One of the European Commission’s most recent moves has been its proposals on contractual relations in the EU dairy industry. Geoff Platt asks Dr Kleibeuker for the EDA’s reaction to the proposals.
Joop Kleibeuker: This is what they call the ‘Milk Package’. The Milk Package is a series of legislative proposals for dairy in reaction to the outcome of the High Level Expert Group on Milk, concentrating on three of the several recommendations.
First of all, we have indicated to the Commission, and we have also informed the parliament and the council, that we’re disappointed that they have decided to work on these three aspects looking at the relations within the sector, and that they’re not working with us on the other four recommendations that are working towards strengthening the sector.
We think this is very important. The Commission has indicated they will work on it, but only at a later stage. And that, in our opinion, isn’t the right way to do it.
So what are the proposals of the Commission?
Kleibeuker: First of all, the Commission is proposing to allow the formation of inter-branch organisations in the dairy sector in the same way that they have such organisations in the fruit and vegetable sector. Yes, they can bring something to the industry, but we already have inter-branch cooperation in dairy in most of the EU countries.
In many countries, there’s close cooperation between farmers and processors, and sometimes also retailers, in the development of new products, in the development of product standards, and also in marketing and promotion. So, it’s not necessary to focus on this.
And the risk is that, by setting rules and restrictions and by proposing approaches on a European level, you take the initiative away from the national or regional level where people have done such good things.
The second point is the contracts. The Commission is of the opinion that each farmer should have a written contract with his processor, the company to which he delivers his milk. At the EDA, we believe a contract is a natural part of any trade relationship. When you buy a new car, you always sign a contract – it’s quite normal, and it’s quite normal that there should be a contract between farmers and processors.
In many countries, 99% of the farmers have these contracts. But there are also countries to the south and east of Europe where these contracts are not so strong. Yet, we think you shouldn’t stipulate mandatory contracts. A contract is a responsibility between two parties that are at the table and are negotiating about price, volume, time of delivery and things like that. They should decide what, in their opinion, should be in the contract.
We have proposed to the Commission that they should develop guidelines and that we should do some promotion on the subject. But you shouldn’t make contracts mandatory because you shouldn’t take away the responsibility from those parties involved.
The Commission then reacted that they will not make contracts mandatory on the EU level but will facilitate countries to make these mandatory at a national level. But then you could get different mandatory contracts in different countries. A farmer in the eastern part of France may have a different mandatory format for his contract to a farmer in the western part of Germany. They live fairly close together, but suddenly they’re in a totally different environment. Is that a single market? We don’t believe so.
So we think contracts should remain voluntary. We have discussed this with the farmers’ organisations who are also interested in working together with the Commission on some kind of guidance.
And then the final point: producer organisations. The Commission got the idea from the discussions of the High Level Expert Group on Milk that the bargaining power of farmers wasn’t strong enough. Because of that, it should be possible for the farmers to organise themselves in groups, and these groups should do the negotiations with the dairy processors.
First of all, nearly 60% of all milk in Europe is collected by co-ops. Co-ops, as you know, are owned by the farmers and here it’s not a point of negotiation but an agreement within the statutes of the co-op (set up by the farmers themselves) under which conditions milk is delivered.
So that leaves 40%. We think that it’s good that farmers organise themselves to a certain extent and go into negotiations in that way, and that is already possible under European Competition Law, so we have nothing against it.
Let’s look at the situation in Bavaria, for example. There are groups of farmers who together go to a private company and say ‘We want to deliver our milk to you and we want to discuss the price. Can we work out some sort of framework agreement where each of the farmers gets a contract?’. That works very well and all the processors are very pleased with that because it’s much better for them to have a single negotiation rather than negotiation with hundreds of separate farmers.
But – and it’s a big but – they should make sure that these producer organisations fulfil the competition laws. These producer organisations shouldn’t develop monopolistic units. It cannot be right that somewhere in this chain there’s a monopolistic group that decides that there’s no possibility for processors to obtain milk in any other way.
Raw milk isn’t transported from, say, Sicily to Finland to be processed. Milk is processed locally, obviously because of the limited ‘keepability’ of raw milk. So you have to look at what is referred to in the competition rules as ‘the relevant market’.
The EU nevertheless has the idea that we have to link the maximum size of producer organisations to the total amount of milk processed in the EU or maybe to the amount of milk processed in separate countries. The European Commission proposed 3.5% of the milk produced in the EU could be barred in the single producer organisation. And further, in the original proposal, it shouldn’t be more than 75% of the milk in the country itself. That was the original idea of the Commission as well.
After a lot of discussions, the Commission came up with the proposal for 33% on a national level. But in paragraph 5 of the relevant article, there’s also the possibility that national competition authorities could look at the local situation and could decide that even 33% is too much.
We think that paragraph 5 of the article is a very important paragraph, because it brings us quite close to the concept of the relevant market and we think that this is acceptable. But we must consider the milk that is really available for negotiations for trading and for delivery to private companies. This means that we have to exclude the milk that is bound by members of the co-ops.
Looking at Denmark, for example, it would mean that only 15% of the milk should be in the system. In this situation, under the present proposals, it could mean that all the milk that’s sold to private companies could be from a single producer organisation. That cannot be the approach.
In the last few years, we’ve seen in the milk processing sector a whole series of mergers, also between coops, and all the time competition authorities (national and European) have set certain conditions to these mergers and these are based on existing competition rules. In our opinion, you shouldn’t suddenly give one group in the chain an exemption from these competition rules now.
More of this interview is available to read in Dairy Innovation magazine.
Geoff Platt is editor of Dairy Innovation magazine. He’s also active on LinkedIn.
© FoodBev Media Ltd 2017