It looks like dairy farmers are protesting on both sides of the pond in response to a substantial drop in wholesale dairy price. The reason is straight forward enough: demand for dairy products has dropped off significantly since last year. But has it? We are told food items are mostly resilient during a recession, so what gives? Has the whole world stopped drinking milk?
A friend of mine that works in the dairy industry gives me a few interesting points to consider:
- Demand for milk-related products have dropped off. The most lucrative end-products from milk are cheese, butter, buttermilk, additives for bakeries, and chocolate. Many of these items are considered highly luxurious, and have not fared well in this economy. Living in the Netherlands where milk cows litter the landscape, I sometimes forget that milk and milk related products are very cheap here. After all, we pay around 65 cents for a litre of whole milk, and less than a euro for a large block of dark chocolate. This doesn’t happen in most places.
- By most places, I mean North America. Apparently, NAFTA is the only regional trade agreement that sets quota on the import of dairy products. As a result, North Americans pay more than their European counterparts. Both in price – which is noticeably higher than in the EU, and in quality – epitomized by various forms of the same bland Cheddar and hard Mozzarella that line supermarket walls. Additionally, North America tends to keep more meat cows than dairy cows. That, combined with higher transportation and refrigeration cost due to geographic diversity, lowers the supply and props up the production price.
- Drought in New Zealand for the past three years had reduced the global supply of milk substantially. As a result, farmers elsewhere had happily picked up the slack in supply and produced the much needed milk, particularly as demand from developing regions of the world moved at a clip. When rain finally arrived last year, and New Zealander dairy supply went back online, the demand curve had changed.
- Recession has not stopped, but has certainly slowed down China and India’s appetite for meat and dairy. One of the more exportable, and lucrative form of dairy products – baby powder, has been tainted by the Chinese melamine scandal last year, dealing another blow to the already fragile demand curve.
- Cows do not produce more or less milk because of the economy. Nor is milk a particularly durable food group. If not processed, due to lacklustre demand, milk needs to get dumped. And dumping costs money. Not making money from feeding your cows also cost money. But farmers are traditionally paid based on market price from the co-op they belong to.
All these factors together have come to result in an industry that is having some serious survivalist concerns. The governments have always stepped in before. Will they do so again to get the farmers through this rough patch?
So now they are protesting. If you have more knowledge of the industry, please share.
picture source: iso25