Status Quo Looms After German Milk Strike

Dairy factories warned on Friday, June 6, that promises by German discount grocers to pay higher wholesale prices for milk and butter have changed little.

At a time when international milk prices are low and the European Union is warning farmers to get ready for a market-driven, quota-free world, many small farms may fail.

For 10 heady days, the farmers let off steam and won mostly sympathetic attention from the media. But for those on the edge of bankruptcy, the loss of 10 days of income was a terrible price to pay.

Thomas Fellmann from Germany's University of Hohenheim said, "They won out in the short term. But the structural problems of dairy farming have not been resolved."

Higher prices a short-term solution

Germany's BDM dairy farmers' association says the pricing mechanism remains unfair to small farms and its ultimate aim is to alter pricing and supply rules. BDM defines a fair price as 43 euro cents ($0.62) per liter.

Current farm-gate prices range between 27 and 33 cents, depending on the region in Germany. Farms in the North and East are much bigger, and can get by on lower prices than the tiny farms in the south where Germany slopes up to the Alps.

The boycott ended after Lidl and Aldi, Germany's two main discount grocery stores, offered to pay higher prices wholesale for fresh milk and butter. The offer sounded good, but is unlikely to bring fundamental change.

Susanne Nuessel, secretary of an association of dairy factories, warned, "Farmers think they are going to be paid 43 cents from now on. No chance." She said that price was illusory, since neither shoppers nor export customers would accept significant increases.

Price worries don't stop at supermarkets

Fresh milk may be nourishing, but at 60 cents a liter retail in Germany it costs less, liter for liter, than soft drinks. Discount grocers have hinted they will edge the minimum retail price up to 70 cents, and boost the butter price too.

But, as Nuessel said, there has been no commitment to boost retail prices for yoghurt, cheese or cream. In addition, only 45 percent of German dairy output ends up in supermarkets. The rest is exported or used as an industrial feedstock.

German dairy industry figures show there were 102,000 milk-producing farms with 4 million cows last year. Of the 29 million tons of milk they produce annually, more than 2 million tons are exported. Germany also imports specialty cheeses and other dairy products equivalent to 1.5 million tons.

Dairy farmers to face open market

The output of every farm is largely fixed under European Union quotas which were first introduced in 1984 to eliminate Europe's famous butter mountains, the vast surplus caused by earlier minimum prices.

In April this year, the EU raised the quotas by 2 percent, partly with an eye to world food shortages. The milk price fell. By 2015, the quotas and guaranteed prices are supposed to be gone completely and dairy farmers will be exposed the chill winds of the market.

Economists say inefficient farms are bound to fail. Since quotas were introduced, the number of dairy farms has been declining about 5 percent annually per decade in Germany. Fellmann says Berlin has to tell the farmers the hard truth.

"The government should not awaken any false hopes. Quotas will be finished in 2015," he said. "You get the impression that many farmers think Berlin is going to help them somehow or other and erect some kind of new protectionist barriers."

Fellmann added that it would be better for Berlin to offer tax and other relief to farmers to leave the industry.