The milk collapse in Spain
In April 2015 the milk shares allocated by the European Union to the member countries were eliminated. It assumed as the end of protectionism in the milk sector. Supply and demand has become controlled by markets, as well as the prices. However, liberalization of the sector had serious effects on small farms in Spain: the big distributors impose their standards, the prices fall and small businesses are forced to close.
The history of shares is dated back to 1984 when there was a major crisis due to the over demand of the production that the media baptized as ‘milk lakes’ and ‘butter mountains’. There were established the limits for producing the milk in each country with the intention of bringing order the mismatch of supply and demand. Two years later, Spain became a member state of the European Union and was also awarded with a share. At that time there was 5,400,000 tons of annual milk supply and then the amount was increased to reach 6,557,555.45 tons in the 2013/2014 campaign.
Although the share system intended to be a regulatory measure, in Spanish case had some inconveniencies. Spain had a share covering 60% of the demand of milk in the country. And the rest of 40% came from the neighbour countries. The shares were prevented but the state had the capacity to produce more milk; however it was imported milk with lower prices from other EU traditionally over demanded. The shares forced producers to reduce production and slaughter animals to avoid exceeding the imposed amount.
In 2015 the world population increased, changing of diets and increased consumption of dairy products, caused increasing the milk demand of a worldwide. This was the main reason that forced the European Union to liberalize the sector and eliminate shares.
Farmers had to adjust their production to the market with consequently unpredictable prices even so the liberalization of the sector is also an opportunity. This is how the National Federation of Dairy Industries (FENIL) sees the end of shares, a positive development because of the growing demand of milk and removing the limitation of production, a situation that could allow sell more.
However, as the sector has been restructured, small farms have been destroyed, especially in Galicia, focusing the production in bigger farms.
According to the report of the Coordinator of Organizations of Farmers and Ranchers (COAG) ‘Del aterrizaje suave al aterriza como puedas’ in 2013 has been registered 18,034 milk deliveries in the country; in 2015, 16,490, 8.56% less. Only during the last year 600 farms have closed, according to the Union of Small Farmers and Ranchers, a trend that is repeated in previous years.
Why close the farms, due to price below the cost that they receive per liter of milk. Farmers can produce more milk for market, if they wish, but receive less money for it. According to the Ministry of Agriculture, Food and Environment in 2014 the average price paid per liter of milk was 39.30 cents and in 2016 this price has dropped to 30.80.
On the one hand, according to COAG, the fear after the elimination of shares is the increasing production of member states of the European Union which have traditionally had an over demand trend. In fact, according to COAG that “will cause a price drop in states like Spain”. There are countries located in the Atlantic cornice with big farms and with a powerful system in cattle more closely linked to the natural resources.
The characteristics of farms in these countries differ widely from those ones found in the Spanish state, which are characterized by small farms, often located in the mountains and depend more on raw materials to be imported which will increase the price of cost. The decline in milk deliveries compared to previous campaigns, caused by the high cost of raw materials and low price paid for milk origin, cause a competitive disadvantage.
On the other hand, farmers accuse industries dictate low cost prices. With the elimination of shares, prices entered into the market also have been adjusted. The import of milk and dairy products with low prices in the countries such France and Germany has lowered the price in origin. Some producers claim to receive up to 26 cents per liter of milk, a price that is below the cost of production.
There is no doubt that for Spanish farmers who survive this situation it is coming an uncertainty panorama for who survive this stage:
First, poor management of milk share have made Spain a deficit and importing country. Second, the characteristics of Spanish farms with its small dimensions that cannot handle with the impositions of the industry and new legislation day by day are forced to close. Third, the fear of an increase in global milk production that causes even more drop of prices. And finally, the little power of the Spanish facilities to create value-added products and competitive; are the main reasons that affect today to farmers in the country.
The government could seek the actions to protect the producer, ensure the cost price and establish a minimum price, help to upgrade facilities and make them more competitive. In addition, they should promote I+D to facilitate the development of value-added products through new technologies (paediatric milk, cheeses, yogurts …) some products that also help to improve the competitiveness of Spanish farms.
On the other hand, this new situation is also a challenge for farmers who have to live in new period and know how to play in an environment characterized with unpredictable price.