European Union dairy intervention boosts unviable

THE EU paying dairy farmers to slow milk production will be good for global markets in the short term, according to Dairy Australia analyst John ­Droppert.

But the downside was that it might keep unviable dairy farmers in business in the ­medium term, Mr Droppert said.

The EU Commission’s €500 million ($A740 million) package to support dairy farmers announced last month ­includes €150 million ($A221 million) to ­encourage milk production cuts across three months. EU nations have swamped the globe with milk, adding to the oversupply that has ­depressed global prices.

Milk production has started to slow, but the most recent UK Agriculture and Horticulture Development Board figures from May showed a lift of 0.8 per cent in milk deliveries across the EU compared with the same month last year.

“Milk production was ­already starting to slow down, handing out money at this point, I think the effect will be fairly limited,” Mr Droppert said.

There’s a feeling in the wind that we are starting to see an improvement, anything to help slow down (production) in the short term will help.

“But handing money to marginal producers to keep them viable into the future may not be such a good thing in the medium term.”

In the past month global prices have shown a small ­improvement, fat products, such as butter, have increased $US150-$US200 ($A195-$260) a tonne, while milk powder has remained stable and skim milk powder lifted up to $US100 a tonne, according to Mr ­Droppert.

Near-term pricing on Global Dairy Trade has improved recently, but Mr Droppert said there had been tightening of the market in later contracts as well.

“It is not so much that they are going up, but a feeling that they are not going down as we head towards the slow and steady recovery,” he said.

Acting Australian Dairy Farmers president David Basham said the EU intervention “might slow down milk production quickly, but it might be keeping people in business in the EU ... longer than they would have”.

Mr Basham welcomed the move to cut supply in a bid to help prices but said the EU’s regular market intervention put uncertainty in the market and prompted speculators to enter into the market.

Resource: http://www.weeklytimesnow.com.au/agribusiness/dairy/european-union-dairy-intervention-boosts-unviable/news-story/1cf57f7083ba62cc1297f0002c1146b5