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The Dairy Sector in France –Structure and Organization
and the Impact of Quota Abolition
Christophe Perrot département Economie
Institut de l’Elevage
France
ENPARD WORKSHOP dairy policy 19-21/12/2017
France 2nd largest milk producer in EU (60 000 dairy farms, 24 Mt milk) did not take advantage of the end of quotas ?
Ireland
Poland
Netherlands
DenmarkGermany
France
UK
quotas
Phasing out
2
Cumulative 12 months Milk deliveriesIndice 100= 1st quota (1984/85) by country
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Early exit from a few countriesA (predictable) shock of milk supply
• Planned increases
• • In Ireland (+ 50% Food Harvest 2020)
• • In Denmark (+ 20% "Growing livestock in favor of Denmark")
• ... or facilitated by national policies (tax, investments subsidies,…) and processors in the Netherlands and in Northern Germany
Lower quota costs boosted
building investments in the
Netherlands
Source: RICA UE DG AGRI – Investissements totaux des exploitations laitières (tous types confondus)– traitement Institut de l’Elevage
Land Buildinds Machinery
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Substantial investments to transformthe expected increase of milk production
Milk & Weypowders, Infant formula
Cheese
> 50 M€
20 to 50 M€
> 100 M€
Investments>20 millions €between2012 et 2014
Source : Direction Economie & Territoires du Cniel-
Octobre 2015
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In the EU, the big gap?
Opposite strategies between:
• Ireland Denmark Netherlands (Northern Germany):more than 2/3 of the production is exported; Strategy (coop) to take new shares in the growing international market
• France: processors (45% coop) adjust their collection to meet their commercial requirements, Profitable domestic market (58% of French milk) Convenience market (PGC) #1 EU: 85% of consumption made in France
Market to be protected against 1st price imports -> supply control
Consequences for dairy farms
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Until 2006, French dairy policywith social and territorial objectives,
before implementing a competition regime
6
Price Competitiveness (reduce costs)
Economies of scale: to produce more? At what cost ?
Economies of range: specialization vs complementarity ?
Economies of agglomeration: to produce and transform cheaper in dense
area
Non-price competitiveness (increase value)
Quality, image, innovation, services
Differentiation "delayed" (at processing level)
versus "original" differentiation (from origin of milk)
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Economies of agglomerationTerritorial specialization and concentration
Low dense milk fields: higher collection’s costs, inputs & specific services: less availability, quality, competition between
providers
7
Milk production 2014 Milk production 2007->2014
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In France, Economies of agglomeration
Milk production moves from mixed crop&livestok areas to two different kinds of specialized areas
Milk Production in 2013/14 (1000l/km2) Change from 2008/09 to 2013/14 in %
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Fonds de carte GISCO - Eurostat (Commission Européenne) © EuroGeographics
source: RICA UE 2011 (DG AGRI) - traitement Institut de l Elevage
clpl _ns 50% 60% 65% 70% 75% 80%9
Dairy farms are not specialized in the Northern France and Eastern Europe
Source: EUROSTAT FSS 2010
– traitement RMT Economie filières animales
Dairy cowsPer km2
% Produit brut lait/ Produit total hors aides
Médiane des exploitations laitières par zone (Pondération par les volumes de lait
produits par exploitation)
Specialiseddairy farms
Mixed dairyfarms
Price Competitiveness
Milk prices: less gaps than for costsBreak even prices reveals different « models »
Average2007
-2015 All dairy
farms371358336 334312
"Breakeven" = price of milk from which unpaid labor can start to be paid
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Bretagne Pays de Loire
Allemagne du Nord
Source: DG AGRI RICA UE 2011, Exploitations laitières spécialisées(définition IDELE)– traitement Institut de l’Elevage
FamilyFarmIncome/FWU France lowland specialized dairyfarms (2011-2016, from FADN)
The average farm income increases with the size of the milk enterprise, its variance too.Dimension offers income potential not a guaranteeDimension accounts for 25% of income variabilityLabour productivity, Control of costs, Adaptation of investments, Valuation of products
Economies of scale in most countries (except Denmark)
Cost price of milkwith calculated remuneration for family work(1.5 French Minimum Wage)
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0
100 000
200 000
300 000
400 000
500 000
Evolution du nombre d'exploitations laitières par classe de cheptel
<5VL 5-10
10 25 25 50
50 75 75 100
100 150 >150VL
(projection) (scénario)
Number DairyFarms
Number of dairy cowsper farm
Source : Agreste Recensements agricoles et BDNI– traitement et simulations Institut de l’Elevage
A rapid and policy-managed transformation of the structure of French dairy farms
Disappearance of small dairy farms
(<25 Cows)
Appearance of large dairy farms (>100VL)
Evolution of the number of dairy farms by herd size
Subsidizing closing of small farms
Encouraging medium farms
Penalizing the growth of large farms
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With the end of quotas, structural changes accelerate in France and Germany
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13
Source : Eurostat Recensements agricoles 2000 et 2010 et sources nationales (France: BDNI au 01/11 de chaque année)– traitement Institut de l’Elevage
21
33
42
311
17
0
10
20
30
40
50
60
70
80
90
100
1995 2000 2005 2010 2015
% dairy cowsin herd size>100 cows
Danemark
Royaume-Uni
Pays-Bas
Allemagne
Irlande
France
2020
35% (H1)à 39%(H2)
2000 2010 2013 2016 2020 (H1)
2020 (H2)
Number farms>100 dairy cows
1200 3300 4940 7144 9300 10800
% 1% 4% 7,2% 9,9% 18% 21%
25
5
Q
For French farms,A difficult economic equation
• Neither prices, nor volumes ?
• An expensive return to growth, especially in machinery.
• A post-quota context that is not easily understable in France, quotas->contracts, errors of anticipation?
• A mostly family labor force with few employees,
• Feed self-sufficiency is often expensive or not sufficiently valued by the market
• A very slow adjustment of tax system to price volatility.
14
Source: DG AGRI RICA UE, Exploitations laitières spécialisées (OTEX 45)
Labor productivity (2005 and growth
2005-2015) in specialized dairy farms
(kg milk/ AverageWorkUnit)
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A costly feed self-sufficiency or not sufficiently valued by the market
Source : DairyNZ Economic Survey 2012-13 ; Dairy Farm management - Business Summary New York State 2012;
Dairy Marketing California Cost of Production 2012 Annual Summary, DG AGRI RICA UE 2012 – Traitement des auteurs ;
exploitations laitières spécialisées pour l’UE (lait/produit hors aides >=70% et moins de 5 vaches allaitantes, et moins de 0.2 gros
bovins mâles engraissés par vache et <25 veaux de boucherie)
Feed costs (specialized dairy farms, 2012, €/1000l)
MachineryFertilizer, seed, phytosanitaryPurchased feed
A high feed self-sufficiencyfor production systems in France-West (~170g concentrates /l milk).
An advantage taken back by the cost of production of fodder (mechanically grown, harvested, distributed).Even in 2012 (historicalmaximum feed price)
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Non-price competitiveness and diversity
# dairy farms per small agricultural
region:
Lowland dairy areas 34 300 farms (45%) 49% of milk references
Crops+livestock areas 22 000 farms (29%)32% of milk references
Mountains and piedmonts areas17 400 farms (23%) 16% of references
A mosaic of dairy territoriesClassification of the French milk fields (Idele)
1) 15% of milk differentiated by origin
• 9,6% PDO
• 2,2% Organic
• Mountain milk
• Regional labelling/identities,…
• Special specifications (Omega 3, GMOfree, pasture/freerangemilk,..)
Strong and old link betweenterritory, typicity and image
2) Well known brands marketed world wide prefer delayed differentiation at processing level
Diversity and competitiveness: a long story
Price competiveness very important (42% of French milk production isexported with 12% outside EU, +4% in 7 years)
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0%
10%
20%
30%
40%
50%
60%
1988 1993 1998 2003 2008 2013
OL
CA
OV
VL
VA
OV= plus de 150 brebis;
VA =plus de 20 vaches allaitantes
Source : Agreste enquêtes structures et Recensement agricole 2010– traitement Institut de l’Elevage
% Farmers under 40 years old % Farmers over 50 years old
0%
10%
20%
30%
40%
50%
60%
1988 1993 1998 2003 2008 2013
OLCA
OVVL
VA
38%<40 ans
en 2000
Renewal of generations insufficient to prevent aging of farmers
Breeders ofEweSuckler CowsGoatsDairy cows
Dairy ewes
17
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Dairy farming in France: how to support diversity?• Historically a sector shaped by French socio-structural policy
• Fewer young dairy farmers but variety of holdings and forms of livestock systemsTypology:Herd sizes (from 25 to 109 dairy cows), AgriculturalArea (56 to 249 ha)Labour organization (0.7 to 5.4 AverageWorkUnits)
• Diversity of jobs and carreers for new dairy farmers• partner in a partnership
• entrepreneur managing employees and capital
• individual high-tech breeder
• Added value or low cost strategy for medium farm without
growth and investments
• Paid worker managed by his neighbor,
• What skills for new dairy farmers ? Technical progress, to deal with volatility, employees (17% AWU), societal expectations
• Enlargement versus Installation.
18
Str
eng
th•High production potential, moderate land price,
large Agricultural area, moderate animal density,
high forage potential (maize and grass)
• Diversified production systems with link to
territory and image, low input systems, farmers
skills
•Diverse and innovative processing companies
(incl world leaders), strong brands
• Captive national market with added value
•Regulation of production by processing chain
limiting price volatility and very low price
•Many jobs all over the country
Wea
knes
ses
o Complexity of downstream supply chain
o No consensus/method to set the milk price
o “Sharing Value” between stakeolders
(producers, processors, retailers)
o No clear message from the dairy chain, lack
of collective anticipation, excess of individual
anticipation
o Too many investments in farms / limited
increase in volume piloted by dairy companies
o Inadequate tax policy
o Expensive feed self-sufficiency
o Costs & labour legislation / others EU
o
Op
po
rtu
nit
ies
• Non price competitiveness (traditionnal and
technological products)
• Organic, Agro-ecological, Farm-made products,
Big dairy farms in the French way. Diversity
Th
reat
s
o Lack of dairy farmers.
Training and job attraction to reinforce
o Financial risks on farms
o Crop competition on arable land
o No more milk in some areas
French dairy sector: a lot of assets but…ENPARD Workshop dairy policy 19-21/12/2017 19
20
• Agro-ecological production systems
• with moderate resort to maize and improved self sufficiency in proteins(legume based pastures, grazing, home grown energy concentrates and resortto byproducts)
• Well planed size increase to improve productivity (milk per worker)
• with indoor feeding systems and resortto mechanisation and automation
• Keep strong added value in mountains (PDOs…) together withprovision of territorial services
• Or risks of disappearance
Challenges for the 3 main production areas/systemsin France
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Thank you for attention
For more information:• Perrot C., Chatellier V., Gouin D.-M., Richard M., You G., 2016. Le secteur laitier français est-il compétitif face à
la concurrence européenne et mondiale ? Communication au colloque de la Société Française d’Économie Rurale «Libéralisation des Marchés Laitiers» 9-10 juin 2016, Clermont-Ferrand France.
• AgroParisTech, IDELE, RAD, 2016. Les exploitations d'élevage herbivore économes en intrants (ou autonomes) : quelles sont leurs caractéristiques ? comment accompagner leur développement ? Rapport pour le MAAF, 123p. + annexes.
• Brocard V., Belot P.-E., Foray S., Perrot C. and Rouillé B., 2015. High output farming systems in Europe: the French case. In EGF Grassland Science in Europe, Vol. 20 – Grassland and forages in high output dairy farming systems, 26-38.
• Institut de l’Elevage, 2015. Lait en Europe du Nord. Forces, Faiblesses et potentiels en 2020. Dossier Economie de l’élevage, 462, 48 p.
• Institut de l’Elevage, 2015. Lait en Europe du Nord. 11 fiches thématiques et comparatives. Dossier Economie de l’élevage, 460, 56 p.
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