Beginning with China, COVID-19 created a massive ripple across the dairy sector as governments shut down restaurants, cafes, schools and large parts of the food service industry. China’s lockdown led to a massive decline in dairy imports, even as unseasonably mild weather in parts of the U.S. and Europe allowed for increased milk production. Various states of lockdowns also created difficulties in procurement and logistics in the processing industry, compounded by workers getting sick and all coinciding with a collapse in demand. The result: farmers left with too much milk and no one to sell it to.
Though European dairy prices had been on the rise in the last quarter of 2019, and higher prices were expected after a long downturn in the U.S., the sudden series of shutdowns sent milk prices tumbling with a glut of liquid milk. In the global system where dairy corporations favor oversupply and low milk prices, calls for supply management and fair prices are getting louder as COVID-19 wreaks havoc on dairy farms and farmers.
In March, the European Milk Board, representing over a 100,000 milk producers across the region, once again proposed an EU-wide Market Responsibility Programme (MRP), a type of a coordinated supply management scheme that would be enacted in three phases to reduce supply as milk prices fall until the crisis is averted. The programme is based on a market index that takes into account several factors including production cost margins. An index over 100 means that farmers are meeting their costs of production, including a fair income. Anything below that number indicates that production costs are not being met. In the first phase of the MRP, an early warning system is activated if the index falls by 7.5%, including the opening of private storage, more milk going towards suckling calves and fattening heifers. When the index falls by 15%, the crisis phase is activated and core measures of the MRP are launched, including bonuses for production cuts and levies for overproduction. The third and final phase is activated when the index falls by 25% and requires obligatory production cuts by a set amount for a certain duration of time. Such a phased in approach is supposed to help deal with unanticipated crises such as COVID-19.
In the U.S., food service and institutional purchases for schools, hospitals and the like account for about 30% of milk sales. With the shutdowns, dairy farmers poured milk down drains as the virus came on the heels of a debilitating six-year long dairy price crash. In one week, as much as 7% of all milk produced in the U.S. was dumped, while milk processors encouraged farmers to dispose milk, cull herds or stop milking their cows earlier. Recently approved U.S. COVID-19 aid programs would purchase additional fluid and powdered milk, cheese and other dairy products in connection with food banks. The impact of these upcoming purchases on the dairy market is still unclear.
The U.S. dairy industry has proposed a Milk Crisis Plan to restrict milk supply by 10% in the coming months to gain access to part of the $9.5 billion U.S. government bailout for farmers. An additional $14 billion discretionary fund is also available to help commodity farmers and could be part of government purchases of dairy products. However, family farm-based groups worry that the bulk of these payments will only reinforce a system of over-production that benefits big agriculture at the cost of farmers, especially those whose regional and direct markets have been abruptly eliminated due to the lockdowns. Farmers movements including the California Dairy Campaign, the Wisconsin Farmers Union and the National Family Farm Coalition would like to see direct payments from the virus aid become part of a systemic change to implement a supply management program. Such a program would limit production and hence new or expanded mega-dairies and the number of cows with the associated need for feed grains. It would also create predictable and fair prices for farmers. The organizations point to their northern neighbors in Canada as an example with its long-standing dairy supply management scheme.
The supply management scheme enacted in Canada since the 1970s is helping at this uncertain time to provide a level of stability and income support to farmers lacking for their American counterparts. Yet, in spite of the supply management scheme, the sudden panic buying at grocery stores, followed by a lockdown, created a market shock that needed time for adjustment. Canadian farmers were also asked to dump milk due to sudden oversupply to manage prices. The Canadian example shows that milk supply cannot, in fact, be shut down from one day to the next. COVID-19 requires a more comprehensive approach. Supply management schemes must be complemented with measures that lessen milk production losses including storage, reserves and social protection programs that provide a way to direct sudden excess supply to food insecure people.