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Focus on the milk revolution

Livestock is a sector on the move. Population in the global South are increasingly shifting consumption towards meat and dairy products. This growing demand is the main trigger of the so-called „livestock revolution“ , an important opportunity for pro-poor growth. Yet, the dairy sector on which this article focusesis the one often reported to be undermined by Europeanmilk powder exports. At the moment of reforming the Common Agriculture Policy (CAP), what is the situation and where are we heading to?

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Ilustrační foto / Zdroj: Archiv Glopolis

A livestock revolution is underway. Does the poor fit in?

The livestock sector is one of the most dynamic of the agricultural economy. Population growth, rising incomes and urbanization generate higher demand for livestock products. While the share of cereals in people´s diet has declined, milk, eggs and meat´s sharesare on the rise. The growth of milk consumption in developing countries has been in average 3,5 to 4% per year between 1995-2005, twice more than the consumption growth of major staple foods over the same period. In Bangladesh, the state´s planning commission forecasts that the demand for milk will double by 2015, taking 2009 as base year ! Althoughthe pace of this growth is different from region to region, it does everywhere represent one pathway out of poverty.

Owning a dairy cow represents a valuable asset for rural populations.Not only does it providemilk, thus calcium, protein and vitamins lackingin plant-based food but it also represents a regular source of income and an asset important enough in order to reach out to credit for instance. It is estimated that almost 150 million farm households, i.e. more than 750 million people are engaged in milk production, the majority of them in developing countries.

Changing consumptions patterns are a given that must be dealt with. The livestock revolution represents a growth engine which, with the right policies, could considerably alleviate poverty.In many countries the basis is already there. Bangladesh counts about 1,4 million dairy farms ( with 3 cows in average ( in Czech Republic, dairy farm counts in average 100 cows) but productivity is very low with only 721kg milk per cow per year (against 6574kg in Czech Republic ) and most of it does not reach the formal market. Enabling small-scale farmers to sustainably increase productivity and access markets is thus key. This requires both active engagement of local, national, regional authorities on one hand but also the commitment of dairy exporting nations likeEuropean member states to more coherence of their common agriculture policy.

When the EU messes up with dairy markets abroad

In the realm of cases of incoherencies of European policies with development, the agricultural sector is sadlyking. NGOs reported several cases of European import surges of frozen chicken parts inCameroon, onions in Senegal or tomatoes in Ghana. But what public may know best is the dumping of Europeanmilk powder discouraging production in developing countries, particularly African onesbut also in others like Bangladesh.

The case of Bangladesh came out for the first time in 2009 with the reactivation of export subsidies, also called exports refunds,by the European Union. The global slowdown of the demand created the despair of farmersacross Europe as the prices collapsed. Everyone still remembers farmer´s actions of pouring milk in fields or in front of the European Commission in Brussels. Export subsidies helped to get rid of the surpluses on the European market that were keeping prices low while making European products competitive on the international market. These exports subsidies are often creating despair of foreign small producers, as subsidies tend to lower world milk prices and as cheap dairy powder may also enter in direct competition with local milk. But while it relievedEuropean stakeholders, it passed the burden to others. 

In Bangladesh, some dairy producers have also been vehemently protesting against low prices back in 2009. The International Farm Comparison Network-IFCN calculated the impact of European export subsidies on the poor through a scenario analysis. It estimated that thereduction of the world milk price by 2, 5€ (caused by an export refund of 5€ per 100kg milk) affects significantly the livelihood status of more than 5 million people, keeping people in the poverty cycle. Such a reduction of milk price does reduce the income of a household by 7 to 16%. Especially for the very poor families (5,6 people) having two cows and limited access to off-farm jobs, such decrease means that the family can neither buy its daily foods nor send children to school. 

This illustration dates back from 2009. Since then, world prices have been rising, meaning that local Bangladeshmilk has been competitive again. Currently, the price for Bangladeshimilk in supermarket is about 160 taka (1,52 €) for an amount equivalent to 400g of European milk powder that costs 210 taka . But does it mean the end of the trouble for the poor? Let us here look at different aspects of the problem.
What stands on the way to more coherence? 

If currently the Bangladeshi production may have an advantage, the question is for how long. Prices volatility of milk powder is stronger than it used to be, and is known to weaken the efforts of re-launch of agricultural production in poor countries. More frequent erratic climate events combined with the disappearance of market regulatory tools are likely to worsen price fluctuation in the future. The EU used to be a source of relative stabilityof international dairy prices as European dairy market was in a situation of managed market, thus encountering limited volatility. But successive reforms of the CAP have eroded market management tools.Volatility is perceived as a new reality to cope with rather than aproblem to tackle. Risk mitigation rather than market management is therefore the prevailing approach. One proposed risk management tool is to create a dairy futuresmarket in the EU. While futures may help to reducethe volatility encountered by the producer in the first place, the risk existsthat it leads to price bubbles if strictconditions are not in place, thus worsening dairy prices´ volatility.

Moreover, the European Union is not really on track with fixing the well-known sources of incoherencies.

First of all, the EU is not yet ready to put an end to export subsidies. From the leaked legislative proposals on CAP reform(to be officially presented by the European Commission on October 12th), export subsidies are a tool to be kept on the side if needed. It seems the EU will not stick to its word from Hong Kong in 2005 togive up on export subsidies by 2013. 

 Secondly direct payments, although considered non-trade distortive at the level of WTO, still represent a problem. Their raison d´etre is not the topic of this article;they do play a key role in enabling European farmers to make a living from farming, especially when prices are not covering production costs. Yet, no measures are taken to reduce their lowering price´s effects on poor countries’ markets. They enable European exporters to get shares of markets they would not get without the subsidization through direct payments. European development NGOs have proposed that “where subsidies have been received on a product or its inputs, export duties of equal value to them should be levied as a countervailing measure. This would put in reverse the traditional practice of export refunds”.

 Thirdly, the already planned and politically untouchable decision of gradual phase-out of milk production quotas will increase the European production of milk powder. In a pre-assessment of the gradual quota disappearance, exports of skimmed milk powder were predicted to increase by 69% in 2015 compared to 2008!Czech republic has engaged into exports of milk powder to Bangladesh in 2008 and is by now the biggest EU exporter to the Bangladeshi market, exporting in 2010about 3938 tons of whey powder and 2125 tons of skimmed milk powder.

In these conditions, the opportunity offered by the milk revolution may well slide away from the poor. It seems more likely to be answered by EU exporters or New Zealand, and UnitedStates’ exporters or by investments into large farms in poor countries rather than by poor farmers themselves. 

Completing the picture…

To complete the picture, it seems important to also cover two other aspects, one on the responsibilities and the other on our commons.

Fixing these incoherencies is certainly necessary but non-sufficient to enable the poor to cease the opportunity of the milk revolution. Stop the harm is the responsibility of EU member states, protecting and supporting local production is the one of Southern countries´ governments. Surely, the threats posed by European exports of milk powder would be less of an issue if protective and supportive policies wouldbe implemented. Tariffs shielding the local production may be too low while public support is slow to happen. In Bangladesh, import tariff for skim milk powder was reduced in 2008 from 75% to 35% . By 2009, with international price lowering, the local dairy production was given a rough ride. Bangladeshi food security experts are of the opinion that tariffs should be raised up from today´s 32, 8% to about 40%.

The government may face difficult policy dilemmas between rapidly satisfying milk demand from a growing urban population combined with the expansion of the milk powder importing industry and investing into local production and marketing. But in finding equilibrium, the question of what will best benefit the poor rather than further marginalize them must be asked. The example of the Flood program in India can serve as an inspiration. The Indian government progressively substituted imports by increased local production. It did so by investing into the development of local production and markets with the money earned from selling the food aid received from the European Union. 

Besides and to conclude, it is also interesting to question the development of the European dairy sector. More and more milk is produced by less and less farms causing visible environmental problems, posing increasing risks for the health of European citizens and demoralizing European rural economies. The coming reform is the occasion for a reorientation of the policy towards healthy and tasty products, produced in sustainable ways, generating economic dynamism into rural areas and,to be more coherent, exporting higher added value products that will not damage the poor’s livelihoods, rather than milk powder.