the package and has urged the EC to allow flexibility in the way Member States use the money. It has called for the €350 million conditional adjustment aid to be used strategically to develop a more sustainable and resilient dairy sector across the UK and Wales.
In contrast the European Milk Board, a federation of famers from 16 of the Member States, has stated that it is “far from enough to overcome the crisis”. It says that the 14 cents famers will receive for each litre of milk not produced is not enough, and “has to be higher to bring about a sufficient volume reduction on the market”.
What does the future hold?
The EU’s medium-term outlook for the agricultural sector (2015-2025) concludes that milk export and meat consumption should grow steadily over the period due to population growth and dietary change. In the short term, milk prices are expected to recover “to moderate levels” however market imbalance remains a high risk. The EC hopes that the new support package will drive a recovery of prices by early 2017.