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

2. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 2 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

3. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 3 Situation of August 2007 Source: http://www.nytimes.com/2007/08/31/business/worldbusiness/31iht-wbmilk.4.7338847.htmlhttp://www.nytimes.com/2007/08/31/business/worldbusiness/31iht-wbmilk.4.7338847.html

4. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 4 Sitiuation of September 2009 Source: http://www.europeanmilkboard.org/gallery.htmlhttp://www.europeanmilkboard.org/gallery.html

5. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 5 Milk price paid to producers since 1977

6. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 6 Milk price paid to producers

7. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 7 Milk price paid to producers (EU15 and EU10)

8. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 8 Milk price paid to producers (July 2008 and 2009)

9. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 9 Milk delivered to dairies

10. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 10 Dairy commodities output: comparison of Jan-Jun 2009 and Jan-Jun 2008

11. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 11 Cheese production

12. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 12 Cheese exports

13. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 13 Cheese price

14. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 14 WMP production and price

15. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 15 WMP exports

16. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 16 Butter production and price

17. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 17 Butter exports

18. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 18 SMP production and price

19. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 19 SMP exports

20. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 20 Intervention stocks since 1992

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

22. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 22 Impact of production change on fat and protein availability in 2009 (from 2008)

23. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 23 SMP market balance 2003-2009 2009 Outlook

24. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 24 Milk fat and protein surplus based on intervention (+PSA) offers

25. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 25 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.

26. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 26 Policy responses (planned)  In the short term –allow Member States to offer farmers up to € 15 000 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).

27. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 27 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

28. Medium term perspectives The March 2009 Baseline

29. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 29 Milk supply: growth remains below potential EU milk production, deliveries to dairies, dairy cows

30. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 30 Cheese: demand prospects remain favourable and drive production growth EU production, consumption and trade (mio t)

31. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 31 Butter: declining production lead to the disappearance of public stocks by 2012 EU production, consumption, trade and intervention stocks (mio t)

32. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 32 SMP: lengthy de-stocking from intervention with little support from exports (facing strong competition) EU production, consumption, trade and intervention stocks (mio t)

33. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 33 DG AGRI Publications  Dairy market situation 2009 (22/07/2009) http://ec.europa.eu/agriculture/markets/milk/report2009/index_en.htm  Prospects for agricultural markets and income in the European Union 2008-2015 (03/2009) http://ec.europa.eu/agriculture/publi/caprep/prospects2008/index_en.htm http://ec.europa.eu/agriculture/publi/caprep/prospects2008/index_en.htm  Impact Assessment of the Health Check Proposal for a Gradual Phasing-out of Milk Quotas http://ec.europa.eu/agriculture/healthcheck/ia_annex/d2c_en.pdf http://ec.europa.eu/agriculture/healthcheck/ia_annex/d2c_en.pdf

34. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 34 Annex

35. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 35 Dairy market and consumer price developments since 1997 (Jan 1997=100)

36. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 36 Number of milk producers in the EU

37. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 37 EU income from manufacturing of Cheese/Wheypowder, SMP/Butter and WMP/Butter in EUR

38. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 38 Annex – baseline assumptions

39. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 39 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

40. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 40 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 78-85 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

41. ABER-BVLE Conference on Milk Crisis, Brussels, 29 September 2009 41 Assumptions for USD/EUR exchange rate and GDP growth (compared to assumptions in March 2008)