Dairying in Europe is changing:

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Dairying in Europe is changing EU-Enlargement
EU-CAP-Reform J.F. Kleibeuker, Secretary General
European Dairy Association
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• Content
• Dairy in EU - 15
• Enlargement
• CAP-Reform
• Conclusion

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EU Dairy Markets Summary
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EU Milk Supplies Skim Milk Utilisation
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EU milk balance 2003 (mt)

• Deliveries to dairies 116
• Import 4
• Clearing of stocks 0
• Available 120

• 106 Internal consumption
• 13 Export
• 1 Clearing of market by intervention
• 120 Total utilisation

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Differences in milk production per farm

• Austria 40 tonnes/year
• Greece 60
• Portugal 86
• Finland 106
• Spain 116
• Italy 166
• Ireland 188
• France 189
• Belgium 190
• Germany 212
• Sweden 274
• The Netherlands 411
• Denmark 487
• United Kingdom 548

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Differences in processing sector

• Countries with 1 or 2 main companies
• Countries with more than 10 main companies
• From small to very big production plants (lt30
  million litres 1.500 million litres / year)
• Countries mainly producing for internal
  consumption(eg. France) and countries mainly
  producing for export (eg. Ireland)

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Differences in products

• Liquid milk and milk products
• Cheese
• Skim milk powder and butter
• Whole milk powder
• Food and feed ingredients
• Pharmaceuticals and nutraceuticals

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Differences in producer price in 2002 (/l)

• UK 0.256
• Belgium 0.263
• Ireland 0.264
• Spain 0.281
• France 0.292
• Germany 0.296
• The Netherlands 0.297
• Austria 0.301
• Luxembourg 0.318
• Sweden 0.321
• Denmark 0.323
• Portugal 0.326
• Finland 0.343
• Greece 0.356
• Italy 0.358

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EU Enlargement 10 EU members

• 20 inhabitants / consumers
• 13 milk production

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Dairy in new Member States
Some characteristics (1)
Milk production (000t)
direct sales delivery to dairies 2001 7.200 15.00
0 Quota as per 1 May 2004 1.500 18.000
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Dairy in new Member States
Some characteristics (2)
Quotum Deliveries Surplus 2004 2002 not
internally consumed

• Poland 9.900 7.200 1.500
• Czech Rep. 2.700 2.600 600
• Hungary 1.900 1.800 400
• Lithuania 1.600 1.100 500
• Slovakia 1.000 1.000 300
• Latvia 700 400 100
• Estonia 1.000 500 300
• Slovenia 600 500 100

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Dairy in new Member States
Some characteristics (3)
Production per farm

• Lithuania 7 tonnes / year
• Latvia 10 tonnes / year
• Poland 12 tonnes / year
• Slovenia 13 tonnes / year
• Hungary 62 tonnes / year
• Czech Rep. 234 tonnes / year
• Estonia 247 tonnes / year
• Slovakia 921 tonnes / year

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Dairy in new Member States
Some characteristics (4)
Average producer prices in 2001 (/l)

• Hungary 0.297
• Slovenia 0.296
• (EU- average 0.295)
• Czech Republic 0.256
• Slovakia 0.211
• Estonia 0.204
• Poland 0.181
• Latvia 0.166
• Lithuania 0.144

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Dairy in new Member States
Some characteristics (5)
Domestic support
Export support
for dairy - 2001
for dairy - 2001
(million Euro)
4.6
- Poland
130,0
24.5

- Czech Rep.
2,7
0
- Hungary
49,5
- Lithuania
0,0
0
5
- Slovakia
26,3
- Latvia
0
6,5
- Estonia
7,4
0
- Slovenia
0,27
0

last year without dairy scheme
Source WTO
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Dairy in new Member States
Some characteristics (6)
Source USDA, WTO
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Dairy in new Member States
Some characteristics (7)
Transformation

• Structure of industry
• consolidation
• foreign participation

• Quality level
• EU 92/46
• derogation

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Dairy in new Member States
Some characteristics (8)
Product portfolio

• Types of products
• Differentiation and specialisation

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Dairy in new Member States
Some characteristics (9)
Distribution

• Large super and hyper markets
• Market share
• Foreign participation

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Dairy in new Member States
Some characteristics (10)
Dairy consumption

• Liquid milk
• EU 15 95 kg / head (91-140 kg / head)
• EU 10 75-85 kg / head

• Cheese
• EU 15 18.9 kg / head (9-26 kg / head)
• EU 10 9-10 kg / head

• Liquid milk products
• EU 15 17.6 kg / head (up to 40 kg / head)
• EU 10 4-15 kg / head

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Evaluation of threats and opportunitiesof
Enlargement

• Sales into new Member States
• - significant market increase, but increasing
  competition with local lower cost producers
• Sales out of new Member States
• - short term possibly quality problems
• - longer term competitive dairy production
  sector
• In the long term, new Member States dairy
  sectors may be better equipped to produce at
  world market price level
• Certainly after 1-3 years, the EU-25 export
  quotum () will be equal or lower than at
  present in EU-15
• As per 1 May 2004 new Member State dairies will
  ask for support WTO budgetary limits

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EU - Common Agricultural Policy (CAP)

• Initiated in 1962
• Three major principles - unified market with
  free flow of agricultural commodities within
  the EU - Preference in the EU for internal
  products over foreign imports - financial
  solidarity through common financing

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Primary objectives of CAP in 1962

• Increase of agricultural productivity
• Ensure a fair standard of living for farmers
• Stabilise markets
• Guarantee regular food supplies
• Ensure reasonable prices to consumers

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Instruments in CAP/Dairy Common Market
Organisation

• Target prices
• Intervention
• Export restitution
• Domestic support
• Import duties

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Results of introduction of CAP

• Primary objectives achieved
• reasonable economic and social development in
  most rural areas
• From net-importer to net-exporter of agricultural
  products
• Strong increase of EU-spendings in agriculture
• Development of large, market disturbing,
  intervention stocks

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Measures to reform CAP

• Introduction of supply management - quota for
  e.g. dairy - set-aside programmes for arable
  crops
• Decoupling of payments from production volume
• Introduction of cross-compliance payments
  depending on production conditions
• Introduction of ceiling on spendings

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The process of CAP-Reform

• 1984 introduction of milk quota
• 1992 introduction of direct payments for
  main arable crops
• 1999 decision on direct payments for dairy
• 2002 decision on ceiling on agriculture
  spendings up to 2013
• 2003 decision on CAP-Reform package
  introduction of full decoupling

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The dairy CAP - Reform package

• Milk quota continue until 1st of April 2015
• Previous decided quota increase (3 x 0,5)
  postponed up to 2005
• Target price cancelled
• Reduction of intervention prices - Butter -
  25 (in 2007) - SMP - 15 (in 2006)
• Compensation by direct payments less than 60 of
  intervention price reductions
• Full decoupling of direct payments from
  production development
• Severe limitations in the intervention scheme -
  only 1st March-31st August each year - ceiling
  for butter up to 30.000t by 2008 - ceiling for
  SMP up to 109.000t

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Expected consequences of CAP-Reform in dairy (1)

• Only very limited increase of production quota in
  the next 10 years
• based on present world market prices in 2006/2007
  reduction of export restitutions - for SMP
  50 - for Butter 50
• reduction of domestic support for SMP and Butter
  of 50-80
• Possibility of production level below quota

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Expected consequence of CAP-Reform in dairy (2)

• Further decrease of product/production volume
  related support for dairy products

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EU milk market support spendings/budget 1993 to
2010 (billion euro)
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Expected consequences of CAP-Reform in dairy (3)

• Further consolidation, both in primary
  production as with transformation

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(No Transcript)
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Expected consequences of CAP-Reform in dairy (4)
Further reduction of EU contribution to world
trade
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Shifts in world dairy market shares
1995 27,6 mln tonnes
1999 33.2 mln tonnes
2002 36.7 mln tonnes
Dutch Dairy Board Rabobank
International , 2003
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CONCLUSION (1)

• Both EU-Enlargement and CAP-Reform will have main
  effects on the EU dairy sector
• For a main part, the effects will be an
  acceleration of processes that are already going
  on ? improvement of competitiveness by
  increasing efficiency through consolidation
  both in the primary production and with
  transformation ? reduction of contribution to
  the world market because of fixed production
  level with increasing internal consumption
• Strong reduction of any trade distorting support

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CONCLUSION (2)

• Any support to rural areas should not be based on
  compensation for inefficiencies but on basis of a
  needed sustainable development of these areas
• To achieve a full liberalisation of the
  agricultural trade, combined with sustainable
  development in the EU rural areas, further
  CAP-Reforms have to be developed in the coming 10
  years