Is intervention the best way to support milk prices?

Questions are now being asked as to whether intervention is the most suitable support mechanism for the dairy sector.

In a recent analysis of the measure by AHDB has found that at a time when milk production is expanding, intervention could be seen as simply a safety net for those who haven’t got a marketing plan to match their increase in milk production.

The AHDB chart below shows the EU28 countries who produced the most extra milk between 2014/15 and 2015/16.

It then compares this with the volume of cheese and SMP in PSA or intervention stores at the end of March 2016 (in milk equivalent).

In other words, how much of the extra milk produced by a country is currently sitting in stock?

Source: AHDB Dairy
Source: AHDB Dairy

The results, according to the AHDB are perhaps surprising.

The three countries who have produced the most extra milk; Netherlands, Germany and Ireland, are not the countries who have the most product in storage.

Between them, they have 16% of their extra milk still sitting in intervention or PSA store.

Belgium, on the other hand, has 86% of its extra milk sitting in store, with France at 68%.

The AHDB analysis says this suggests, that the three EU28 countries who have driven the biggest increase in milk production, are not over-relying on intervention to support their marketing plans.

It says the challenge for the EU Commission is whether there is a better way to support the market than the current intervention system.

“Support that encourages and rewards those who are driving a controlled expansion plan alongside a clear and achievable sales and marketing plan,” it says.

This week as was expected the European Commission will propose a further increase in the intervention ceilings for Skimmed Milk Powder up to 350,000t.

The original 109,000t ceiling for buying-in of skimmed milk powder at fixed price was reached on March 31.

On 20 April, buying-in at fixed price resumed when the Commission doubled ceiling to 218,000t.

This new ceiling was reached on May 24.

At the rate powder is being sold into intervention it will break the 300,000t mark in June. To put that into context 300,000t is as much as 75% of New Zealand’s annual production.

On Monday of this week alone, almost 7,500t of SMP was offered to public intervention with Ireland leading the charge on the day, offering some 55% of the product on the day.

Last week, some 26,000t of SMP was offered to intervention by EU Member States as dairy markets continue to slump across the continent.