Thursday, 10 March 2016 06:55

Subsidies keep milk flowing, defy logic

Written by  Sudesh Kissun
Federated Farmers Dairy chairman Andrew Hoggard (left) and primary production select committee chair Ian McKelvie at the conference. Federated Farmers Dairy chairman Andrew Hoggard (left) and primary production select committee chair Ian McKelvie at the conference.

Federated Farmers Dairy chairman Andrew Hoggard says subsidies and support payments to farmers are partly responsible for the shock rise in global milk production.

Hoggard told the dairy council conference in Nelson last week that these payments have the effect of insulating farmers from the realities of the world market.

Despite falling milk prices, global milk production remains strong, particularly in parts of Europe; the extra milk is not helping arrest the decline in prices. Normally, when milk prices drop, farmers cut back production and the drop in supply triggers a price recovery.

However, Hoggard says last year milk production in parts of the world increased substantially.

"The law of supply and demand isn't some contentious theory that is much debated; there is no debate. It's straightforward: if you want higher prices either supply needs to decrease or demand needs to increase, and demand certainly won't increase by filling supermarket carparks with cowshit."

Hoggard points out that Euro 850 million in subsidies is being paid to dairy farmers, as reported by the European Commission.

"These production linked subsidies are particularly for those on marginal land, or in areas where dairy is at an economic disadvantage to other land-use types. Yes, apparently if you live in a region where there are higher value uses for your land for, you can get a subsidy to stay dairy farming rather than switch to the higher value land use. Surely this should be the first production to drop by the wayside in the current environment."

"When, however, 42% of your income comes from support payments, the reality is it influences your decisions and enables you to make different decisions than you would otherwise make. The current increase in supply flies completely against economic logic."

Hoggard says the current downturn is cyclical and structural.

"The current downturn started due to a standard cyclical event -- low demand from one market, China, together with high levels of supply worldwide. It was then compounded by another cyclical event -- the geopolitical market shock of the Russian ban on food imports; but holding us down is the underlying structural issue with the global dairy market, i.e. dairy is a highly protected product."

Only 13% of global dairy consumption is accessible to New Zealand dairy exporters at tariffs below 10%. These barriers mean only a small volume of global dairy production is traded, Hoggard says.

"Put simply, the liquidity of the global dairy market is constrained, making it more prone to volatility. And this volatility is then compounded by some large developed country milk producers continuing to use subsidies and supports to shift price risk from their farmers and into the international market -- the market that sets the milk price."

More like this

Carcase collection impasse

Collection of dead calves from farms around the country has stopped with farmers and the recycling company blaming each other for the impasse.

Raising Fed’s positive profile

Federated Farmers new vice president wants the organisation to become the ‘go to’ body for farmers and to help them have pride in what they do.

Water reforms come at a cost

The government’s new freshwater laws, signed off this week, have the potential to create significant unnecessary costs for ratepayers, farmers and entire communities, Federated Farmers says.

Feds’ election wish list

Federated Farmers has released its election manifesto, advising the incoming government on the policies farmers want.

Featured

Lindsay Farm raw milk recall

Raw milk from Central Hawke’s Bay producers Lindsay Farm is being recalled after Campylobacterbacteria was found in some product.

 

Carcase collection impasse

Collection of dead calves from farms around the country has stopped with farmers and the recycling company blaming each other for the impasse.

Taking NAIT seriously

North Otago calf rearer Jared Ovens believes the Mycoplasma bovis outbreak has led to more farmers embracing animal traceability.

» The RNG Weather Report

» Latest Print Issues Online

Milking It

No hidden cameras

A court has ruled that hidden camera footage showing cows being beaten with a steel pipe is unlawful partially on…

Avo milk

You've heard of soy milk and almond milk……now’s time to meet Avocado milk.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter