When milk turns sour

Call it the fallout of faulty farm policies of the rich or simply a demand-supply gap, dairy farmers across the world are crying for help as global milk prices slump. In India, the biggest producer of milk in the world, aggrieved farmers took to the streets in June and August after wholesale prices of cow milk collapsed to below the cost of bottled water in several states. At places, farmers emptied cans of milk on roads. “Milk procurement price in my district has reduced to Rs 15-20 a litre this year from Rs 28-32 three years ago, whereas the cost of production is more than Rs 32,” says H Venkanna Reddy, a marginal farmer from Telangana’s Jangaon district who supplements his income by selling milk. “My earning has halved in the past three years,” he adds. Reddy is among the 73 million small dairy farmers who have helped India surpass the European Union (EU) to attain the superlative in milk production in 2017-18.
According to the National Dairy Development Board, the country’s milk production has grown at 6.3 per cent a year during 2014-18, surpassing demand for packaged milk. Usually dairy units procure the excess milk and convert it into skim milk powder (SMP) to be sold in the international market. But the global price of SMP too has fallen—from $3,519 per tonne in 2014 to $1,959 in 2018—creating a glut and price drop in domestic market.
Halfway across the globe in Germany, a similar glut has forced Christian Sebastian to wind up his family farm in Hagelloch village in Swabian region. “We are suffering since the government has lifted the milk quota,” says the 62-year-old.According to European satistics body Eurostat, dairy market of the continent was quite regulated till the early 2000s due to a quota system introduced in 1984. Under the system, milk was produced as per the decided quota to control surplus production and thereby regulate the price. Following 2003-04, EU started relaxing the quota so that farmers can produce more and export. In 2006, production touched a record high of 133 million tonnes which led to the first price crash. Abolition of the quota system in 2015 acted as the last straw. “Though my farm had incurred losses several times over the past decade, I used to sell a litre of milk for 40 cents (about Rs 32 or $0.4) in 2014. The rate dipped to 24 cents by 2016. It has improved to 38 cents this year, but it is still far below our cost of production of 45 cents a litre,” says Sebastian. He was among the hundreds of farmers who protested in front of the EU agriculture office in Brussels in 2015.
His son has now sold most of his 28 cows to big dairies and shifted to beef business. He also rents a considerable part of his cowshed for horse stables. The village with rolling hills and lush green meadows wears a deserted look as several other dairy farmers have either followed suit or taken up small jobs in nearby towns. Across Germany, dairy farmers’ number had reduced by 42 per cent to 76,470 between 2001 and 2014. Post- 2015 reforms, another 12,000 have quit business. Yet milk price remains low as the small farms have now been acquired by big dairies who are churning out more milk than before.
In New Zealand, the world’s largest milk exporter which exports 95 per cent of its dairy products, farmers are faced with a peculiar situation. Most of the country’s 12,000 farmers are reeling from heavy debts. Mathew Hilhorst, a dairy farmer who owns 350 hectare (ha) in Taupo province, says his family has been supplying raw milk to the country’s multinational dairy cooperative Fonterra. Last financial year it reported $196 million net loss and has reduced its milk procurement price. To pay off the family loan, Hilhorst has mortgaged 250 ha of his farm to a Chinese company and works there as a tenant farmer.

Enter the dairy giants

Exploiting this rock-bottom price in major milk production zones like the EU, the US, Australia and New Zealand, dairy multinationals are ramping up investments in new economies. Their rush is destabilising local dairy sectors and pushing even more farmers to the brink of despair. European companies have been the most aggressive so far.
Increasing spending power of a growing middle class in Africa had already caught the attention of multinationals like Danone and Arla Foods. Their pressure on Africa’s dairy producers intensified in 2015, when the EU lifted milk quotas. That was also the time when Russia imposed an embargo on European dairy products in retaliation for sanctions that followed 2014 annexation of Ukraine’s Crimean Peninsula. It left the continent awash with milk. With prices at historic lows, dairy companies in EU desperately needed new markets to rid themselves of their glut.
Since 2013, French dairy giant Danone has spent $1.12 billion to expand in Africa through acquisitions. In 2014, it acquired a 40 per cent stake in Brookside Dairy, the leading group in East Africa that produces and markets fresh milk, yoghurt and butter. By 2017, it had acquired all of Brookside’s Tanzanian business, and expanded to Uganda and Rawanda. It also bought a majority share in West Africa’s biggest dairy company Fan Milk which operates in Nigeria, Ivory Coast, Ghana, Burkina Faso, Togo and Benin. Today, Africa accounts for over 5 per cent of Danone’s revenue. Around the same time, Denmark’s Arla Foods created joint venture in Nigeria and Senegal for distribution of its cheap dairy products. Media reports show before the 2015 crisis, European dairy giants had signed three deals in Western Africa; 14 such deals have been signed after the crisis.
Surprisingly, retail price of butter, chocolates and other dairy-based products has doubled since 2015 (see ‘Retail bonanza’, p40). “Supermar kets engaged in retail are creating pressure to keep milk prices low while rates of dairy products have skyrocketed,” says Tobias Reichert of German Watch, a non-profit based in Berlin.

Unfair competition
All these have created a double whammy for Africa’s nascent dairy sector. Bagore Bathily, director general of Dolima, a model home grown dairy company of Senegal, says almost 90 per cent of the milk available in the country is imported; only 10 per cent is domestic. This has spelled doom for the country where one-third of the households are pastoralists and the indigenous breeds yield less than one litre of milk a day. To improve its business, Dolima was trying to buy Afro-European breed of cows that yield 10 litres. “The cheap imported milk from Europe has put a break on our plans. To worsen the situation, Senegal lowered its import duty on dairy products which flooded the local market,” says Bathily, adding that the Senegalese pay more tax on domestic milk than what the European multinationals pay as import tax. To survive the changing market dynamics, Dolima has accepted Danone’s investment and is helping it reach out to new customers.

To further compete with farmers who supply fresh milk, these multinationals have set up plants where they reconstitute SMP, at times by adding some herbs, and sell those as “quality” milk. “The European companies do not want locally produced milk to reach capital city Dakar or other big cities of Africa where people have better purchasing power,” says Reiner Klingholz, director at the Berlin Institute for Population and Develop ment, who recently visited Senegal.
This milk rush is ratcheting up long-standing accusations that poor countries pay the price for EU farm policies crafted in Brussels. For instance, says Andrea Fink, milk trade expert at the Office for Agricultural and Regional Development in Kassel, Germany, EU acted under pressure from the World Trade Organization (WTO) and by 2015 removed all direct subsidies to farmers which used to help them sustain their dairy enterprise. That year it also abolished the milk quota so that farmers can produce more and benefit from exports.

European dairy sector was already benefitting from the lopsided trade deals like Lome and Cotonou agreements between the EU and African-Carribean-Pacific (ACP) countries in the name of boosting of economic development and integration into world economy, says Jurgen Maier of Berlin-based Forum Umwelt and Entwicklung, which advocates farmers rights and justified trade system. While these trade agreements look fair on paper they are not so on ground, and have, in fact, made African countries to open up market and compete with European market. Since the new free trade agreements under WTO are yet to be in force, the older one, the so-called economic partnership with African countries, is helping these transnationals dump cheap produce on emerging economies. “It’s a crisis of plenty where government policy is favouring increase in milk production after removal of quota,” says Maier. 

Interestingly, in May when foreign ministers of EU member states approved the European Commission’s trade mandate, which serves as the basis to launch negotiations for a trade agreement between the EU and Oceania, it sparked protests by both dairy farmers and dairy industries. To date, European dairy market receives the widest protection against imports. The new trade agreement would do away with these safeguards and allow New Zealand and Australia to export their cheap dairy products to the EU.

Mounting threat for India
India has so far remained immune from the onslaught of foreign dairy giants. According to non-profit GRAIN that works with small farmers, in 2011, US’ private equity firms Carlyle Group bought a 20 per cent stake in Tirumala Milk Products, a private dairy company that handles 1.2 million litres of milk daily from its procurement network in Karnataka, Andhra Pradesh and Tamil Nadu. A year later, Danone began negotiating for a stake in Tirumala and Dutch multinational Rabobank made an $18.5 million equity investment in Prabhat Dairy of Maharashtra through its India Agribusiness Fund.
“These companies were laying the groundwork for a future when India might open its market for European dairy products. When that did not happen, they started competing with India in the global market,” says Sagari Ramadas of non-profit Food Soverei gnty Alliance, India. They started exporting cheap dairy products to those Asian and African countries where India had a stronghold. Since 2015, India lost its largest export market of Bangladesh, Egypt, Alegeria, the UAE, Yeman, Saudi Arab and Pakistan to the EU (see ‘EU dairy giants backstab...’). In 2013-14, India exported 31,000 tonnes of dairy products, worth Rs 637 crore, to Bangladesh and 9,500 tonnes of dairy products, worth Rs 200 crore, to Pakistan. In 2017-18, it reduced by 90 per cent and 84 per cent.
By all probabilities the trend would continue in future. The EU Milk Market Observatory estimates that milk production will keep increasing for another decade—from 163 million tonnes in 2017 to 176 million tonnes by 2026. The Food and Agriculture Organization (FAO) warns that milk price will remain depressed for more than a decade.

The trend can be reversed
The pursuit of creating surplus milk and dumping it across the globe has not only created livelihood crisis for millions of farmers but is also hurting the ecology. “Fifteen years ago, cows in Europe produced 2,000 litres in a single lactation period. Today they yield over 10,000 litres. This has been achieved through unsustainable milking mechanisms, says Mair. To achieve industrial-scale production, big farms rear high milk-yielding breeds and feed them cheap soyabeans and artificial fodder from Latin America. Cows are induced with so much milk that they cannot walk, he says. Onno Poppinga, retired agronomy professor at Kassel University in Germany, says the system is so unnatural that cows usually suffer from production illness and have an average life span of four-five years. Calves get separated from their mother immediately after birth and all the milk it can produce in the entire life span is extracted in two years.

It’s time governments raised welfare standards of cattle, says Mair. This will stop over-production of milk, create scarcity and reverse the demand-supply trend. There is also an urgent need to re-establish local market where farmers can directly sell to consumers. Ramadas lauds India’s traditional practice of directly supplying milk to consumers. This has made its dairy sector sustainable. Some 75 per cent of dairy farmers in the country work in unorganised sector and are thriving. Only those who supply to organised sectors are facing the crisis.
This practice is inspiring several farmers elsewhere in the world. Josef Langeloh, a farmer with 70 ha of farm on the outskirts of Hamburg in Germany is one among them who has been successfully running his dairy business while others are shutting up shop. He produces 1.2 million kg of milk per year and supplies it to local cafes and consumers. Many entrepreneurs and farmers regularly visit his farm to learn how to make dairy business sustainable. “Look for customers who can buy direct milk from you,” says Josef.
Agrees Ramadas, who has authored a report “The Milk crisis in India: The story behind the numbers”. Small milk producers need to organise themselves into non-centralised and localised collectives that link directly to consumers. This will help them to stay away from an extre mely volatile and vulnerable global system of commodity production.

The story was done as part of fellowship programme ‘Media Ambassadors India – Germany’ in collaboration with Center for Media Competence at the University of Tübingen,Germany)

(This story was first published in the 1-15th November issue of Down To Earth).

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