Voices from Russia

Monday, 10 August 2015

European Dairy Industry in Crisis Due to Russian Food Embargo

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European dairy farmers are facing their most serious economic crisis in decades, largely because of the continuing sanctions war between the EU and Russia. In a recent report on the subject, Radio Sweden explained that most expect the current Russian embargo of European agricultural products to lead to a new wave of lowering milk prices in the near future. It noted, “The current crisis is [already] regarded as one of the most serious in the last 40 years”, noting that with global milk prices already falling to a 30 year low, the current price of 2.65 krona (20 Roubles. 2 Renminbi. 20 INR. 0.30 USD. 0.41 AUD. 0.40 CAD. 0.28 Euro. 0.20 UK Pound) is well-below the 3.60 krona (27 Roubles. 2.50 Renminbi. 27 INR. 0.41 USD. 0.56 AUD. 0.54 CAD. 0.38 Euro. 0.27 UK Pound) minimum necessary for Swedish dairy farmers to make ends meet. Meanwhile, subsidies to Scandinavian dairy giant Arla Foods have fallen by 1.09 krona (8 Roubles. 0.75 Renminbi. 8 INR. 0.12 USD. 0.17 AUD. 0.16 CAD. 0.11 Euro. 0.08 UK Pound) over the past year. Färanäs-area dairy farmer Tore Engström told Radio Sweden, “We can’t remember when we last experienced such a deep crisis, and no one knows when it will end”.

The Association of Swedish Farmers thinks that if someone doesn’t deal with the situation in the next six months, many of Sweden’s 4,200 private dairy farmers may simply begin go bankrupt, with 4 out of 5 already suffering serious economic difficulties. Association chairman Jonas Carlsberg told Radio Sweden that according to the data of his colleagues from Denmark, “86 percent of Danish milk producers face a critical situation. I can add that a similar situation exists in Sweden as well”. Radio Sweden noted that much of the hit to producer prices has been the result of the continuing sanctions war between Europe and Russia over the Ukrainian crisis. Carlsberg complained, “The idea that farmers must pay for political decisions is fundamentally wrong. We’re waiting for decisive actions by policymakers”.  For its part, the Swedish government promised to look into the matter later this month, with EU agriculture ministers promising to do the same in early September.

Czechs, Germans, and Balts Feeling the Pinch Too

Like their Swedish counterparts, Czech dairy farmers too felt the pinch of the embargo, forced to look for new places to dump the 500 tonnes of butter and 1,500 tonnes of powdered milk that once went to the Russian market. German dairy farmers are also struggling, losing a market for 126,000 tons of cheese, according to Thorsten Sehm, the head of the Federal Union of German Milk Producers. Sehm told RIA Novosti that whilst only 1.26 million tons of Germany’s 29 million tons worth of milk went to Russia prior to the embargo, “In any market, once the supply exceeds demand, it leads to drastic changes”. So far, in Germany, Sehm noted that this led to a drop in prices to rates lower than “the crisis years of 2012 and 2009”. German Farmers’ Union spokesman Michael Lohse Lohse complained about commercial effects of political decisions, noting that for his organisation’s part, “we call on the authorities of our country to find opportunities for deepening [trade relations] with Russia”.

The Baltic States seem to be hit worst of all, with their close economic ties with Russia prior to the embargo and difficulties in finding alternative markets leading to a situation where their entire dairy industry is now on the verge of collapse. In Estonia, the sanctions war resulted in a decline in a 30 percent decline in producer prices, with Estonian milk exports falling by 17 percent in the first quarter of 2015 alone. Latvia’s dairy industry suffered a similar decline, with Agriculture Minister Janis Duklavs noting that he’d appeal to the EU for additional funds to save the dairy industry from total paralysis, warning that farmers are on the verge of destroying their livestock and liquidating their farms. Latvian Association of Milk Producers Chairperson Ieva Alpa Eisenberg noted that Latvian farmers “have plunged into despair, because we don’t know when the situation will improve. One doesn’t know whether one can climb a little bit further into debt, and whether one will be able to pay it back”. He noted that the present crisis is the worst the country faced in over 15 years. In Lithuania, dairy farmers join the rest of the agricultural sector, which has faced a 30 percent decline in exports in mid-2015, compared with a year earlier. Agriculture Minister Virginija Baltraitiene noted that she’d ask EU Commissioner for Agriculture for 32 million Euros (2.25 billion Roubles. 217.6 million Renminbi. 2.24 billion INR. 35 million USD. 47.6 million AUD. 46 million CAD. 22.6 million UK Pounds) to help save the industry. Local experts warn that Lithuania may have to reduce dairy production by 50 percent in the near future.

Global Factors

This spring, the EU lifted national quotas on milk production, with each country now able to increase dairy production at will, resulting in growing production and a glut in the market. This exacerbated the crisis in the loss of exports to Russia. Furthermore, China significantly reduced its purchase of powdered milk from EU sources, which only deepens the crisis. German Farmers’ Union spokesman Lohse explained, “Of the 10 cent drop in milk prices, 2-3 cents are the result of the Russian embargo, with the rest resulting from other factors. These include the decline in exports to China… as well as general overproduction of milk in the EU”. Federal Union of German Milk Producers chairman Sehm complained that local politicians “aren’t undertaking any efforts to create an appropriate regulatory environment for the milk market”, adding that the same problem exists in France, Spain, and Italy, and in other EU countries.

In August 2014, Russia introduced an embargo on several categories of food products from the EU, the USA, Canada, Australia, and Norway, in response to the anti-Russian sanctions introduced earlier by these countries over the Ukrainian Civil War. This June, the Russian government decided to extend the embargo until August 2016, responding to the EU’s extension of sanctions.

10 August 2015

Sputnik International

http://sputniknews.com/business/20150810/1025581375.html

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