Opinion: Family farms need funding support | Opinion | DW | 30.05.2016
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Opinion: Family farms need funding support

The government has decided to distribute a subsidy of 100 million euros ($111 million) among German dairy farmers to help bridge a period of low milk prices. It's a short-term boost, says DW's Kerstin Schweizer.

The government has decided to distribute a subsidy of 100 million euros ($111 million) among German dairy farmers to help bridge a period of low milk prices. It's a short-term boost that doesn't solve the basic problem.

When my extended family got together for reunions or celebrations, it was always the dairy farmers amongst my relatives that had to leave first. After we had polished off plates of potato dumplings and egg noodles, supplemented by cream cakes - traditional German cuisine is definitely not "lite" fare - various uncles, aunts and cousins leaned back contentedly in their chairs, steaming slightly from the effort of processing several thousand calories, and sipped shot-glasses of prune schnapps to help with digestion.

Except the dairy farmers. They got up from the table, excused themselves, and headed back to their barns. Full cow udders can't be kept waiting - they have to be milked. Dairy farmers are slaves of their cows.

It's a hell of a job. Working conditions don't meet modern standards of acceptable working conditions. Dairy farmers never get to sleep in. There's never a weekend off, much less a holiday. And for all that, the level of financial compensation is pitiable. Some city folk may imagine milk producers are chronic whiners, based on reading the occasional article about farmers protesting in Berlin for higher prices in recent months. A suggestion for anyone with this view: Go spend a week or two working on a dairy farm. Do the milking. You'll never take a glass of cow juice for granted again.

So-called "structural changes" in the sector are continuing apace. The phrase is a euphemism for the gradual disappearance of small farms, and their displacement by big industrial dairy operations. For now, however, two of three German dairy have less than 50 cows. Most of the country's milk is still produced by small family farms in two states, Bavaria and Baden-Wurttemberg.

That means small family farmers are the majority of those suffering from chronically low wholesale milk prices. Providing temporary financial support to them in the current crisis, as was decided this week at the "Milk Summit," a meeting of representatives of dairy farmers, dairies and major retailers convened by the federal minister of agriculture, is the right thing to do.

However, while the short-term subsidy will provide a welcome temporary respite, it does nothing to address the basic problem facing dairy farmers. The problem is that milk is a uniform commodity product. There's no way to tell, by looking at it, how or where it was produced. It's different with many other products: There's generally a clear difference in taste between a pie made fresh by a pastry chef, and an industrially produced frozen pie. A cabinet designed and built by a master cabinetmaker isn't the same as an Ikea cabinet. But milk is always milk: A white emulsion composed of about 90 percent water, plus a mix of fat, proteins, and carbohydrates.

For customers in the supermarket, it's difficult to understand why one Tetrapak cube full of milk costs twice as much as another. Most will buy the cheaper brand. Yet a small dairy farm has higher unit costs than a big industrial farm - there's no way around it. That's the main driver of the "structural changes" affecting the sector.

Globalized markets are another driver. Europe's wholesale milk prices are 80 percent dependent on the global market price. How many cents a liter of milk will fetch for a farmer is largely determined outside Germany. German producers face fierce global competition - particularly from New Zealand producers, who have a built-in low-cost advantage for reasons of climate as well as land costs.

What should be done? Should Germany's dairy sector be screened off from global markets? That won't happen, and demanding it wouldn't be credible. After all, for many years, German farmers were onside with globalization of markets, believing they would be among those to benefit, as cost-efficient exporters. There's no going back now. Milk prices will remain globalized, and like every other commodity price, they'll fluctuate.

At the "Milk Summit," the dairy farmers' association proposed a mechanism to constrain those fluctuations: Voluntary participation in a milk production quota system. That's meant to avoid episodes of overproduction, such as the one currently depressing prices. In addition, retailers were asked to refrain from price-dumping.

But all this sounds grossly unrealistic. Germany's biggest grocery chains include "discounters" who sell very cheaply - that's how they attract clients. Asking them to refrain from efforts to push prices down is tantamount to asking them to abandon the very core of their business model. Similarly, expecting thousands of farmers to reach voluntary agreements on milk quotas amongst each other, coordinated through numerous dairies, seems far-fetched.

Kerstin Schweizer DW Business reporter

Kerstin Schweizer writes for DW's business news section

Maybe it would help to think beyond just milk. Maybe everyone should close their eyes for a moment, and imagine a Germany in which there are no longer any classic family farms. Even though farmers only contribute a small percentage of the country's massive GDP, no other economic sector so profoundly shapes the nation's landscape. Do we want huge monocultural fields stretching to the horizon, run by industrial agribusinesses, or a diverse landscape of small fields and forests? Do we want animals jammed into giant industrial-scale feeding stables, or cows grazing comfortably in a field? The landscape we experience will depend on the structure of the farming business - and hence on politicians, and the policies they impose on the sector. In a democracy, that is supposed to mean it depends on all of us.

Conservation of the rural landscape is among the biggest challenges faced by this country in coming years. Milk production is only one element in that challenge. The core of it is the continuity of traditional family farms. City-dwelling white-collar corporate employees and civil servants like to have a pleasant countryside nearby, as a venue for their leisure activities on weekends. An attractive rural environment is an important criterion for whether a region is considered attractive or not - and helps attract high-caliber talent to a region. If farmers are reframed as conservators of the rural landscape, in addition to food producers, then it begins to make sense to pay them accordingly - i.e. to pay them for both services.

This isn't a new idea. Various European Union programs along these lines already exist. But they're far too limited in scope to make family farming a sustainable business model. It's going to be necessary to spend more money - much more money - to free family farms of excessive dependence on fluctuating commodity prices, and keep them in business.

Dairy farmers could do more to help themselves, too. Why are they so terrible at marketing? Why do so few build regional brands to encourage regional consumers to choose locally produced dairy products? In some cases where it's been attempted, for example the Brodowin "organic village" north of Berlin, or the Alpine brand "Berchtesgadener Land," it's been a successful approach.

The trend to industrial-scale farms is likely to continue regardless. But perhaps a fair balance could emerge, a form of coexistence. Farmers who see their role as conservators of the rural landscape as well as food producers should enjoy the reliable backing of government subsidies. Agribusinesses focused on minimizing production costs through economies of scale, on the other hand - well, let them go ahead, but there should be no subsidies for them.

One thing is for sure: Patching up the short-term crisis of rock-bottom milk prices by allocating a few million euros to producers, as was agreed at the Milk Summit, buys dairy farmers a little time, but it doesn't really solve anything.

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