Bence Tóth, European Commission The situation of the dairy sector in the EU

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September DG AGRI, unit L2 Economic analysis of EU agriculture  Commodity market analysis: short-term and medium-term projections (including biofuels, GMOs)  Policy and impact analysis (CAP reform, enlargement)  Socio-economic analysis: –development of agricultural income –farm structure  Rural development analysis: –rural development outlook  Cooperation with the academic world, DG JRC and the OECD  Statistical coordination with Eurostat

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Situation of August 2007 Source:

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Sitiuation of September 2009 Source:

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk price paid to producers since 1977

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk price paid to producers

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk price paid to producers (EU15 and EU10)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk price paid to producers (July 2008 and 2009)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk delivered to dairies

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Dairy commodities output: comparison of Jan-Jun 2009 and Jan-Jun 2008

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Cheese production

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Cheese exports

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Cheese price

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September WMP production and price

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September WMP exports

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Butter production and price

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Butter exports

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September SMP production and price

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September SMP exports

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Intervention stocks since 1992

The protein surplus Factors behind the higher increase in SMP production and intervention stocks relative to butter

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Impact of production change on fat and protein availability in 2009 (from 2008)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September SMP market balance Outlook

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk fat and protein surplus based on intervention (+PSA) offers

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Policy responses (on-going)  EU dairy farmers receive € 5 billion direct payments annually. This year, 70 % of direct payments can be made as early as 16 October, instead of 1 December as usual.  We expect to spend € 600 million on market instruments (public intervention, aid for private storage, export refunds) over 12 months.  Our rural development policy – now worth more than € 14 billion a year following the CAP Health Check and the Economic Recovery Package - offers a long list of measures which national governments can use to make the dairy sector more competitive and help it to restructure.  We’re reinforcing the School Milk Scheme which Member States can use to distribute dairy products in schools.  We’ve opened a new round for dairy product promotion programmes.

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Policy responses (planned)  In the short term –allow Member States to offer farmers up to € in state aid under the Temporary Crisis Framework; –give the Commission new powers to take rapid temporary action against market disturbance in the dairy sector through a streamlined procedure; –temporarily change the rules on certain milk quota buy-up schemes to give them more influence on production and restructuring.  Longer-term issues under consideration –a possible legal framework for contractual relations between milk farmers and the dairy industry; –the possible usefulness of an EU dairy futures market; –ideas for cutting production costs and spreading innovation; –the “balance of power” in the dairy sector supply chain (a Commission report is due by the end of this year).

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Possible recovery in Q4?  Price increase of September  Declining intervention offers in Q3  Increased export licence applications in Q3  Seasonal decline in milk production  Relative improvement in economic outlook

Medium term perspectives The March 2009 Baseline

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Milk supply: growth remains below potential EU milk production, deliveries to dairies, dairy cows

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Cheese: demand prospects remain favourable and drive production growth EU production, consumption and trade (mio t)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Butter: declining production lead to the disappearance of public stocks by 2012 EU production, consumption, trade and intervention stocks (mio t)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September SMP: lengthy de-stocking from intervention with little support from exports (facing strong competition) EU production, consumption, trade and intervention stocks (mio t)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September DG AGRI Publications  Dairy market situation 2009 (22/07/2009)  Prospects for agricultural markets and income in the European Union (03/2009)  Impact Assessment of the Health Check Proposal for a Gradual Phasing-out of Milk Quotas

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Annex

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Dairy market and consumer price developments since 1997 (Jan 1997=100)

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Number of milk producers in the EU

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September EU income from manufacturing of Cheese/Wheypowder, SMP/Butter and WMP/Butter in EUR

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Annex – baseline assumptions

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Policy assumptions  CAP in its current (post Health Check) form –Phasing out milk quotas –Intervention mechanism reduced to wheat, butter and skimmed milk powder –Further decoupling until 2012 –SAPS maintained until 2013 (inclusive) –Abolition of mandatory set-aside –Increased modulation  World trade remains in conformity with the Uruguay Round Agreement on Agriculture

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Macro-economic assumptions  Economic crisis beclouds the short-term outlook  Medium-term prospects remain favourable –EU GDP growth around +2.1% per year –USD/EUR exchange rate to stabilise around 1.35 –EU inflation around 1.9% per year –EU population growth would slow to 0.3% per year –Crude oil price fluctuates between USD/barrel –World GDP growth above 3.6% per year  High degree of uncertainty as the economic outlook remains subject to a number of (mainly downside) risks

ABER-BVLE Conference on Milk Crisis, Brussels, 29 September Assumptions for USD/EUR exchange rate and GDP growth (compared to assumptions in March 2008)