Daily Management Review

Why dairy surplus in the US is a bad sign for Europe


10/17/2016


Wall Street Journal, citing data from the US Department of Agriculture. Milk was poured directly on fields, into compost pits, was given livestock or even left in the middle of the road during transportation.



Surplus of milk would be sufficient to fill 66 Olympic swimming pools, and it's the largest amount of wasted milk in the past 16 years.

Manufacturers are struggling to find new ways of marketing, for example, increase servings of milk in school lunches or change the recipes of tacos and muffins. However, current prices, which have fallen by 36% compared to 2014 year, in some cases do not even allow to ship milk, as transportation costs exceed income.

Just two years ago, producers of meat and milk in the United States have begun to expand production in response to shortage, and this paved a way for the surplus. This year, farmers managed to gather an impressive crop of corn, soybeans, poultry and cattle. As a result, food prices have in the US fell sharply, and income of farms has been steadily decreasing for the third consecutive year.

October 11, the US Department of Agriculture (USDA) announced its intention to spend $ 20 million on purchase of cheddar cheese from farmers. this is the second intervention of authorities to the situation on the market in the last three months. At the same time, Dairy Management company (de facto a marketing firm, paid by 43 thousand American farmers) has invested tens of millions of dollars to develop a new, rich milk menu for McDonald's, Taco Bell, Domino's Pizza and a dozen companies.

For example, McDonald's has been proposed to replace liquid margarine, used in the morning menu, with butter. A new recipe has been submitted to 15 thousand restaurants in September 2015. According to the company’s press-secretary Hari Becky, replacing margarine with butter was part of "transition to simple ingredients," and led to "double-digit growth in sales of Egg McMuffin."

Use of butter will help increase milk consumption by 300 million liters annually.

Larger proportion of cheese in pizza and butter in buns rose commercial consumption of these two products by 4% in July year on year. On average, in the past year, every American has eaten about an additional 0.5 kg of butter and cheese, according to Ministry of Agriculture.

Last year, Dairy Management increased its investment in a strategic partnership to $ 30 million - almost twice as much as in 2010, when the agency just started cooperation with big companies.

Spending of organic dairy farms are twice as bigger as those of conventional farmers because of smaller volume of production and expensive feed. Yet, even they are forced to sell milk to traditional dairy plants to get rid of the product.

Price of milk in the European Union is low, too. Abolition of quotas on milk production and introduction of Russian sanctions resulted in milk surplus in Europe. In July, price of a liter of milk has fallen to a 7-year low, to € 0,2563 (according to Eurostat). Since August, however, prices slowly started growing, helped by reduction in milk production in the EU.

Milk production in the EU is a subsidized industry. In mid-July, the union’s government decided to support manufacturers with a package of grants totaling € 500 million.

Overproduction of food and consumer goods is particularly acute in the light of the US and the EU talks on Transatlantic Trade and Investment Partnership (TTIP).

In Europe, many politicians and experts believe that removal of entry barriers, harmonization of regulations and standards would be a concession to American companies. Their costs are lower (primarily due to lower taxes and labor costs), and therefore prices are more competitive than those of Europeans. Nobody knows what European farmers will do, if they suddenly lose the government support. Most likely, some of them will stay on the market, some will close the business, or will be absorbed by the Americans. 

Now, the EU authorities have slowed down negotiations on the TTIP under public pressure. They are promising to fight for European interests. 

Recently, European Commission President Jean-Claude Juncker said Europe will continue to negotiate with the United States, but will do it carefully and with regard to interest of local producers.

Either way, outcome will become public only after the event since the negotiations and the agreement’s draft are secret.

source: wsj.com, nypost.com






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