EDA president, Werner Buck, unveiled the dairy sector’s challenges and issues to the Agriculture Committee at the European Parliament. The EDA focused on the recent issues with pricing for raw milk and dairy products.
For the EDA, these developments are no reason to change the stable policy approach that has been conducted since the CAP Reform 2003 and the Health Check. The EDA also referred to a study on price volatility in the dairy market that it asked the University of Cork to carry out. This study indicates that price volatility to a certain extent is desirable, and that private instruments could limit the risks of related-to-price volatility, whereas public instruments may be needed to take away the extremes in price volatility.
Buck started his contribution by focusing on the pricing issues the dairy market has been coping with in the last few months. Although these developments have triggered many discussions on how to proceed with the EU dairy policy, the EDA sees no reason in these developments to drastically change the EU’s stable policy approach, which has been initiated with the CAP Reform 2003 and the Health Check. In the EDA’s view, these reform measures have been aimed at a broader market orientation for the production of dairy, and have secured the EU dairy sector’s leading position in the world.
For the EDA, the valuation of raw milks is crucial to the competitiveness of most of the processors, since these have only little or no control on non-milk costs such as packaging and energy. The CAP Reform policy has made that the EU market for raw milk is determined by the prices of the dairy commodity products.
Recent price reports show the market is operating efficiently, and that farmers receive the market conform valuation for their milk. For the EDA, this consequently means that there are no grounds for broadly intervening in the operation of the raw milk market now, but that the possibility should be considered to give the various market players some new tools in order to remain profitable.
The EDA has commissioned the University of Cork to carry out a study on price volatility in the dairy market. The EDA president presented the main conclusions during his speech, indicating that price volatility to a certain extent is desirable, this to allow an optimal functioning of the market.
Extreme price volatility, however, is undesirable, because this would disturb market conditions. In order to operate well in a volatile market, the EDA believes in the use of risk management tools such as forward contracting, futures and insurance products.
The EDA also calls for public instruments to reduce price volatility: management of a scheme of intervention at safety level and of strategic stocks are mentioned as possibilities. The use of private risk management tools and the application of public instruments could limit the risks inherent to price volatility.
For the EDA, it’s essential that the EU develops and continues a stable policy: “In order to maintain an efficient and profitable market for the dairy sector, a stable policy is essential,” said Buck. “With the CAP Reform 2003 and the Health Check, clear policy lines have been determined – the EU has to follow those now. We also believe that the EU should adopt a holistic approach, integrating all initiatives from the different DGs. In this respect, we consider the communication of the European Commission on Agriculture Product Quality as crucial for the well functioning of the European dairy market.”
Source: European Dairy Association
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