Blog: Dealing with volatility in dairy markets



He writes:

A large number of European countries have reported to Copa Cogeca, the European Farm Organisation in Brussels that farmers across the continent are receiving less than the cost of production for milk.

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As we enter the new era of life after quotas farmers will face increasing times of volatility and we are all fully aware that this needs to be addressed.

There is no simple answer as to how this can be solved. At the Copa Cogeca meeting, which the NFU sent a delegation to, we heard from a range of speakers who gave us an insight into alternative tools to help manage volatility.

See also: Copa milk meetings round-up

One of the most interesting presentations was from the United Stated Department of Agriculture where they explained their Dairy Margin Protection System. It works like a voluntary insurance scheme where farmers pay a premium to ensure they get a guaranteed milk price. Around half of their dairy farmers are signed up to the scheme and farmers are able to protect 25 – 90% of their production and guarantee their milk price from 4 dollars / cwt to 8 dollars / cwt.

Euronext, a pan-European stocks and derivatives company, explained how they are establishing a commodity derivatives market for milk so it can be traded in much the same way as wheat.   This could be an interesting option that has not previously been available to the dairy industry. 

One of the Irish representatives explained how fixed price contracts that Glanbia originally started, allow farmers to lock in a price for a proportion of their milk production for three years.  This is a sensible tool which can allow farmers some stability, especially when dealing with banks.

Finally we heard from the European Milk Board (EMB) who told us about their Milk Responsibility Programme. This kicks in when there is a risk of a milk market imbalance. The EMB was the most debated and controversial idea put forward due to their proposed tactics to control milk production across Europe in times of oversupply.

There is no getting away from increased volatility and there is an increasing urgency to develop new tools to manage the dairy industry in order for farmers across Europe to have a stable and prosperous future.

Here at the BAB office we will continue to represent the views of UK dairy farmers and continue to push for new markets and measures as well as enhance and improve old tools such as increasing the intervention price and keep dairy superlevy money within the industry.

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