June 5, 2009

Dairy producers and processors in France have secured a deal on Wednesday (Jun 3) on the price of milk for this year, after three weeks of furious farmer protests at a near 30-percent slump in prices over the past year.

Milk producers, dairies and manufacturers have agreed to an average price of EUR280 per 1,000 litres in 2009, France's farm ministry said.

Dairy producers had initially wanted EUR305 per 1,000 litres, before reducing expectations to EUR290. Manufacturers were seeking EUR267.

The parties also agreed to put a pricing mechanism in place from 2010 based on market indicators, and define a framework for future negotiations between producers and processors.

France's main farm union FNSEA said the agreement is unsatisfactory but essential as prices would have remained disastrously low if a solution wasn't found and agreed on quickly.

The price row exploded last month after farmer prices for April fell 20 percent on-month and were down 29 percent on-year, according to figures from French statistics office Insee.

Farm unions said producers received EUR205 per 1,000 litres for April, well below the production cost, while manufacturers argued prices should be in line with lower levels in the rest of Europe and on the world market.

In response to requests from France, the EU has approved extra measures to help dairy producers, including the extension of a deadline for EU public intervention buying of dairy products, and the possibility of early payment of direct subsidies.

France will use this option of early payment of annual subsidies and will also offer EUR30 million in additional aid for dairy farmers this year through tax relief, the farm ministry said.

France will also not apply a one-percent increase in production quota this year previously agreed by the EU to avoid further deterioration of the milk market.

US$1 = EUR0.703872 (Jun 5)