Coronavirus crisis spreads to producers in the European dairy sector

EUROPE – The spread of the Coronavirus has impacted the European dairy sector significantly leading to major difficulties in procurement and logistics in the processing industry.

According to a recent update by the European Milk Board (EMB), the dairy sector is experiencing high amount of milk production at the farm level – at capacities too high for existing processing and market capacity.

This, combined with the strong downward spiral of all key indicators for the dairy sector and further compounded by possible personnel shortages, as well as the collapse in demand for certain products has exerted more pressure in the industry.

For instance, the Global Dairy Trade index dropped as much as 3.9% in the third week of March after a steady decline in recent weeks.

Further significant price decreases have also been noticed on the Italian spot milk market. According to the Milk Board, these prices have shrunk by almost 7% in March compared to February.

Following the same trend, the rates for milk-product futures on the European Energy Exchange (EEX) have dropped significantly. Contracts for May are said to have gone down 5.7% to 3,300 euros/tonne. 

Joint anti-crisis action in the dairy sector

In light of these trying times, individual dairy-market stakeholders are already taking action to limit the fallout of the Coronavirus crisis.

For example, Mila, an alpine-milk dairy in South Tyrol, recently asked their producers to voluntarily reduce their production volumes to adapt milk supply to this crisis situation. 

However, the EMB maintains that it is not enough for individual regions to react or for different regions or institutions to implement measures that are all very different from each other.

“The measures must be aimed at everyone and must enjoy broad support – that is the only way to bring the Coronavirus crisis under control,” the EMB advises.

“In Europe, our lives are already so closely intertwined that it is impossible for individual action to produce meaningful results.

“Thanks to these close links – and this is a good thing – we also have the overarching institutions of the EU, which are in a position to make anti-crisis action in the dairy sector a reality.”

The Milk Board proposes that an effective way to bring bring real relief in the dairy sector would be by actively reducing the pressure caused by these surplus milk volumes in the EU.

In order to do so, the EMB said that the European Commission should immediately start preparing for the launch of a voluntary volume reduction scheme with capping, as foreseen in the Market Responsibility Programme.

“As the situation continues to worsen as is currently expected, volume reduction must be promptly activated,” the Board said in a statement.

The EMB noted that in this way, farmers would jointly reduce production on their farms and such concerted action, coordinated at EU level, can then adapt production volumes to current circumstances and can keep the economic consequences in check. 

The time to act is now

The Board insists that these steps need to be taken “immediately” and if agricultural production does not react, there is a very high risk of the entire sector falling into its worst crisis yet.

The Board cited the major crisis of 2016, where voluntary production reduction scheme was launched too late leading to servre effects in the dairy industry.

“This critical error must not be repeated in the context of the current crisis. Because agriculture and its products are indispensable for all EU citizens’ livelihoodsm,” EMB insisted. 

Even after the health consequences of the Coronavirus crisis start to subside, the economic fallout is expected to continue wreaking havoc.

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