PARIS, France (Reuters) — European dairy farmers, who have been caught in a global market decline as they emerge from a 30-year-old quota system, may have little choice but to continue at full production and hope for a recovery in international prices next year.
Milk prices paid to EU farmers are down 20 percent from last year at 45 cents a litre on average, leaving some farms operating below production costs and upsetting the plans of farmers and dairy processors who expanded capacity before the abolition of EU milk production limits last April.
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The elimination of output limits in the EU has contributed to world oversupply just as demand has been curbed by an embargo by Russia, usually the biggest buyer of EU cheese, and a reduction in Chinese dairy imports.
“The removal of quotas couldn’t have come at a worse time,” said Ian Macalpine, chair of the Royal Association of British Dairy Farmers.
The slide in prices has revived memories of a previous downturn in 2009, which saw EU farmers dump milk rather than sell it.
Protests have spread across Europe this summer with farmers targeting supermarkets in Britain, France and Germany, the EU’s top milk producer and a supporter of the quota abolition.
“Europe is a great place to produce milk. You wouldn’t want to stop producing milk here,” said Kevin Bellamy, senior global dairy analyst at Rabobank.
“But farmers will find it difficult to cope with the volatility.”
Farm groups are calling for a new form of output regulation, while countries such as France are pushing for an increase in the public intervention price at which producers can sell into storage.
The situation comes at a time when Canada is under increasing pressure to eliminate or amend its supply management system, which limits production and restricts imports in exchange for domestic price stability.
