8 October 2015
Article by Nia Seaton, National Assembly for Wales Research Service
Since the beginning of this year the prices farmers receive for their products have been in decline. In the dairy sector the prices some farmers receive have fallen below the costs of production. This blog post looks in particular at the market situation facing European farmers and the aid package presented by the European Commission rather than any specific action being taken in Wales to support the sector.
Why price falls now?
A number of factors have contributed to the on-going price declines. At a global level the on-going import ban on EU produce by Russia in retaliation for the EU’s sanctions over its actions in Ukraine has had a significant impact. Although Wales may not directly supply a significant amount of produce to the Russian market, the influx of products from other Members States on to the EU’s market that would usually sell to Russia has had a dampening effect. In a press release on 15 September Copa-Cogeca, the European coalition of farming organisations, estimated that the Russian market was worth €5.5 billion to the EU.
In addition at a global level demand from some of the EU’s key markets for dairy products such as China has declined. There has also been a general oversupply of milk on to the market not only from the EU but from some of the world’s biggest dairy producing countries such as New Zealand and the US. Drought in some EU countries has also effected the supply and therefore the price of animal fodder such as maize.
In March 2015, the EU’s system of milk quotas came to an end. The system gave each Member States a quota for the amount of milk each country was allowed to produce. The purpose of the system was to control prices by limiting supply to the market. Removing this control on supply has also added to the amount of milk entering the EU’s market.
Right across the EU as well as in the UK and Wales, farmers have been pointing to inequalities in the supply chain. They outline that they have borne the brunt of falling retailer prices and supermarket ‘wars’.
What action is being taken to help farmers?
On 7 September 2015 an extraordinary Agriculture Council of Ministers was held in Brussels to discuss the crisis. In this meeting the European Commission unveiled a new aid package to help farmers which it states is worth €500 million. The central component of the package will be a €420 million direct support fund for dairy and livestock farmers. Member States and regions will be given discretion as to how they distribute the fund between farmers and if they wish will be allowed to match fund the aid.
The UK will receive £26. 2 million of this fund of which Wales will receive £3.2 million. In Wales, payments will be allocated to dairy farmers on the basis of how much milk they produced in 2014-15. The Deputy Minister for Farming and Food has stated that this will mean an average payment of £1,800 to Welsh dairy farms.
The European Commissions will also allow Member States to make advanced Common Agricultural Policy (CAP) payments to farmers from 16 October and has relaxed some of the compliance rules to enable this to happen early. In a letter to all Assembly Members on the 29 September, the Deputy Minister said that due to the complexities involved in issuing payments in the first year of this new CAP the Welsh Government will be unable to make early payments. It will instead focus on being able to pay farmers as much as possible of their payments when the usual payment window opens on 1 December.
Other measures proposed as part of the aid package include:
- Extending and Enhancing Private Storage Aid: this will include the extension of private storage aid and public intervention periods for butter and skimmed milk powder and a new private aid storage scheme for pig meat.
- Promotion Programmes: increasing the budget available to promote European produce and an enhanced effort by the European Commission to open up new markets and reduce trade barriers.
- Creation of a new High Level Group: this group will be tasked with looking at issues such as credit for farmers, risk hedging instruments and the role of farmers in the supply chain.
What’s the long-term outlook?
In his speech to the Extraordinary Council Meeting on 15 September, Jyrki Katainen, Vice President of the European Commission concluded that in the short-term there is little prospect for improvement in the dairy and pig meat sectors but there is some signs of recovery in the prices paid for beef.
In December 2014 the European Commission published its medium-term outlook for the agriculture sector covering the period 2014-2024. The market outlook presents a mixed picture for the industry. The report concludes that the prospects for EU dairy products will be ‘favourable’ in the long term as global demand will increase. Demand for pig meat and poultry is expected to increase whilst the sheep meat sector is expected to stabilise. The beef industry, despite a short-term increase it is expected to continue to decline in the medium-term.