Dairy Aid

German Milk in the Global Economy

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German farmers have taken to the streets in protest of historic low milk prices.

For Germany dairy farmers, Monday’s milk summit in Berlin came none too soon. They’re feeling the pinch, with current prices far below their production costs.

One liter of milk currently costs as little as 46 euro cents in many German supermarkets. The result: Dairy farmers are now earning an historic low of only 20 cents per liter – nearly half of what they need to stay in business, according to BDM association of German dairy farmers.

Over the past few months, many of country’s some 75,000 dairy farmers have launched sweeping demonstrations to protest the ruinous effects low milk prices have had on their livelihoods. Their protests finally prompted the German government to respond to their demands for firm action on the milk-price crisis.

If the price of milk is left at the mercy of markets, it is likely that milk will no longer be produced in Germany soon.

At the meeting in Berlin, the country’s agriculture minister, Christian Schmidt, agreed to an aid package of €100 million ($111 million) and possibly more and also encouraged voluntary or compulsory milk production cuts.

In an interview with the Munich-based newspaper, the Süddeutsche Zeitung, ahead of Monday’s meeting, he spoke favorably of production caps, but ruled out a return to the milk quotas, where dairy farmers had to pay levies once they produced over a certain amount. The quotas had capped production in Europe for decades but were dismantled when export markets came calling. From the Middle East to China, consumers appeared to have a near insatiable thirst for milk and hunger for cheese.

Giving aid to farmers would mark a change off course for Mr. Schmidt. Since taking office, the conservative member of Christian Social Union, the Bavarian sister party to Chancellor Angela Merkel’s Christian Democrats, has spoken out in favor of reducing state aid interventions in the marketplace to a minimum.

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In his speeches, he praised the “potentials and opportunities” of global markets. Farmers listened in approval and, lured by the prospect of higher profits, expanded their operations, although too much milk was being produced even then.

The ABL farming association predicts that this year more than 4,000 dairy farms will go out of business.

If the price of milk is left at the mercy of markets, there’s a possibility it might no longer be produced in Germany soon.

If all borders were opened and all limitations to access eliminated, Germany would be faced with the following scenario: In the global competitive arena, production would be concentrated where food can be grown most cheaply. In all likelihood, this would not include densely populated Germany with its high labor costs.

Agriculture would suffer the fate that has already caught up with bakeries, butcher shops and other skilled-labor enterprises: Global chains would take over.

Almost no country surrenders its agricultural sector to the markets.

The European Union is often criticized for its agricultural subsidies, but throughout the world, billions are dispensed to farmers. State subsidies in Western world average roughly 17 percent of income for farm operations, according to the Organization for Economic Cooperation and Development.

At the milk summit in Berlin, a host of ideas are to be discussed. The government, for instance, could pay premiums to farmers who engage in sustainable production. Or it could pay those who no longer produce anything, but devote themselves to conservation.

The result would be a premium segment for food products from Germany, which would remain affordable thanks to state subsidies. This would be augmented by inexpensive products from developing countries.

Brussels has taken a few steps in this direction – but up to now with far too much hesitation. Whether Berlin will go even further remains to be seen.

 

John Blau is a senior editor at Handelsblatt Global Edition. Mark Schieritz is an editor at Die Zeit. To contact the authors: blau@handelsblatt.com and redaktion@zeit.de

 

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