Why Europe's farmers are flipping out over milk prices

The centre of Brussels looked like a medieval warzone over the weekend as farmers turned bales of hay into flaming barricades and tore up paving to hurl at the riot police opposing them.

They’re not alone.

A convoy of angry French farmers steamed into Paris on tractors last week. Even somewhat more reserved British farmers have been kicking off in recent months, removing the milk from supermarket shelves to highlight their own struggles.

They’re all protesting about dairy prices, which have gone through the floor this year.

But why is it happening?

In short: there’s too much supply and not enough demand.

At the end of March, the EU got rid of milk production quotas, which had limited how much farmers could produce under the Common Agricultural Policy.

So production is up, and as a result, prices are down.

You can see how much wholesale milk prices have fallen in the UK, dipping below £0.25 ($US0.38) per litre this year:

In Ireland, a major milk-producing country, 7.8% more milk was produced in the first six months of 2015 than in the first six months of 2014.

Removing the quota mostly helps large farmers who were held back by production limits. But smaller operations that can’t produce more milk are now getting hammered.

While the British protests initially focused on reduced prices at supermarkets, there are bigger forces at work. Supermarket competition is one factor that contributes to lower prices, but that’s missing the wood for the trees. Supermarkets were competing back in 2013, too. The abandoning of milk quotas is new and that’s making conditions even tougher.

Below you can see what’s been happening to the number of farmers actually producing dairy. In a period of just 10 years, the number of producers in the EU has been pretty much cut in half. They’re consolidating into fewer, bigger firms. That’s bad news for the little guys.

Milk farming is not a growth business — the number of firms has already been sliding for years. The recent price slump is just another pressure on an industry that’s been squeezed for a long time.

And it’s not just Europe. Globally, dairy prices recently touched their lowest levels since the early 2000s, going below what was seen during the worst part of the financial crisis.

That’s undoubtedly welcome for consumers, who aren’t going to complain about lower dairy prices. But for a lot of the people that make the products, a fall in prices by about 60% is unbearable.

There’s been a glut of dairy around the world, including North America and New Zealand — the tiny island nation is an absolute colossus on the global market for dairy products. The slowdown in China certainly hasn’t helped, since rapid consumption growth in the world’s second-biggest economy was part of the plan for many major producers.

Similarly, Russia’s agricultural sanctions haven’t helped European farmers, who were suddenly deprived of another source of demand.

New Zealand Finance Minister Bill English even described it as a “perfect storm” for the sector.

The glut has driven acquisitions in the sector, and the troubles of milk giant Fonterra are so important to the New Zealand economy that they’re raised in speeches by the governor of the country’s central bank.

There’s no consensus on when there’ll be any relief for the farmers. The only thing that’s likely is more farmers manning the barricades before it’s all over.

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