The EU dairy sector

1 BRIEFING EPRS | European Parliamentary Research Service Author: Marie-Laure Aug re-Granier Members' Research Service PE December 2018 EN The EU dairy sector Main features, challenges and prospects SUMMARY The EU dairy sector is the second biggest agricultural sector in the EU, representing more than 12 % of total agricultural output. While milk is produced in all Member States, farm and herd sizes, yields and types of farming vary widely across Europe, from free-range farming in Alpine areas to large specialised dairy farms in the north-west and centre of Europe. In 2016, 157 million tonnes of milk were delivered to dairies, where raw milk is processed into fresh products such as cheese or butter.

2 Part of the common agricultural policy, the EU's dairy policy consists of a range of instruments designed to support farmers and address market imbalances. In particular, it includes common market organisation, public intervention and private storage provisions, direct payments and rural development measures. The policy has been constantly updated over time, one recent development being the suppression of milk quotas in 2015. The 2014 to 2016 crisis, during which raw milk prices dropped dramatically from around 40 to cents per litre, triggered a reaction by the Commission based on public intervention-buying, private storage and a range of exceptional measures.

3 Two aid packages were adopted, including incentives for farmers to reduce production. Recovery was in sight by 2017. In the coming years, growing EU and global demand is expected to support world dairy markets, without hindering price fluctuations and market imbalances. Resilience and sustainability are key words for the future of the sector . This can be achieved with innovation, as a way to reconcile the need for farmers to earn a decent living, consumer demand for affordable and quality dairy products, and environmental/animal health requirements. In this Briefing Facts and figures about the EU dairy sector EU policy framework for the dairy sector The 2014-2016 milk crisis and the EU's policy response Challenges and prospects for the EU dairy sector Parliament's position Consultative committees and stakeholders EPRS | European Parliamentary Research Service 2 Facts and figures about the EU dairy sector EU milk production and use The EU's dairy sector is its second biggest agricultural sector in terms of output value after the vegetable and horticultural plant sector and before cereals.

4 In 2016, European milk farmers produced million tonnes of milk, 97 % of which was cows' milk and 3 % milk from ewes, goats and buffalo. The EU had the largest production of milk in absolute terms and relative to population size among G20 members in 2016. All 28 Member States produce milk. The main producers of cow milk are Germany, France, the United Kingdom, the Netherlands, Poland, Italy and Ireland, which together account for three quarters of total EU production. The remaining 21 Member States produce just a quarter of EU production. Most of the milk produced is delivered to dairies for further processing, the rest being used in other ways on the farms (either consumed, processed, directly marketed or used as feed).

5 In 2017, around 156 million tonnes of cows' milk were delivered to EU dairies. There are around 12 000 processing plants employing 300 000 people in the EU. The dairy sector is predominantly organised in cooperatives, which hold a 55 % market share. These cooperatives can be as large as a world-leading multinational companies or as small as SMEs or micro-enterprises. The milk delivered to dairies is processed into fresh products (drinking milk and other fresh products such as yoghurts, cream, fermented milks) and manufactured products: cheese, milk powder, butter, whey, etc. The production of butter and cream generates skimmed milk as a by-product, which in turn is sold as drinking milk, used to make cheese and other products, or transformed into powder milk.

6 Figure 1 Production of cow's milk on farms at national level, 2017 (thousand tonnes) Data source: Eurostat. - and importance of cooperatives in the dairy sector In 2015, about 64 % of all European cow's milk deliveries were handled by cooperatives. In the dairy sector , cooperatives have an important market share, owing partly to the perishable nature of the product, which entails high transaction costs in trading, and also to the instability of markets. In 2015, the Netherlands was the EU country where the market share of all dairy cooperatives was the highest, reaching 86 %. It was followed by Poland (75 %), Italy (68 %), Germany (67 %) and France (54 %).

7 Whereas the three largest companies in the EU dairy sector are investor-owned firms, the next four are cooperatives. They are strong competitors on the dairy market and are active in almost every part of the food supply chain. They provide their members with market access and bargaining power. dairy cooperatives are a specific form of producer organisation (PO) often engaging in processing activities. POs are encouraged and supported by the CAP, and governed by the CMO Regulation. The EU dairy sector 3 EU dairy farming sector structure A diverse range of farm and herd sizes across Europe More than half the specialised1 dairy farms in the EU are large or very large farms. There is wide range of dairy farms in the EU: those in the EU-152 are much bigger on average and have higher yields than those in the EU-13.

8 The diversity in dairy farm structure is linked to the differences in natural potential as well as in the social economic and regulatory context . The specialised dairy farms are concentrated mainly in the north-western Member States of the EU. The largest (by economic size) can be found in the UK, the East of Germany, Slovakia and Denmark. There were million dairy cows in the EU in 2015, unevenly distributed across the EU (see Table 1 below). There exist both EU-15 / EU-13 and north / south divides. Germany recorded the highest number of dairy cows in 2017 with million, making up 18 % of the total EU-28 dairy cow population. France ranked second with million units (15 %).

9 At the other end of the scale, Malta remained the smallest milk producer with around 6 000 dairy cows in 2017. Dutch regions have particularly high levels of milk production relative to their size. In 2016, 85 % of total EU milk production (168 million tonnes) was produced in the EU-15. The most common dairy cattle breed in the EU is the Friesian Holstein, but other breeds include the Normande, the Montb liarde, the Swiss Brown, the Jersey, the Simmental and the Ayrshire, to name but a few. Table 1 The structure of milk production in the EU in 2015 Region dairy cows Milk yield Milk production Milk deliveries Share of produced milk delivered to dairies Number (1 000) Share Amount (kg/cow) In relation to the EU average Amount (1 000 t) Share Amount (1 000 t) Share EU 23 364 100 % 6 859 100 % 160 258 100 % 152 189 100 % 95 % EU-15 18 146 78 % 7 356 107 % 133 491 83 % 130 777 86 % 98 % EU-13 5 218 22 % 5 130 75 % 26 767 17 % 21 412 14 % 80 % EU-north 14 907 64 % 7 175 105 % 106 966 67 % 103 737 68 % 97 % EU-south 8 457 36 % 6 302 92 % 53 292 33 % 48 452 32 % 91 % Data source: The EU cattle sector : challenges and opportunities milk and meat, European Parliament, 2017.

10 Yields per dairy cow are 43 % higher in the EU-15 than in the EU-13. Stark contrasts exist between EU countries and regions. At national level, the highest annual yields can be found in Denmark, Sweden, Estonia, Finland, and Portugal (between 8 278 and 9 361 kg per head) and the lowest in Romania, Bulgaria and Croatia (from 3 343 to 4 566 kg per head). At regional level, milk yield per dairy cow in 2016 was highest in Lombardia (IT) with 9 870 kg per head. Specialised milk farms in the EU-15 have a milk yield of 7 264 kg/cow for an average herd of 55 cows, while in the EU-13 the average yield is 5 036 kg/cow for an average herd of nine cows. Specific types of milk production in the EU Organic production: in 2016, about 3 % of the milk produced in the EU was organic.