September 18, 2009

The EU will establish a working group to attempt improving profits in the dairy industry, with the possibility of setting up a futures market.

Discussion is needed to see if a dairy futures market in Europe would help make prices more transparent in the long term, said EU Agriculture Commissioner Mariann Fischer Boel.

Dairy farmers across the EU have protested falling milk prices and the commission's plan to end production quotas. Thousands of litres of milk have been poured onto streets and fields in France and Belgium, while 250 French farmers also held a protest at SPACE.

NYSE Euronext said this month it was considering futures contracts for skimmed-milk powder, whey and butter. In the US, the CBOT already offers milk, whey and butter futures.

But a European futures market is unlikely to help producers, said the Royal Association of British Dairy Farmers.

While a futures market may increase price transparency, all it does it to give advanced notice of what may happen, which will not be a solution to the problems faced by dairy farmers, said Chairman Lindon Edwards. 

European milk prices fell to an average 24.77 euro cents per litre in July, down 25 percent on-year. EU dairy farmers said milk prices are currently below the cost of production.

Fischer Boel said dairy prices are recovering in Europe, with the average EU milk price rising by about two percent in August and butter prices climbing in France, Germany and the UK.

The European Commission said it will change rules on state subsidies in coming weeks to allow member states to temporarily offer aid of as much as EUR15,000 (US$22,084) to farmers. It also proposed changing the output quota so levies for overproduction are used to pay for industry restructuring.