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December 2, 2008

Tension over French milk prices to rumble on

The French dairy sector has seen protests and blockades across the country in recent weeks as farmers demonstrated against moves from dairy processors to cut milk prices. This week, a deal was struck - and farmers will see the price they get for their milk fall. However, as Dean Best reports, tense discussions over the price of milk are set to continue.

By Dean Best

The French dairy sector has seen protests and blockades across the country in recent weeks as farmers demonstrated against moves from dairy processors to cut milk prices. This week, a deal was struck – and farmers will see the price they get for their milk fall. However, as Dean Best reports, tense discussions over the price of milk are set to continue.


In recent weeks, relations between the major players in France’s dairy sector have turned sour.


Faced with falling demand for dairy products and falling dairy prices worldwide, France’s major dairy processors have pressed for cuts in the prices they pay to the country’s farmers.


France’s farmers, however, hit back. Facing their own pressures of soaring feed and fuel costs, they sought to resist any moves to lower the price they receive for their milk and launched a series of protests at dairies up and down the country.


The blockades hit the likes of Lactalis, Danone and Sodiaal, the giants of the French dairy sector, while talks over prices were convened and reconvened without agreement being reached. Dairy processors wanted stringent cuts; farmers were keen to see none at all.


With farmers upping the rhetoric and calling for the blockades to continue, it was hard to see a deal being struck. However, this week, a surprise deal was reached – and one in which France’s farmers have had to accept a cut in the price they get for their milk.


The agreement makes provision for price cuts for November and December 2008 and the first quarter of 2009.


The deal will see cuts of EUR25 (US$31.7) per 1,000 litres for November and December – a drop of 7-8%. Farmers will start 2009 with a fresh round of cuts, with them set to receive EUR45 less in January and February – a reduction of 12%. In March, farmers face a cut of EUR55 – a fall of 15%.


Just weeks after boycotting negotiations with the dairy industry over price, France’s leading milk producers group, the FNPL, argued a settlement had become inevitable.


“We’re not jumping for joy at this deal but it represents a necessary compromise,” an FNPL spokesperson told just-food today (2 December). “Our initial position was not to accept any price cuts at all but the continuing deterioration in market conditions meant these were unavoidable. Nevertheless, the scale of the cuts is not as important as the dairy companies were proposing several weeks ago.”


The dairy companies, the FNPL spokesperson said, had pushed for monthly cuts of between EUR40-60 in the final quarter of 2008 and EUR100-120 in the first quarter of next year.


ATLA, the body representing France’s dairy processors, agreed the deal was a “compromise”. A spokesperson said: “It was really important for us to have an agreement [and] everyone made a step to reach an agreement. We were obliged to compromise; if we want to have milk production, we need to pay [the farmers] for their work.”


The notion, however, that France’s dairy sector is in for a quieter few months could be a misguided one. For a start, there is dissent among some sections of the farming community over the pricing agreement. A smaller milk farmers body, the OPL, is mulling plans to call for a fresh national strike in protest against the deal. “The OPL us very angry, it is a very bad agreement,” a spokesperson said. “Milk producers are in a huge crisis. The food for cattle is going up, petrol is going up – everything is going up except the price of milk.”


According to the OPL, two pieces of government policy – at a national level and at EU level – have also hit milk prices in France this year. First, the decision earlier this year by France’s competition watchdog, the DGCCRF, to forbid any discussions on price between farms and dairies on anti-competition grounds. That ruling, the OPL spokesperson said, meant dairies were able to “do what they want” on price.


Second, the OPL believes the the EU’s move last month to increase dairy quotas through the member states will further depress prices. “If there is a lot of milk on the market, then prices will follow it,” the spokesperson said.


Given the recent volatility of the price of dairy commodities, the future trajectory of the price of milk is, however, hard to predict. Under this week’s agreement, dairy and farming groups in France are set to meet to discuss plans to set up a new way of calculating milk prices and making them more responsive to market conditions,


Following the tension between dairies and farmers in recent weeks, it would be reasonable to assume that such an agreement will, at best, be difficult to find. However, according to Lactalis, there are due to be some tough negotiations not just between dairies and farmers but also between rival dairy groups themselves.


According to a Lactalis spokesman, different French dairies pay different prices for milk, depending on the proportion of commodities like milk powder in a company’s turnover. Dairy processors like Entremont Alliance, which generates a higher proportion of their revenue from dairy commodities, can pay farmers less than firms focusing more on consumer goods like Lactalis, the spokesman said.


“This is not fair for competition,” the Lactalis spokesman said. However, he added: “We need a new agreement but it will not be so easy to find.”


As far as the French dairy sector goes, plus ça change.

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