The European Commission has put an end to the enforcement of the national dairy quotas imposed by Brussels 30 years ago. A new situation has come about, raising many questions for the industry in terms of both production and dairy businesses. Despite everything, this liberalization should, at least in the medium term, lead to a series of opportunities for those farms and companies which become increasingly efficient, innovative and competitive.
In the last ten years, as the quotas have been gradually increased, livestock farmers have taken advantage of each increase authorized by Brussels to raise production levels. From the year 2007 campaign to the present, production has gone from 5.86 million to 6.53 million tons, according to data published by EL PAÍS. This increase in capacity has unleashed a major adjustment process in the sector, which has gone from 100,000 farms to just 20,000.
The low production quota assigned to the Spain has also conditioned the development of industrial groups. This policy has allowed large Spanish groups to subsist but not grow. Now, with freedom of production and the possibility of having a large available volume of milk, some businesspeople trust that they will grow due to the availability of raw materials closer to production centers. A larger production level will mean making it possible to produce, for instance, more powdered milk and butter, two products which may allow for entering new markets or increasing sales volumes.
The greatest question arises in the production sector. The Spanish government foresees that, because of the change in the system, the average EU supply will rise by 5%. The livestock farmers biggest doubt, however, is whether the price that the industry pays them will cover their costs, and if they will buy all of their production after having increased it in recent years. The decision-making power over prices has now shifted towards the industry, according to livestock farmers. Right now, the price that they are offering milk producers ranges from 240 to 290 euros per ton and does not cover production costs, which are approximately 350 euros. According to many livestock farmers, this is putting the smallest farms in jeopardy.