The competitive strength of the Danish milk production from a Global and EU perspective

Transcription

1 The competitive strength of the Danish milk production from a Global and EU perspective Preben Mikkelsen Danish Cattle Federation

2 1. Danish Cattle Federation 2. The Global milk production structure 3. The political framework in EU 4. The future of milk quota in EU 5. Future challenges and possibilities 6. Competitive strength of Danish milk production 7. Concluding remarks

3 1. Danish Cattle Federation

4 The Danish Cattle Federation The Danish Cattle Federation is a unifying body working to improve specific conditions of cattle farming and being the spokesman of cattle farmers and we work to Ensure the best possible earnings for cattle farmers Optimise the industry by a plough to plate approach and viewing the industry as a whole Organise service, advising and control assignments

5 The Danish Cattle Federation stands on three legs Cattle and industrial policy Primary production and advising Veterinary conditions and primary product quality

6 Danish Cattle Federation Objective: Being the most competitive European cattle industry as regards economy, sustainability and quality Danish Cattle Federation is formed by: Danish Agriculture (the national farmers organisation) A.I. Centre Dansire Danish Dairy Board Danish Meat Board

7 2. The Global milk production structure

8 The largest milk producing countries of the world Metric tonnes Canada Mexico United States Argentina Brazil EU 25 Romania Russia Ukraine India China Japan Australia New Zealand North America South America Europe Former Soviet Union South Asia Asia Oceania

9 The biggest players on the world market Others 24% Others 17% EU 40% Argentina 3% EU 35% New Zealand 23% Australia 7% USA 6% New Zealand 33% USA 2% Australia 10% EU is loosing market shares to Oceania!

10 Farm structure around the world

11 Milk price around the world (2004) Source: IFCN Dairy Report 2005, national statistics, estimations Milk price in US-$ / 100 kg milk > < 20

12 Costs of producing milk around the world?? Cost of milk production in US-$ / 100 kg milk Source: IFCN Dairy Report 2005 > <15

13 Reasons for differences in costs of production New Zealand Argentina Brazil USA Denmark NZ Argentina Brazil USA Denmark Average herd size, number of cows Milk yield per cow, kg Capital input per cow, $ Labor costs per hour, $ Land price per ha, $ Source: IFCN Dairy report ,700 2, , , , , ,5 1, ,100 4,500* ,975 * 145 cow farm in Wisconsin. Large farm i.e. >700 cows: 2,500$ 100 8,800 5, ,000

14 3. The political framework in EU

15 Reform of the milk policy Quotas: Extension of the quota system until 2014/15 3 x 0.5% quota increase in Denmark from 2006/ /09 Prices: Reduction of the intervention price butter: 3x7% in 2004, 05 and % in 2007 SMP: 3x5% in Intervention ceiling of 70,000 t for butter in 2004/05 dropping to 30,000 t in 2008/09 Compensation: Partial compensation for the reduction of intervention prices Decoupling in Denmark in

16 Political perspectives EU-enlargement Bulgaria and Romania from 2007? Price pressure New markets Milk-reform CAP-reform Quota system + 1,5% increase Milk price -22% 50% compensation Decoupling Modulation WTO I WTO II Export refunds eliminated Increased market access EU-budget 2013 (financial discipline) Reduction in subsidies

17 4. The future of milk quotas in EU

18 Market balance in EU28 To ensure the good balance Mio. tons Mio. tons Exports Sales EU Milk deliveries + imports Milk deliveries Prognosis : - Consumption in EU: +1% p.a Quota: +0,5% p.a.* Imports: 2.5% of comsumption p.a. in 2006/07 rising to 5% p.a. in Exports: 13.5 mio. tons p.a. falling to 10 mio. tons in * Quota increase not included for B, F, GR, LUX, AUST, FIN, SW and U.K.

19 The market and the quota The expected market development leaves room for a gradual, annual quota enlargement of 0.5-1% with a continued market balance should be evaluated on an annual basis dependent on the development. Impact: Preparation for termination of the quota system Gives certain possibilities for competitive countries It is expected that Denmark will utilize the quota increase an increase will have a minor, calming impact on the quota price Countries not utilizing the quota, will have no negative impact

20 Future of the quota system Several countries discuss termination of the quota system It simply calls for a blocking minority (90 seats) to terminate quotas (Sweden, Denmark, U.K., Italy and Poland) Requirements up to 2015: flexibility gradual phasing out / gradual increase of quota clear signal in due time

21 Is it realistic to give up milk quotas? YES! If the Council of Ministers does not decide otherwise, the milk quota system will be abolished by An extension requires the EU Commission to put forward a proposal. A blocking minority may secure that the present quota system is not extended. 90 votes out of 321 form a blocking minority: I.e. Great Britain, Italy, Poland, and Denmark may together block a proposal.

22 5. Future challenges and possibilities

23 Challenges and countermoves The challenges Lower milk price Less economic support Stricter environmental regulations More focus on animal welfare The countermove of the dairy farmer Cost minimization Increase in farm size Exploitation of new technological advances and new knowledge Focus on strategy, leadership and management

24 New knowledge and new technology Better machinery Better housing facilities Better feeding equipment Better milking systems

25 New knowledge and new technology Better genetic Better chemistry Plant protection Fertilizers Medicine More knowledge More knowledge regarding Feeding of cows Management of heifers Roughage-growing More and better knowledge of usage of technology

26 Technology will monitor the herd Health and reproduction Feed uptake Health and reproduction The registrations are converted into useful information

27 The role of the farmer is changing From Doing all the farm work Milking Feeding Field work Monitoring the herd To Strategy formulation Management of production and economy Management of labor Management of consultants Monitoring the herd by use of technology From To Manager and leader Skilled craftsman

28 Trends for the coming years regarding ownership From To The family farm C Cr. The family farm S The network The limited company

29 Trends for the coming years the production system From To A fully integrated unit An fully integrated unit Out sourcing Consisting of individual units

30 The role of the advisor is changing The traditional role Specialist on specific subjects such as: Feeding, animal health, economy etc. Treatment of sick animals The recipient of the advice is the dairy farmer Little communication between the different advisors Little focus on the farm as a whole Knowledge and advisory tools are very The new role Technology takes over much of the registration on the farm Due to technology diseases can be identified at an earlier stage Prevention of diseases Specialist and discussion partner The recipient of the advice could be several people on the farm More focus on the farm as a whole The advisor acts in a team of advisors Knowledge and advisory tools are important but so are collaboration and communication skills Sharing knowledge

31 6. Competitive strength of the Danish milk production

32 Net capital and liabilities Denmark Sweden Norway Finland Netherlands Germany France Spain U.K. Ireland Poland Hungary USA Brasil Kina Australia New Zealand 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Net capital Liabilities

33 Structural development: Increase in cows p.a. ( ) Denmark Average number of cows per holding 86 Sweden Norway Finland Netherlands Germany France Spaion U.K. Ireland Poland Hungary USA Brazil Australia New Zealand Per cent

34 Labour productivity (Kilo milk/hour) Denmark Sweden Norway Finland Netherlands Germany France Spain U.K: Ireland Poland Hungary USA Brasil China Australia New Zealand Kilo milk/hour

35 Danish milk production International competitiveness Structure: 6.8% annual increase in farm sizes Working productivity: Only exceeded by NZ and Australia. High wages, but welleducated, efficient and ready for readjustments Debt ratio: 75% = top achievement, but result is a high investment level = geared for international competition

36 Investments on dairy farms Quota exchange introduced Investments, DKK per cow

37 Earnings on farms with dairy cattle 350 Operating result, 1,000 DKK No of cows per farm 120 Operating result, 1000 DKK No of cows per farm * * Provisional result based on 1/3 of the accounts. 0

38 Milk price paid to the producer DKK/100 kg 4.2% fat and 3.4% protein /95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05

39 Milk price paid to the producer in other countries DKK per 100 kg (4.2% fat and 3.4% protein) Year DK 1 FIN FR NL UK DE PL US NZ * Change in 2005 compared to 2004, percentage in DKK -4% -2% -3% -2% -1% -1% +18% -7% -1% in nat l currency -4% -2% -3% -2% -1% -1% +5% -6% -5% Note: 1) The Danish prices are October year prices * Estimated prices

40 Causeofimprovementofthe operating result Productivity progress more than equals the price reduction Milk allowance Falling animal feed prices and a satisfactory harvest of coarse fodder High beef prices Fall in taxes of tenancies New accounting method

41 7. Concluding remarks

42 Some concluding remarks The surrounding environment of the dairy farms in the EU is changing Milk price is decreasing and the income of the farms is under pressure Economic support to farmers is likely to decrease Decoupling of support from production changes the competitiveness of the dairy farms

43 Some concluding remarks The likely countermove of the dairy farmers Lowering the cost of production Structural development and larger farms Investment in technology A change from craftsman to manager/leader

44 If you prepare and change focus from support to the market there will be a bright future for the European milk producer.