European dairy farmers spray police officers with milk during a demonstration outside the European Parliament in Brussels on Monday. | AP Photo
By Mark Jurkevich
European dairy farmers used more than 1,000 tractors and milk transport trucks to gridlock Brussels on November 26 and 27. They were protesting low milk prices. Using high pressure hoses, the farmers sprayed with milk the European Union Parliament Building, as well as the riot police trying to keep order.
The European Milk Board (EMB) claims 157,000 dairy farmers have gone out of business since the 2009 dairy regulatory reforms came into effect.
European milk farmers drive their tractors down a main thoroughfare in the European Quarter of Brussels on Monday, Nov. 26, 2012. Farmers drove their tractors into the European Quarter of Brussels on Monday for a two-day demonstration to protest against what they believe are unfair milk prices. | AP Photo
Under those reforms, production quotas are raised 1% per year for each country. They define the maximum amount of milk farmers can produce. By limiting supply, government kept prices artificially high. Government also makes direct payments to farmers in return for accepting production limits. In short, the consumer gets hit twice: with higher milk prices, and by paying additional taxes to finance the direct payments to the farmers.
As production limits are gradually raised under the 2009 regulatory reform, and farmers continue producing to the higher limits, the supply has begun to exceed demand. Thus, prices for milk began to go down.
In short, the 2009 reforms are gradually phasing in free-market principals. As the milk market was freed, it exposed the obvious fact that there are far too many dairy farmers with far more capacity than demand can absorb.
The EMB would prefer to go back to the good old days when its members got paid by the government while they tended to cows and enjoyed their farms without having to think about how much milk the consumers really wanted to buy or how much they were willing to pay.
“Our message today is that we need new market regulations to ensure prices that cover costs of production. Milk prices are far too low. Farmers can’t make a living and are closing their businesses,” EMB President Romuald Schaber said in The Daily Telegraph.
Cleverly, the EMB gives its proposed new quota regime a free market sounding name – “Flexible Supply Management.” Under Flexible Supply Management, the farmer would have no flexibility in deciding on how much product to produce; that would be strictly dictated by the government, again.
Currently more than 25% of the total EU budget is spent on the Common Agricultural Policy, or CAP. Of course, government distortions of agricultural markets are not unique to the EU. The United States has its own regulations that match the EU in complexity and market distortion. Read more »