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German farmers not cowed by end of EU milk quotas

Mar 31 2015 18:38

Kemberg - Fresh from a massage, the cows turn slowly on a computerised "milking carousel" - everything is ready at the Heideland farm south of Berlin to ramp up production once European milk quotas end on Wednesday.

"Look how well we treat them, all the space they've got, and here they even have a massage machine," says Richard Reiss, head of the giant farm of 1 200 dairy cows.

Dairy farmers like Reiss in Germany, Europe's biggest milk producer, are happy to see the back of the production limits that have prevented them from exploiting the export opportunities offered by the rising middle classes in Asia.

"As soon as we heard that Brussels was considering scrapping the quotas, we started thinking about how to respond," says the red-faced septuagenarian.

"Since 2012, we've done nothing but prepare for this," adds Reiss, saying that € 8.0m have been invested in the past two years to increase efficiency and the potential to ramp up output.

That includes the highly automated "milking carousel" that allows the cows to be milked three times per day instead of the normal two, and methane-capturing systems to generate energy for the farm.

The race for productivity includes pampering the cows a little - passing along a spinning brush at the end of a metal arm a couple of times appear to make them happy.

And so are German farmers now that the production limits are history.

"We're happy the quotas are being scrapped. We're prepared," says Karl-Heinz Engel, president of the German dairy industry association, MIV, insisting that the sector is "export-orientated and competitive".

That is a fairly optimistic stance compared with, for example, farmers in France, Europe's second-biggest supplier, who invoke doom-and-gloom scenarios of oversupply and falling prices.

But in Germany, the industry views the scrapping of the quotas, introduced in 1984 to prevent over-production, as a "chance and an opportunity".

In fact, the regime has effectively been ignored in Germany anyway.

In 21 out of the 30 years that the quotas have been in existence, Germany has produced more than its annual allocation, preferring to pay €2bn in penalties instead.
Big investments

At 32 million tonnes in 2014, Germany is the EU's biggest dairy producer. But like other countries, such as Ireland, the Netherlands and Denmark, it is readying to raise output.

MIV is forecasting annual production increases of 1.0-3.0% until 2020, with the upper end of that target range representing an increase of nearly 20% over the entire period.

The Netherlands is planning an increase of a similar magnitude.

Normally, increasing output pushes prices down - farmers already receive no more than a paltry € 0.28 per litre.

"Twenty-eight cents is the equivalent of being on life-support. I'm for a price of, say, 35 cents," says Reiss.But the industry is confident it can find buyers for the additional output at reasonable prices.

Dairy farmers have invested heavily in new capacity, "above all in milk powder and in cheese" production according to Monika Wohlfahrt, head of the ZMB Dairy World market information company.

Reinhard Vogel-Lackenberg, of the Deutsches Milchkontor (DMK), said the dairy has invested €500m over the past five years in new production lines for cheese and pasteurised milk.

DMK is one of Germany's biggest dairies, buying 6.7 million tonnes of milk from farmers per year, or more than a quarter of the country's total production.

"The European market is finite," so DMK is eyeing exports to Asia, and the Middle East and other countries "where an increasingly affluent middle class is prepared to pay for quality dairy products," says Vogel-Lackenberg.

DMK has already set up commercial offices in China and Dubai.

Fierce competition

The weakness of the euro against the dollar should add extra impetus to German farmers' export ambitions, said Wohlfahrt at ZMB, even if, for now, the crisis in Russia is complicating matters.

Russia is one of the biggest customers of cheese made in Germany, but it has banned all imports from the EU since last year.

Germany will not be alone, either, in setting its sights on overseas markets, experts cautioned.

"There are some very strong international competitors," concedes Vogel-Lackenberg, pointing to Ireland for instance.

Those producers that are not as rich and powerful as DMK, particularly smaller operators serving niche markets, "will have to fight hard," warns Rene Kramer, dairy chief at the German cooperative association DRV. But farmers will be looking to increase output wherever they can.

One farmer in northern Germany, Hans-Hartwig Ketels, refuses to be ruffled.

"We don't have a lot more farming land in Germany," he says. "That will put a lid on output increases and ensure prices remain at an acceptable level."

Ketels has invested in new facilities and is looking to increase his herd of dairy cows from 230 to 300 by October.

"But it's possible that the next one to two years will be complicated," he acknowledges.

eu  |  germany  |  world economy


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