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June 23, 2020

Report: EU Market Interference Cost U.S. Dairy Farmers $2.2 Billion in 2018, 2019

 |  By: Jim Dickrell

A economic analysis done by Darigold asserts that European Union (EU) intervention in global dairy markets cost U.S. dairy farmers $2.2 billion in 2018 and 2019.

Specifically, the intervention cost as estimated 27₵/cwt in 2018 and 73₵/cwt in 2019, according to a report authored by dairy economists Ken Bailey and Megan Mao. The report was done in cooperation with the International Dairy Foods Association, and reviewed and endorsed by the National Milk Producers Federation and the U.S. Dairy Export Council.

The report notes that the global market intervention came as a result of the EU transition out of its dairy quota program, which originated back in 1980s. The cost of the program became prohibitive, however, and the EU began transitioning out of it 2003. Quota were completely abolished in early 2015.

EU milk production was growing at an average annual rate of 2.2% between 2012 and 2016, and a trade embargo from Russia and reduced exports to China created massive dairy surpluses in Europe. The EU began buying and stockpiling skim milk powder (SMP) to isolate them from the market, and by 2016, it had accumulated 22 percent of EU SMP production. This also amounted to 16 percent of the global SMP market.

As market conditions improved in 2018, the EU started releasing these stocks onto the market. “The EU Intervention Program had a significant global market impact,” write Bailey and Mao. “In addition, this study estimates that over 94% of the variation in the US farm-gate milk price is ultimately explained by butter and nonfat dry milk prices. Thus, as the price of nonfat dry milk changes, it drives the value of protein in the US, and this has a significant impact on farm-gate milk prices.”

According to the report, had there been no EU Intervention program in 2016 through 2018:

• “US farm-gate milk price would have fallen $0.42/cwt in 2016, but would have exceeded the baseline by $0.27/cwt in 2018 and $0.73/cwt in 2019 under the “no Intervention” scenario.”

•  “Farm value of US milk would have initially declined 2.6% in 2016, but then would have increased by 1.7% by 2018 and 4.0% in 2019 under the ‘no Intervention’ scenario.”

• “Value of US exports of NFDM/SMP would have fallen 6.7% in 2016, but then would have increased by 4.7% in 2018 and 10.1% in 2019 under the ‘no Intervention’ scenario.”

• “Global price of SMP would have initially declined 5.4% in 2016, but then would have increased by 3.6% in 2018 and 8.7% in 2019 under the ‘no Intervention’ scenario.”

“This report puts into hard numbers the bitter truth that U.S. dairy farmers already know: the EU’s dump of intervention stocks onto the world market depressed farm-gate milk prices in the U.S. in 2018 and 2019,” says Jim Mulhern, president and CEO of NMPF. “… it’s time to do the advance work necessary to ensure we don’t see a repeat of those harmful impacts from EU Intervention policy in the future. The EU SMP Intervention Program needs serious reforms and the [Trump] Administration should examine the best tools at its disposal to help drive that needed change.”

NMPF, USDEC and IDFA have sent a letter to U.S. Trade Representative Robert Lighthizer and USDA Secretary Sonny Perdue, urging the U.S. government to prevent the EU from using similar market intervention practices in the future to dispose of its dairy surpluses.

NMPF reported in May that a coalition of dairy organizations from Argentina, Brazil, Chile, Costa Rica, Ecuador, Guatemala, Mexico, Paraguay, Uruguay and the United States joined together in urging the EU not to repeat the inventory-building and extended market-price suppression it engaged in just a few short years ago.

You can read the full Darigold report here.