A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Focus on issues

The Swiss dairy sector is plunging into crisis



Thierry Pouch, Permanent Assembly of Chambers of Agriculture (APCA)



Milk quotas have just been dismantled after 30 years, which raises this crucial question: how will the European dairy sector adapt to market fluctuations? Futures contracts for milk will begin on 13th April, but many professional organizations and experts are already waving the red flag: there has never been more risk of oversupply and price slumps.

Swiss milk quotas disappeared in 2009 and it is clear that their disappearance posed and still poses the question of establishing regulatory mechanisms as the sector goes through a major crisis. For example, industrial milk prices (volatile since the abandonment of quotas) fell by more than 10 cents, to 56 cents per litre paid to the producer in January.

We recommend reading this article by Thierry Pouch
1 which uses the case of the Swiss dairy sector to demonstrate that getting rid of quotas in Europe will not be easy without proper safety nets. The Swiss dairy sector is facing obstacles such as tension around pricing between producers and processors, lower prices and dairy exports from which the European dairy sector will certainly not be spared.


momagri Editorial Board



At a short period from the suppression of milk quotas, it is useful to examine what is happening to our Swiss neighbours. This Swiss dairy sector is going through a major crisis that is worrying the breeder profession and is encouraging them to focus on both new production quantity management methods as well as the need for government support for exports. In Switzerland or elsewhere, market regulation remains a very relevant problem which we need to reflect on.

So what is happening in the Swiss dairy industry? We know that the eradication of milk quotas has disrupted organization in the supply chain and deeply disorganized the markets. The eradication of milk quotas in Switzerland – which were introduced in 1977 and dismantled in 2009 - caused tension among chain participants, tension expressed in particular around price formation. Prices were negotiated on the principle of product segments (A, B, C) whose uses vary depending on the degree of value added. Contracting was made compulsory. Since 2009, prices are subject to, at times, tense negotiations between producers and processors. Out of quota, producers have increased production volumes, creating actual milk average prices often lower than target prices due to the limited absorption capacity of the market.

Consequently the path taken by the Swiss dairy industry appears turbulent and in addition to this organizational turmoil are monetary constraints. A little reminder: In 2011 the Swiss National Bank (SNB) introduced a minimum price rate for the Swiss franc, fixing it with the euro with the objective of containing its appreciation on the foreign exchange market. It must be said that, because of the sovereign debt crisis in the euro zone, the Swiss franc had served as safe haven to asset holders, an investment dynamic which had the effect of raising the currency’s parity, detrimental to Swiss exporters. In early January 2015, to everyone's surprise, the SNB stopped its strategy and suspended its currency’s floor price. Why such a decision? It is likely that the SNB anticipated the decision by Mario Draghi, head of the ECB, to practice quantitative easing (injection of 60 billion € per month into the banking and financial systems of the euro zone) to deter deflationary risk, opening the way to the euro’s depreciation which is currently underway.

If the SNB had maintained its floor price, it would have had to buy more foreign currency to maintain the Swiss franc’s floor price. The consequence of this unexpected turn by the SNB is that the Swiss franc has sharply appreciated since the beginning of the year by more 20% in a few days.

This was enough to cause trouble in the dairy sector. The magnitude of the Swiss franc’s appreciation hindered dairy exports, including those under quality labels. Double trouble, insofar as, in the domestic market, milk production is now in competition with that imported at lower cost due to the appreciation of the franc. Ultimately, because of the lack of opportunities, prices continue to decline in the wake of the suppression of milk quotas, undermining dairy farmers. An estimate delivered by Swiss dairy sector professional organisations indicates that the loss of value added would be around 20 million Swiss francs. The cheese sector appears to be the most affected by the appreciation of the Swiss franc. It follows that some professional organisations such as Emmantaler have decided to reduce production volumes in the hope of increasing prices and producers are claiming financial support to get out of this economic slump. Sales promotions, highlighting the chocolate industry Act (subsidies to offset the higher prices in Switzerland of butter and powdered milk), direct payments, cost reductions (veterinarian, administrative ....) are the measures currently being put in place. Yet again, agricultural market regulation, particularly in terms of volume, had some good points, especially when removing quotas we are not always endowed with instruments adapted to crisis situations! EU producers would do well to reflect on this theme...



1 The entire article is available from
http://www.chambres-agriculture.fr/fileadmin/user_upload/thematiques/Economie/LetEco349.pdf



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Paris, 18 December 2018