Feature: New dawn for Dutch dairy market as EU lifts milk quota system

Dutch dairy farmer Marco Klaver has built a new spacious barn with a carousel milking parlor that only takes a couple of hours to milk his 390 cows. Now all he needs is more cows. He hopes to have 430 of his black and white Frisian Holsteiners within a year.

The 39-year-old farmer in Noord-Holland has been eagerly awaiting the arrival of April 1. The European Union will then lift the quota system that has been regulating the milk production for the last 31 years.

The quota system was put in place to regulate overproduction caused by another EU-policy to buy farmers' milk if prices fell below a certain level. Every EU member received milk quota -- a maximum amount of milk it was allowed to put onto the market. Farmers, like Klaver, invested heavily to get a quota.

The lifting of the dairy quotas is the last step of a long process that started in the 1990s. "It's quite a landmark," Klaas Johan Osinga, a policy adviser of the Dutch Farmers Organisation LTO, told Xinhua.

EXPANSION DRIFT

Thousands of Dutch farmers, like Klaver, have expanded their farms in anticipation of the lifting of the quota. The average growth of dairy farms in the wake of the abolition of the quota is 10 to 15 percent, said Ruud Huirne, director Food and Agri at Rabobank, a local bank responsible for funding much of the growth. The bank has an 85 percent market share in the Dutch agricultural sector, mainly dairy farmers.

The number of dairy farms is estimated to drop from 186,000 to 12,000 in 2020, because of scaling up and closures, a process that has been going on for at least a decade, according to a report by the Rabobank.

Also, cheese, whey (used for baby powder) and drinking milk factories have geared up to process more milk. Dairy cooperatives invested around 2 billion euros (2.16 billion U.S. dollars) in new factories and expanding existing ones here, according to the Dutch Dairy Organization (NZO).

Royal FrieslandCampina, the Netherlands' largest and one of the world's most successful dairies, invested 1.7 billion euros in the country over the last three to four years, said its CEO Cees't Hart.

"We have put a lot of capital assets on the ground to make sure first of all that we can take in all the extra milk," he told Xinhua.

CONSUMPTION GROWING

The NZO estimates that worldwide the consumption of milk will grow by 2.2 percent. World population growth, urbanization and rising incomes drive this increase, says the Food and Agriculture Organization of the UN. Europe's biggest dairy exporter, the Netherlands mainly exports cheese and milk powder.

The Dutch farmer's optimism seems at odds with a current oversupply of milk on the world market that has driven international prices down, but it isn't, said Mark Voorbergen, a Dutch dairy market analyst.

"That's a cycle we already see for a couple of years. Every three years, milk prices peak and farmers start producing more milk leading to oversupplies. The peak may last longer this time because the shackles of the milk quota are gone. But in the long-term the market will need more milk," Voorbergen told Xinhua.

"There is even a risk of shortage because massive economies like China, India and Indonesia are driving the global demand for milk whereas the surpluses are coming from relatively small economies like Holland, Denmark, New Zeeland," he said.

PRICES MORE VOLATILE

However, farmers will face more volatile milk prices. Related costs such as animal feed ingredients will also fluctuate more, noted Klaas Johan Osinga, LTO policy adviser.

"Farmers will have to rely more on their own skills to protect themselves against risks, also risks like animal diseases and weather," he told Xinhua.

The milk price volatility is not just related to the lifting of the quotas, but mainly to lower price guarantees and greater import liberalization in the EU, he added.

International developments will also have a greater impact on the milk price. One such development is for instance Russia's food embargo that has cut off a large European export market for cheese, dairy market analysts predict.

FROM FARMER TO MANAGER

Farmers need to be prepared more, advised dairy market analyst Herma van der Pol. "You already have your cows, the feed cost and then suddenly the milk price falls. Then what do you do? A lot of farmers don't think about this," she said.

Klaver told Xinhua he is prepared. "Supply and demand will come closer together. We'll have to play into this. We'll take the risks and have the benefits," he said.

Just down the road his neighbor Bernard Schuijt, also a farmer, awaits the end of the quota era maybe even more eagerly. He used to be a farmer, but left it and became a businessman.

From April, he'll start farming again from a state-of-the-art farm he built together with another neighbor. He'll make use of his entrepreneurial skills. "You need to change from a farmer into a manager," he said cheerily. (1 euro = 1.08 U.S. dollars) Enditem