Communication from the Commission to the Council - Dairy market situation 2009 {SEC(2009) 1050}
Date: 2009-07-22
Institutions: European Commission
Subjects: common agricultural policy, farmer, fixing of prices, market intervention, milk, milk product, price stability

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.7.2009 
COM(2009) 385 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Dairy market situation 2009 

{SEC(2009) 1050} 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Dairy market situation 2009 

MANDATE: 

The June European Council conclusions stated: "The European Council discussed the current 
situation  on  the  dairy  market.  It  invited  the  Commission  to  present  an  in-depth  market 
analysis  within  the  next  two  months,  including  possible  options  for  stabilising  the  dairy 
market, while respecting the outcome of the Health Check". 

BACKGROUND: 

The  dairy  market  situation  has  deteriorated  dramatically  during  the  last  12  months.  After  a 
price  spike  in  2007  alongside  the  high  food  prices  in  general,  prices  have  dropped 
substantially  affecting  dairy  producers'  income.  Prices  for  milk  delivered  to  the  dairy  have 
come  down  from  30-40c/l  to  an  EU-27  weighted  average  of  24c/l  with  prices  for  many 
producers at 20-21c/l or less. This has triggered substantial unrest amongst dairy farmers with 
many demonstrations. 

1. 

INTRODUCTION 

This  Communication  describes  the  dairy  reform  process  up  to  the  Health  Check,  given  that 
the  European  Council  has  determined  its  outcome  as  the  basis  for  examination  of  further 
measures.  It  contains  an  EU  and  international  market  situation  analysis,  a  summary  of 
Commission market support measures, other instruments available to the Commission and the 
Member States within existing legislation and options for further action and discussion. It is 
accompanied by a Commission Staff Working Document (CSWD) with further detail.  

2. 

THE REFORM PROCESS 

2.1. 

Agenda 2000 and the 2003 CAP reform 

The reform of the dairy sector, in line with the CAP reform in general, has aimed at a greater 
market orientation of production. Therefore, intervention measures were redefined with lower 
intervention  prices  gradually  being  implemented.  As  compensation,  EUR  5  billion  were 
distributed  among  dairy  farmers  as  direct  support  to  their  revenue  and  linked  to  the 
production.  This  is  now  fully  decoupled  and  subject  to  public  and  animal  health  and 
environmental standards (cross-compliance). Also, the intervention quantity (the Community 
purchase  of  market  surpluses  at  fixed  prices)  was  limited  to  30 000  tonnes  of  butter  and 
109 000 tonnes of skimmed milk powder per year. The Commission may however continue 
intervention  for  greater  quantities  should  the  market  situation  require  it.  Last,  milk  quotas 
were  increased  by  1.5%  (by  more  and  sooner  for  some  Member  States)  and  extended  to  31 
March 2015. 

All these measures were meant to support increased competitiveness and help milk producers 
prepare for future challenges on the international scene, whilst providing income support by 
way of direct payments. 

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2.2. 

Health Check 

Following  the  Commission  Communication  on  the  Health  Check  and  in  anticipation  of  the 
final Health Check decisions, there was strong pressure in the Council to increase production 
possibilities.  As  a  result  quotas  were  increased  by  2%.  The  outcome  of  the  Health  Check 
confirmed  the  logic  of  the  reforms  since  1992.  Quotas  will  expire  in  2015.  To  ensure  a 
controlled and soft phasing-out, quotas are increased by 1% each year from 2009 until 2013, 
with  an  additional  measure  (fat  correction  reduction)  which  further  increases  production 
potential.  Ideally  the  "soft  landing"  should  be  ensured  by  gradually  eroding  the  value  of 
quotas  to  reach  zero  at  1  April  2015.  Already  the  value  is  low  or  near  to  zero  in  several 
Member States whose production is below their quotas. Additionally, under the second pillar 
of  the  CAP,  support  for  "dairy  restructuring"  was  acknowledged  as  an  additional  priority 
theme. This allows Member States to use additional funds from modulation to support dairy 
farmers in preparing for the end of quotas. 

Finally  it  was  agreed  that  the  Commission  should  present  two  market  reports,  before 
December 2010 and December 2012 to see if additional measures would be needed to ensure 
the soft landing, without questioning the phasing out of the quota system. 

3. 

MARKET SITUATION 

3.1.  Market situation to July 2009  

EU milk production has not increased as a result of the various quota increases. By 31 March 
2009, total milk production is estimated at 4.2% below  the overall quota. Demand however 
has  decreased  both  in  the  EU  and  on  the  world  market.  The  drop  in  the  EU  demand  was 
mainly  affecting  quality  products  like  cheese,  which  is  particularly  important  as  more  than 
40 % of EU milk is processed into cheese. 

The world market shows a high degree of volatility, due to the fact that quantities traded are 
small in comparison to total production and consumption. Prices on world markets decreased 
considerably due to a combination of production increases by other suppliers (New Zealand, 
Australia,  Argentina,  Brazil  and  until  recently  also  the  US)  and  a  drop  in  global  demand 
connected with the economic crisis. 

Reduced  demand  in  the  EU  and  collapsing  world  market  prices  had  a  direct  effect  on  EU 
market prices. The result has been milk prices moving towards 21c/l and even below in some 
Member States (see CSWD for further details). 

3.2. 

EU prices 

In  2007,  world  market  prices  increased  substantially  above  EU  intervention  levels  and  EU 
prices  climbed  in  line  with  them.  In  the  second  half  of  2008  world  market  prices  dropped 
below EU intervention levels, reinforced by the weak US dollar, and EU prices again dropped 
in  line  with  them.  The  Commission  applied  support  measures  which  prevented  EU  prices 
from falling even further. 

Average EU raw milk prices have always been somewhat above the milk equivalent support 
price for milk, see graph below. The reduction of the intervention level has had little impact 
after the 2003 reform and prices increased significantly in 2007/8. However the current lower 
demand caused a market imbalance and prices fell towards the milk equivalent support price, 
which is much lower than before the 2003 reform.  

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EU Milk price 

355

in EUR/tonne

330

312

307

282

287

323

289

291

263

284

281

234

EU milk equiv. support 
price 
(based on SMP and Butter 

244

199199

202

225

220

215

247

(weighted average of EU Milk 
quotations in Apr 09)

170170

182

152

140

World Milk Equivalent Price
(based on average quotations of Butter and SMP)

147

(based on the latest  World SMP 
and Butter quotations - Jun 09)

e
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R
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E

375

350

325

300

275

250

225

200

175

150

125

100

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

At  the  current  average  EU  milk  price  of  about  24 c/l  with  significant  variation  between 
Member  States,  (see  details  on  national  prices  in  CSWD),  farmers  still  cover  their  variable 
costs.  As feed, fertiliser  and  other  inputs may have been bought at the start of the year and 
grass is still readily available in many regions, farmers continue to produce milk to be able to 
pay a higher share of their fixed costs, which are not covered for many farmers. 

3.3. 

Consumer prices versus farmers' prices 

The commodity price surge during the second half of 2007 generated a rapid increase in milk 
producer  prices  and  a  strong  increase  in  consumer  prices  which  peaked  in  spring  2008.  By 
contrast the pronounced fall in the prices of milk and dairy commodities since the end of 2007 
(-39%  for  butter,  -49%  for  SMP,  -18%  for  cheese,  -31%  for  milk),  only  triggered  a  slight 
decline  in  the  consumer  prices  of  dairy  products  by  some  2 %.  The  lack  of  adjustment  of 
consumer  prices  to  the  fall  in  ex-factory  prices  is  even  more  striking  when  assessed  over  a 
longer  time  period:  whereas  the  ex-factory  prices  of  most  dairy  products  have  now  fallen 
below their levels before the price surge, dairy consumer prices have remained at high levels 
(more than 14 % before the price rise). 

There could be several reasons why consumer prices of milk have remained stable while raw 
milk  prices  and  ex-factory  prices  have  declined  as  milk  is  only  one  of  the  costs  in  the 
consumer price of dairy products. However, the magnitude, the delay and asymmetry in the 
downward  adjustment  of  dairy  consumer  prices  -  which  is  particularly  marked  in  some 
Member States – clearly shows that the EU dairy supply chain does not function efficiently. 
Preventing consumers to benefit from lower prices constraints the development of demand for 
dairy  products  and  thus  hinders  the  strength  and  pace  of  recovery  of  the  dairy  sector.  This 
situation  also  raises  serious  concerns  regarding  the  distribution  of  value-added  in  the  chain 
between farmers, milk processing factories, the dairy industry and retailers. 

Graph  2  Price  index  developments  at  different  stages  of  the  EU  dairy  supply  chain  (Jan 
2000=100) 

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170

160

150

140

130

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100

90

80

70

60

SMP price ex-factory

Consumer price 'milk, cheese, eggs'

Farm gate price raw milk

Cheese (edam) price ex-factory

Butter price ex-factory

200001

200005

200009

200101

200105

200109

200201

200205

200209

200301

200305

200309

200401

200405

200409

200501

200505

200509

200601

200605

200609

200701

200705

200709

200801

200805

200809

200901

200905

Note: The consumer prices for the "milk, cheese and eggs" category do not cover the consumer price of butter. 

Improvement in the effectiveness and efficiency of the dairy supply chain appears essential to 
raise  its  competitiveness,  to  mitigate  the  fall  in  the  producer  prices  and  to  ensure  that  price 
changes  are  passed  on  to  final  consumers.  This  will  hinge  on  addressing  certain  issues, 
notably the lack of comprehensive and reliable data on prices and margins in the whole food 
chain.  Greater  transparency,  a  better  understanding  of  value-added  distribution  and  price 
transmission,  and  a  clearer  view  of  the  structural  factors  would be a significant first step in 
identifying the appropriate measures which could contribute to improve the efficiency of the 
dairy supply chain and secure a fair outcome for each actor (see point 10). This could in turn 
contribute to enhance the countervailing power of the actors concerned. 

3.4.  Market developments: short to medium term 

The  short-term  perspectives  remain  dominated  by  the  economic  crisis.  Prospects  for  cheese 
and  value-added  fresh  dairy  products  markets  are  determined  by  restrained  EU  and  world 
demand and show a production decline in 2009 and marginal improvement in 2010 driven by 
a  slight  demand  recovery.  As  a  sufficient  revival  in  the  EU  and  world  market  prices  is  not 
expected  in  the  short  term,  the  accumulation  of  intervention  stocks  for  butter  and  SMP  is 
projected to continue in 2009 and 2010. Furthermore, export refunds can for the time being 
contribute  to  balance  the  EU  market,  although  low  world  demand  and  strong  competition 
from lower-priced exporters limit EU export potential. 

The medium- and long term outlook for the EU dairy market is expected to remain positive in 
the  light  of  the  eventual  economic  recovery,  which  should  help  supporting  the  growth  in 
demand for higher value added dairy products. 

4. 

DEMAND SIDE 

4.1. 

Action taken by the Commission: market support measures 

The Commission rapidly recognised the seriousness of the dairy market situation due to the 
expected seasonal increases of milk deliveries in the first half of the year and so decided on a 
pro-active support policy: 

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a) Private storage aid for butter started at the beginning of January, two months earlier than 
usual. It is open until 15 August and up to 28 June, 105 800 t had been stored, 14 000 t less 
than 2008. 

b) Export refunds were reactivated for all dairy commodities to the usual destinations on 23 
January (in full compliance with the EU's international commitments). Since the introduction 
of refunds the EU has been able to maintain exports at about the same level as the previous 
year.  However,  in  June,  there  has  been  a  sharp  drop  in  the  demand  for  export  certificates, 
which might point to a further weakening of world market demand. 

c) Intervention buying started on 1 March for butter and SMP:  

–  81 900 t  of  butter  have  been  bought,  about  8%  of  January-June  production  of  butter. 
Beyond  the  30 000 t  fixed  price  ceiling,  bids  were  accepted  up  to  a  99.2%  of  the  fixed 
reference price of EUR 2 218/t. 

–  231 000  tonnes  of  SMP  were  bought,  about  43.5%  of  January-June  2009  production  of 
SMP. Beyond the 109 000 t fixed price ceiling, bids were accepted up to a maximum price 
of 98.9% of the fixed reference price of EUR 1 698/t. Payments have also been advanced 
by 2 to 3 months. 

The butter stock of 81 900 t is equivalent to 1.1% of EU milk production, and the SMP stock 
of 203 000 is equivalent to 1.8% of EU milk production. 

4.2. 

Budgetary consequences 

The estimated total cost of the measures taken to date is about EUR 350 million. A major part 
of  this  expenditure  has  not  been  paid  yet  (e.g.  the  lag  in  payment  of  refunds  after  issuing 
certificates). However, the estimated total costs of the measures foreseen including prolonging 
intervention (see point 5) is more than EUR 600 million. 

4.3. 

Other measures to support milk production outlets 

a) Marketing standards 

Community  law  definitions  require  dairy  products  (including  milk,  butter,  cream,  whey, 
yogurt  and  cheese)  to  be  100%  dairy-based.  The  appearance  on  the  market  of  substitute 
products like so-called "analogue" cheese or ice cream where milk fat is replaced by vegetable 
oils further erodes the market outlet of dairy products.  

As  regards  existing  dairy  denominations  Member  States  need  to  pro-actively  take  action  to 
enforce the dairy definitions to prevent further damage to the dairy market. 

b) Other measures 

With  regard  to  school  milk,  the  scheme  has  been  recently  adapted,  making  it  simpler, 
extending  it  to  secondary  school  and  increasing  the  product  coverage.  As  to  the  latter 
discussion  are  on  going  to  make  the  scheme  more  attractive  (for  example  adding  products 
with  75%  milk  and  25%  fruit  content).  As  regard  aid  for  SMP  for  feed,  the  analysis  shows 
that such a production aid is economically not justifiable (see further details in CSWD). 

5. 

FURTHER COMMISSION ACTION TO SUPPORT DAIRY AND OTHER FARMERS 

a) Advanced direct payments 

The  Commission  will  allow  Member  States  to  pay  up  to  70%  of  direct  payments  from 
16 October instead of from 1 December. Member States may also grant de minimis state aid 
or loans at market conditions to help milk producers with liquidity problems. 

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b) Promotion 

The Commission will propose, to a July Management Committee, an additional round of dairy 
product promotion programmes on the internal market with submissions to the Member States 
by  30 September,  forwarding  to  the  Commission  by  15 October,  and  Commission  decisions 
by 15 December (see further details in CSWD). 

c) Intervention 

On  13 July  the  Commission  presented  a  proposal  to  continue  butter  and  SMP  intervention 
buying after August, on a temporary basis for 2009/10 and potentially 2010/11.  

Intervention  stocks  will  remain  in  store  until  the  internal  or  world  market  is  able  to  absorb 
them without disturbance. 

d) Private storage 

Private storage will be extended beyond 15 August.  

e) Refunds 

The Commission will continue to provide export refunds on an objective basis for as long as 
needed bearing in mind ongoing international negotiations. 

f) Quarterly report 

The Commission will report on the dairy market to the Council every quarter. 

6. 

2010 CAP BUDGET 

The  Preliminary  Draft  Budget  for  2010  leaves  a  theoretical  margin  of  manoeuvre  of 
EUR 1 000 million for market measures and direct aids but EUR 300 million of this amount 
must, in line with sound budgetary management, be kept under the sub-ceiling. The Council 
and the European Parliament will decide later this year on the final 2010 budget along with 
the  still  outstanding  decision  on  the  financing  of  the  EUR 2 400 million  in  the  European 
Economic  Recovery  Plan.  The  Recovery  Plan  already  foresees  that  an  additional  EUR  420 
million must be reserved in Heading 2 in 2010 for rural development, including measures for 
restructuring the dairy sector. 

The  possibility  to  finance  new  measures  in  the  dairy  sector  in  budget  year  2010  therefore 
seems quite limited. As part of the annual budget procedure in autumn, the Commission will 
of  course  examine  all  consequences  for  the  2010  budget  in  the  Amending  Letter  for 
agricultural expenditure. In budget year 2011, the margin of manoeuvre is similarly limited, 
mainly due to the phasing in of the EU-12 direct aids. 

7. 

MEASURES TO REDUCE SUPPLY 

7.1. 

Changes to quota regulation  

Quota system changes would not respect the outcome of the Health Check since these matters 
were discussed in depth during its negotiation which would exclude ideas such as a 5 % quota 
reduction  or  a  freeze  on  quota  increases.  Such  measures  would  have  no  immediate  effect, 
since  they  could  not  be  applied  before  the  new  quota  year  on  1 April 2010  due  to  the 
legitimate expectations of producers. 

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7.2. 

Quota management on an individual producer level 

Much  subsidiarity  is  already  built  into  the  dairy  quota  system  allowing  Member  States  to 
manage national quotas based on objective criteria and their specific need and structures (see 
CSWD).  

Regarding  application  of  quotas  at  individual  level  under  current  Community  law  there  are 
two situations: 

1) If the national quota is exceeded, Member States may use the excess of contributions paid 
by producers to finance voluntary retirement from milk production or redistribute it to priority 
groups, but 

2)  If  the  national  quota  is  not  exceeded  the  advances  collected  by  Member  States  are 
reimbursed to individual producers. 

An  option  would  be,  on  a  temporary  basis,  to  allow  Member  States  to  use  the  advances 
collected also in the second case. This  would give  Member States the possibility to apply a 
brake to production by penalising those producers exceeding their individual quota in favour 
of a restructuring of the dairy sector. The Commission will reflect on the most efficient way 
on how to implement this. 

7.3. 

EU Cow Slaughter Scheme 

The  most  direct  way  to  reduce  supply  is  to  eliminate  production  before  it  takes  place  by 
reducing cow numbers (not necessarily whole herds). However an immediate effect can only 
be reached by slaughtering cows with an EU subsidy. It will be difficult to justify spending 
taxpayers money for such a measure. (See further details in the CSWD). 

8. 

MEASURES TO SUPPORT INCOME 

8.1. 

Increasing intervention prices  

Current market prices have for the first time since 2003 reached the lower intervention price 
level decided during Agenda 2000 and 2003 reform. However increasing intervention prices 
is not an option. Such a policy would be a total reversal of the last 15 years of CAP reforms 
towards market orientation and ensuring that the reduced intervention prices work as a safety 
net  for  exceptional  circumstances  and  not  a  permanent  feature  of  the  market.  It  would 
certainly  not  be  in  line  with  the  Health  Check,  since  it  would  increase  the  value  of  quota 
contrary to the objective of reducing it as we approach the end of quotas. 

Further  there  would  be  a  political  as  well  as  a  practical  problem  as  dairy  farmers  have 
received a decoupled payment (3.5c/kg) on the basis of the reduced intervention prices. The 
decoupled amounts cannot be returned as many farmers have stopped dairy farming between 
2004 and today and the dairy premium is included in the single farm payment. 

8.2. 

Redistribution of direct aids – specific support  

The provisions provided for in Article 68 of Regulation (EC) No 73/2009 will allow a certain 
degree  of  redistribution  of  direct  payments  between  farmers,  sectors  and  regions  within  a 
Member  State.  Member  States  may  set  up  schemes  to  improve  quality  and  marketing  of 
agricultural products and enhance the environment or animal welfare. More specifically and 
to  buffer  the  consequences  of  the  phasing  out  of  milk  quotas,  Member  States  can  establish 
specific aids for vulnerable areas or vulnerable types of farming in the dairy sector. 

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Member States have the possibility to apply decoupled measures (granting new SPS payment 
entitlements or increasing its value) in areas under restructuring or development programmes, 
up to a level of 10% of the SPS and SAPS envelope, representing about EUR 4 000 million. 

Within this limit of 10%, 3.5% can be coupled, representing about EUR 1 400 million. 

Member  States  decisions  on  specific  support  for  2010  are  needed  by  1 August 2009. 
However, Member States that would wish to apply specific support as from 2011 could still 
decide  so  by  1 August 2010.  The  Council  regulation  allows  Member  States  to  revise  their 
decisions  by  1 August 2011.  If  this  creates  difficulties  it  could  be  considered  to  make  these 
provisions more flexible. 

The  Health  Check  also  enlarged  the  scope  of  state  aid  to  dairy  farmers.  In  order  to  avoid 
reducing the payments to farmers more than necessary, Member States are allowed to finance 
up to 55%, within the 3.5% limit, by way of specific state aid to dairy farmers. 

8.3. 

State aids 

As  a  consequence  of  the  financial  crisis,  farmers  encounter  increased  difficulties  to  obtain 
credit.  The  Temporary  Framework  for  State  Aid  measures  to  support  access  to  finance 
foresees that aid not exceeding a cash grant of EUR 500 000 can be granted to undertakings 
until 31.12.2010, but at the moment excludes primary agricultural producers. Any de-minimis 
aid  already  received  by  individual  undertakings  since  the  beginning  of  2008  has  to  be 
deducted  from  this  amount.  In  light  of  the  exceptional  and  transitory  financing  problems 
linked to the financial crisis, a modification providing a similar possibility for farmers, but at 
a substantially lower level in order to avoid distortion of competition in the agricultural sector 
could be examined. 

For farmers a separate limited amount of aid could be introduced by modifying point 4.2.2 of 
the  Temporary  Framework.  An  amount  of  EUR  15 000  could  be  appropriate  to  limit 
distortions of competition between farms located in different Member States. This aid would 
benefit  all  producers,  not  just  dairy.  An  urgency  procedure  would  be  possible  for  the 
modification  of  the  Temporary  Framework  and  the  subsequent  approval  of  the  national  aid 
schemes notified to the Commission under Article 87(3)(b) of the Treaty. 

(See further details in CSWD) 

9. 

RESTRUCTURING OF THE DAIRY SECTOR  

The  CAP  has  a  number  of  instruments  available  to  help  restructuring  in  the  dairy  sector. 
These are available to Member States as an option. 

9.1. 

Rural Development  

Rural Development policy does not aim at immediate income support but provides options to 
support dairy farmers to become more competitive and to keep milk production in traditional 
dairy regions where it contributes to maintain the countryside. 

EU rural development funds in 2007-13 are EUR 91.3 billion with about EUR 70 billion more 
of  national  public  support.  The  Health  Check  and  Recovery  Package  have  added 
EUR 4.2 billion to address new challenges. "Dairy restructuring" has been identified as one of 
the new challenges. 

Options under rural development for dairy producers include: 

–  Investment support, e.g. to improve the efficiency of milk production or enhanced animal 

welfare, 

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–  Payments for dairy farmers in Less Favoured Areas, 

–  Support  for  environmentally  friendly  forms  of  dairy  production,  e.g.  organic  production, 

grassland management with reduced fertiliser use or mountain pasture management, 

–  Support  for  specific  livestock-keeping  practices  improving  animal  welfare  e.g.  grazing 

premiums, 

–  Support  diversification  their  activities,  e.g.  support  for  on-the-farm  shops  or  renewable 

energy production, 

–  Support  for  dairy  farmers  who  would  like  to  leave  the  sector  including  possibly  early 

retirement. 

Moreover, as a further element for the restructuring of the dairy sector Members States could 
promote the formation of strong producers organisation in the dairy sector. 

9.2. 

Other restructuring Measures  

As  mentioned  in  8.2,  restructuring  in  the  dairy  sector  can  also  be  encouraged  by  granting 
specific  support  under  Article 68.  The  Temporary  Framework  for  State  Aid  measures  to 
support  access  to  finance  provides  for  the  period  until  end  of  2010  further  aid  instruments 
(notably  subsidised  interest  rates  and  loan  guarantees)  which  can  be  used  to  stimulate  the 
restructuring process. Moreover, as noted in 7.2, Member States may use the excess to finance 
voluntary retirement from milk production or redistribute it to priority groups. 

10. 

MARKET TRANSPARENCY AND COMPETITION 

The  market  analysis  above  underlines  current  concerns  about  price  transmission  and  the 
distribution  of  value-added  in  the  dairy  food  chain  between  producers,  processors  and 
retailers. The best way to tackle such concerns would be effective and efficient functioning of 
the supply chain, in particular by enhancing market transparency and helping a fairer market 
operation.  Competition  Authorities  at  EU  and  national  level  should  remain  vigilant  and 
effectively cooperate with a view to addressing any potential anti-competitive practices which 
may affect dairy markets. Farmers should be actively encouraged to work together to improve 
the efficiency of their operations by increasing their economies of scale and scope. This could 
also  contribute  to  strengthen  their  countervailing  power  vis-à-vis  larger  processors  and 
retailers.  The  dialogue  between  all  actors  in  the  food  chain  could  also  be  further  stimulated 
including  a  possible  adoption  of  a  European-wide  code  of  conduct  as  recommended  by  the 
High  Level  Group  on  the  Competitiveness  of  the  Agro-Food  Industry.  But  there  can  be  no 
place  for  anti-competitive  measures  such  as  price-fixing  and  production  restraints,  which 
amount to hardcore cartels, national product labelling or national origin requirements. 

10.1.  Market transparency 

The  Commission  is  implementing  the  roadmap  proposed  in  its  Communication  on  Food 
Prices in Europe. The final report is expected at the end of 2009 including a specific analysis 
of the food chain in the dairy and pig meat sectors. 

Without anticipating its full scope, it is worth noting that more transparent price information 
may  facilitate  competition  law  enforcement  and  consumers'  choice.  A  permanent  Europe-
wide  system  for  monitoring  food  prices  could  be  set  up,  with  comparable  price  and  quality 
information at producer, processor and retail levels, as planned in the roadmap. This should 
cover all sectors, not just dairy, using statistical reporting mechanisms run by Eurostat. 

Meanwhile,  it  would  not  seem  useful  to  replicate  the  reporting  of  price  data  to  Eurostat  by 
Member States (to the extent that they currently collect such data) by the creation of ad hoc 

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systems in the dairy sector. Member States could nevertheless reinforce their own statistical 
services to gather more complete data at all levels of the food chain. 

10.2.  Competition 

The Commission, led by DG Competition, is examining potential anti-competitive practices in 
the  food  supply  chain,  especially  the  dairy  sector.  Competition  policy  plays  a  key  role  in 
maintaining a level playing field and ensuring that competition is not distorted in the sector. If 
the  Commission  finds  competition  is  not  functioning,  it  will  not  hesitate  to  act  using  all  its 
powers under the Treaty. National competition authorities have similar powers and must play 
an  equally  important  role  in  applying  competition  law  due  to  the  particularities  of  national 
markets. Therefore, co-operation and exchange of best practices between these services will 
be strengthened formally by a reinforced dialogue in the European Competition Network and 
by further informal discussions. A fast-track survey on dairy markets has been recommended 
to the ECN Food Sub-group meeting in early July, to stimulate and co-ordinate simultaneous 
monitoring and data collection by national competition authorities and a working group will 
be set up to that end. 

Actors  in  the  market  should  also  look  to  improve  its  efficiency.  Many  dairy  farmers  are 
already  organised  in  processor  cooperatives  that  could  look  for  better  ways  to  adapt  their 
members'  milk  supply  to  existing  and  future  demand.  Dairy  farmers  could  also  co-operate 
more effectively through producer organisations to increase their countervailing power vis-à-
vis processors and retailers.  

Inter-branch organisations – involving all the actors in the dairy food chain – could also foster 
a useful dialogue between all the players active in dairy markets. However, initiatives such as 
the  above  remain  subject  to  the  limits  and  conditions  laid  down  in  the  competition  rules 
applicable to the agricultural sector and it would be unprecedented and highly undesirable to 
allow anti-competitive practices in any sector. 

In  its  Retail  Monitoring  communication  the  Commission  is  also  examining  best  practices 
across Member States  in terms of contractual  relations between suppliers and retailers. This 
should help identify means to improve and render more transparent contractual terms between 
for example farmers co-operatives and the retail sector. 

Member States could use the possibilities under Community law to encourage the formation 
of  producer  organisations  in  the  dairy  sector.  To  go  further,  to  allocate  specific  financial 
support for the operating costs of producer or marketing organisations: 

–  At  Community  level,  Council  legislation  and  additional  financial  resources  would  be 
needed.  Funds  for  olive  oil  and  hops  organisations  were  originally  taken  from  direct 
payments in those sectors. There is a specific budget for fruit and vegetables where all the 
sector-specific support is paid via the operational programmes  of producer organisations. 
The  current  scope  under  the  direct  payments  legislation  for  such  support  is  very  limited, 
even  under  specific  support  measures  since  these  require  support  to  be  paid  directly  to 
farmers and not to producer organisations, 

–  at national level it can be done by state aid authorisation. Start-up aid for producer groups 
for up to 5 years and EUR 400 000 in total is already allowed under the Agricultural Block 
Exemption  Regulation  and  the  Agricultural  State  Aid  Guidelines.  Those  rules  could  be 
amended to allow more long-term aid and/or higher amounts. 

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11. 

CONCLUDING REMARKS 

The  Commission  is  committed  to  continue  to  support  dairy  farmers  and  stabilise  the  dairy 
market with the means at its disposal.  

The  catalogue  of  measures  shows  that  the  Member  States  have  a  considerable  number  of 
instruments  available  to  them  to  alleviate  the  situation,  to  assist  in  the  restructuring  process 
and contribute to a soft landing for the dairy sector in light of the disappearance of quotas on 
1 April 2015. 

The European Council has asked for possible options for stabilising the dairy market, while 
respecting  the  outcome  of  the  Health  Check  and  thereby  excluding  policy  changes  for  the 
dairy sector due to short-term difficulties. 

Putting  this  policy  into  question,  would  only  create  uncertainty,  delay  the  restructuring 
process and render no service to the many dairy producers who need clear guidance as they 
plan for their future. A steady course must be kept with the long-term perspective in mind. 

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