EU Dairy Policy

The introduction of milk quotas over ten years ago has been central in underpinning dairying as one of the most profitable farm enterprises in the EU. Of major concern and a cause of continuing uncertainty to EU dairy farmers is what will happen in future World Trade Agreements. The EU exports more than ten percent of its dairy products and, along with New Zealand, has been one of the major exporters of dairy products onto the "world" market for many years. Under the final agreement of the GATT, Uruguay Round in 1994 the EU is committed to 1) a reduction in expenditure on export subsidies, 2) a reduction in the volume of subsidized exports, and 3) an increase in the importation of dairy products into the EU. Dairy farmers are worried about the impact these changes will have on their milk quotas, but are even more concerned about what may happen at the beginning of the next millennium when the next round of the World Trade Agreement is due to take place. Some consideration is being given to the possibility that EU dairying might be better served by abandoning producer quotas, accepting lower milk prices, and aggressively expanding milk production in the more suitable dairying areas. The competitiveness of dairying in the EU relative to the dairy enterprises in other "competitor" countries in the world is, therefore, of great importance to both EU and non-EU dairy farmers.

EU Dairying - Large and Very Diverse

France and Germany each have approximately five million dairy cows while there are over seven million cows in the countries of Ireland, the United Kingdom, Belgium, the Netherlands, and Denmark which could all fit into Alberta and still leave room for the Rocky Mountains. Dairying is much less "intensive" in northern or southern Europe and most of the emphasis in the rest of this paper will be on dairying in the areas of temperate grasslands, especially Ireland, the UK, and the Netherlands.

Milk production in Ireland is very seasonal and is based on grazed grass during a long growing season, plus grass silage over the winter period, with a total level of concentrate feeds of approximately 600 kg per cow per year. The average milk yield is little over 4000 kg, but the better dairy farmers achieve milk yields of almost 6000 kg per cow on the same low input system. In the UK and the Netherlands the average milk yield is around 6000 kg. The level of concentrate feed usage is between 1500 and 2000 kg per cow and maize silage is an increasing part of the feeding programme. Grazed grass is also an important part of the feeding program, but for a shorter growing season than in Ireland. While dairying in Ireland is in some respects similar to New Zealand, the cost of milk production in Ireland and in the more favored areas for dairying in the EU will remain much higher than those in New Zealand and will, in the author's view, be much closer to the cost of milk production in North America due to the higher winter feeding costs and the much higher infrastructural costs associated with winter housing and pollution control.

Costs of Milk Production in the EU

The net margin values do not include any imputed costs for family labor, land owned, or non-land capital. When such imputed values were included the "margins" in all countries were very low. The values quoted are for dairy herds of 50 to 99 cows.

Some of the physical factors from the records include 1) milk yield per cow, varied from 4678 in Ireland to 6794 kg in the Netherlands, 2) stocking rate (livestock units per hectare) varied from 1.6 in France to 2.7 in the Netherlands, and 3) labor productivity (tonnes of milk per labor unit) varied from 221 in France to 324 in the Netherlands. In considering the prices, input costs, and margins in milk production it is important to recognize the EU support prices for dairy products are set in ECU's and that the governments in member countries can sometimes manipulate the exchange rate between the ECU and the national currency which can have a major effect on the profitability of dairying in the individual member countries.

Factors Influencing Dairy Profitability

The top farms made an average profit of $156,000 while the bottom farms made an average loss of $37,000. While the output per cow was lower on farms reporting a loss, the most important feature was their failure to control both variable and overhead costs. On the farms reporting a loss, concentrate feeds, forage costs, veterinary and medicine costs, office costs, and other variable costs were all higher, while among the overhead costs power and machine costs and finance charges in particular were higher. Since the introduction of milk quotas the inability to control costs has been one of the outstanding characteristics of low margin dairy farms.

There is a lot of emphasis on margins per litre of milk or margin per kg of milk fat in the EU (milk quotas are reduced if the milk fat content increases). An analysis of the results of 4000 dairy farms in the United Kingdom (5) is given in Table 2.

The data in Table 2 shows that higher milk yield per se does not always lead to high margins. Further analysis of the herds based on the subdivision of the 4000 farms into yield bands ranging from less than 5000 kg per cow to more than 7000 kg per cow revealed that the top 10% of herds in each yield band achieved similar margins over purchased feed per litre and per kg fat. In all yield bands the top performers produced approximately 3000 kg per cow from home grown forage. (Milk yield from forage is calculated by estimating how much milk would be produced from the concentrate feeds used and the balance is assumed to be produced from forage). Where high milk yields per cow are combined with efficient use of concentrates, margin per litre and per kg of fat can be maintained and margin per cow, margin per hectare, and the margin for the total herd will be increased.

Grass Based Milk Production in Ireland

The management of grazed pastures for efficient milk production in Ireland has been summarized by Stakelum (8) and his conclusions are very similar to those outlined by Clarke at the 1995 Western Canadian Dairy Seminar (1). While grass is an inexpensive feed it can be very difficult to manage properly and it has, in this author's opinion, some nutritional limitations. Its biggest limitation is that the maximum dry matter intake of grass alone is in the region of 17 to 18 kg per day for a 600 kg dairy cow. If, in the interests of maintaining sward quality, some further restrictions on intake are imposed it is very difficult to achieve high milk yield per cow. This is the main reason for the low milk yields in Ireland and New Zealand.

In Ireland one of the main features of good pasture management is that a high grazing pressure is imposed early in the grazing season so that a deterioration in sward quality in the second half of the grazing season is prevented (8). Mechanical topping or clipping of pastures may help in maintaining sward quality, but it does not replace the requirement for very good pasture management on a continuing basis. The use of supplementary concentrate feeding while cows are grazing pasture has usually given very disappointing results because of a very high substitution of concentrate feed for grass dry matter. The use of conserved forages plus some concentrate feeding along with grazing good quality pasture is widespread in the Netherlands and will support much higher milk yields than are normal in Ireland. Such feeding systems reduce the opportunity to exploit grazed pastures as a very inexpensive feed for milk production, but they may be necessary if milk yields of 7000 to 8000 kg per cow are to be achieved while still using grazed grass as a significant part of the feeding programme for modern high genetic merit dairy cows. In a period of increasing competition in the market for dairy products world-wide, the exploitation of inexpensive sources of feed will probably become increasingly important to dairy farmers in most regions of the world. Efficient use of pasture will play an important role in this regard in the future.

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