1Since the 1980s, agricultural policies that support farmer revenues and promote food security have undergone profound changes due to market deregulation (Coleman, 1998). Among other reasons, the changes stem from the 1994 treaty of the World Trade Organization (WTO), which forced developed countries to substantially reduce any tariffs and farm support programs that were linked to prices or production volumes. In addition, policy reforms were tied to the increasing number of bilateral free trade agreements that came into effect (Boussard, Gérard & Piketty, 2005). From this point of view, the dairy sector and its regulation are particularly interesting to study, since it was one of the agricultural productions most strongly regulated by the public authorities in all the major exporting countries. Milk markets and dairy policies have, then, undergone significant reforms, albeit over different time periods: (i) in the case of New Zealand, its Milk Board was dismantled in the 1980s; (ii) during the 2000s and the early 2010s, the European Union abolished its price guarantees, export subsidies, and dairy quotas and began to allocate payments per hectare, regardless of the type and volume of production; (iii) and, finally, beginning in the 1980s, the United States gradually reduced the prices it guaranteed to producers (Gouin, 2005).
2Due to these reforms, national and regional dairy markets have become increasingly integrated into global markets. At the same time, the large producer countries have adopted different dairy policies to address the distinct forms of competition that exist within each of their milk industries. As such, different institutional frameworks coexist that, to a greater or lesser extent, regulate markets. Other regulations support farmers or specify how the dairy chain should be organized. It is important to analyze the various regulatory frameworks set up at the national or regional level, especially given the strong debate that is taking place regarding the possible reintroduction of a certain number of policy tools for regulating agricultural markets, most recently in the European Union.
3How should the different dairy policies of the main milk-producing countries and regions be characterized? What explains the diversity of policies? Based on the dairy sector, this study aims to show and explain a great diversity of forms of national state and modes of sectoral regulation, /adapting to the global capitalist and neo-liberal regime. It also attempts to highlight some major contradictions generated by this regime, disputing the sustainability of each of these forms of national regulation.
4While dairy policies are the subject of this research, they are considered and analyzed according to their articulation with the overall sectoral regulation. Our study draws upon a historical comparison of dairy policies in the United States, New Zealand, the European Union, and Canada. The first three represent the world’s main exporters of dairy products, while the fourth favors a distinct policy approach that involves heavily regulating dairy prices and production volumes. As such, the four countries and regions we present differ in terms of the tools they use for regulating markets and their contractual arrangements.
5The analysis that follows draws on the theoretical inputs of (i) institutional economics, specifically the French school of regulation, which analyzes how institutional arrangements evolve and relate to economics factors and (ii) agricultural economics, a field of study that accounts for the unique features of agricultural production and markets. The first section of the article examines the main characteristics and changes of the global dairy market regime, especially the rising integration of dairy markets. It also clarifies our theoretical framework and methodology. The second section analyzes the different dairy policies adopted in the four countries and regions presented. The third section considers the sustainability of the policies discussed. Finally, the conclusion tries to connect dairy policies and sectoral regulations to larger state forms and cross-sectoral modes of regulation.
6Agricultural markets are becoming increasingly integrated worldwide, and the dairy sector is no exception to this trend (Perrot et al., 2018). While only 8% of the world’s dairy production is exported (International Dairy Federation, 2019, the percentage varies strongly from one country to another. In addition, the share of dairy imports as a percentage of global production grew until 2014, mostly fueled by rising demand in Asia (Figure 1).
Figure 1. Changes in dairy product imports (in milk equivalents and excluding intra-European Union trade) as a percentage of world production, 1991-2017
Source: our calculations, data from Food and Agriculture Organization
7Only a few countries are responsible for the bulk of exports, namely New Zealand, the European Union, and the United States (Figure 2). In 2017, European Union became again the leader in this regard (more than 28% of world exports). 26% of dairy exports originated from New Zealand, even though the country was responsible for only 3% of world milk production.
Figure 2. Changes in dairy product exports (excluding intra-European Union trade) in milk equivalents as a percentage of world production, 1991-2017
Source: our calculations, data from Food and Agriculture Organization
- 1 Since prices are expressed in US$, exchange rate variations can accentuate price fluctuations. For (...)
8The rising global integration of milk markets, along with dairy market deregulations undertaken in the main exporting countries, has led to an increase in the volatility of prices paid to producers (except for Canada), while also causing prices to converge (Figure 3)1. As a result, domestic and export prices increasingly align, which is what occurred in the European Union, following a reduction in the guaranteed prices for milk powder and butter in the early 2000s.
- 2 The data comes from Food and Agriculture Organization and our own calculations, and the quantities (...)
9The growing volatility in prices reflects underlying imperfections in dairy markets (Pouch & Trouvé, 2018). Moreover, the problem is compounded by the fact that dairy export markets are relatively limited. Consequently, a slight mismatch between supply and demand can cause prices to rise sharply, as the example of butter prices in 2017 demonstrated (Figure 4), due to a slight higher demand for fats in some countries. On the other hand, a market imbalance can also produce a significant price drop of dairy product prices, as was the case between 2014 and 2016, especially concerning the skimmed milk powder. However, contrary to what standard neoclassical models would predict, in the same way as in the past, producers did not react to this price decline by lowering production. In fact, New Zealand, the European Union, and the United States increased their production levels in 2015 by 2.9%, 2.1%, and 1.2% respectively. As a result, supply grew by 5.1 million metric tons, even as total world imports in milk equivalents (excluding intra-European Union trade) fell by 1 million metric tons. Despite sluggish consumer demand, the European Union alone increased production by 3.4 million metric tons compared to 20142, causing global markets to become saturated.
- 3 Dividends and other rebates received by producers are not considered in producer prices in public s (...)
Figure 3. Changes in milk current prices3 paid to producers in the United States, New Zealand, Canada and France, 1991-2019
Sources: based on United States Department of Agriculture, Quick Stats; New Zealand Dairy Statistics; Groupe Agéco; European Commission, Eurostat
Figure 4. Changes in current prices for dairy products in a world market, Oceania prices, 1991-2019
Source: based on United States Department of Agriculture Market News
- 4 Data on per capita consumption of dairy products is not commonly available in all the countries ana (...)
10Increased price volatility did not impede rapid growth in milk production throughout the period in New Zealand and since the 2000s in the United States. In New Zealand for the entire period and in the United States since 2004, milk production has grown faster than population. Figure 5 illustrates this by presenting the ratio between production and population growth in each studied countries (index 100 = 1991). This result presents an approximation of the evolution of consumption4 of dairy products compared to production. Indeed, in developed countries, the national market for dairy products is considered mature. In other words, per capita consumption is almost fully satisfied and therefore evolves slowly. Data show that in New Zealand production growth has been twice that of the population, while in the United States production has grown 15% faster than the population since 2004. In France and Canada, stability of milk production imposed by the quotas meant that production increased more slowly than population; that’s showed by a value under 1.00. In Canada, quotas are adjusted to national demand, which means that consumption of dairy products decreased per capita in the early 2000s. At the end of the period, it increased following a renewed popularity of the consumption of butter and cream. In France and European Union, the faster growth of production since 2014 compared to population (the ratio increase from 0.93 to 0.99 in European Union and from 0.89 to 0.94 in France) is explained rather by the anticipation of the end of quotas and not by a phenomenon of internal consumption. This means that, with the exception of Canada, faster growth in production relative to population results in increased competition on international markets. Thus, the share of the world market held by United States increased from 6.2% to 15.0% between 2003 and 2017 and that of European Union from 23.0% in 2013 to 28.2% in 2017 (Figure 2).
Figure 5. Changes in the ratio of milk production growth and population growth, in the United States, New Zealand, Canada, France and European Union, 1991-2018
Source: our calculations, data from Food and Agriculture Organization & Statistics Canada
In this context of global integration and instability of dairy markets, national dairy market regimes present different characteristics, according the productive resources and the national regulations of the sector, which will be studied in the section 2.
- 5 In reference to the dynamics of price formation that reflect standard relations among market partic (...)
11Institutional economics views institutions as the key drivers of economic activity and rejects the notion that markets are the only way to coordinate stakeholders. Moreover, the market itself is defined as a social construct, an institution governed by agreements on how to organize exchanges and competition (Chavance, 2007). The market, therefore, is the nexus for powerful relations and is shaped by institutional frameworks enacted by the state or, increasingly, at the community level, as is the case in many European countries (Becker & Jäger, 2012). According to the French school of regulation, these frameworks are shaped by the monetary regime, labor relationships, competition5, levels of global integration, and the state. When these institutional arrangements constitute a system, they create a regulatory model, accompanied by a capital accumulation regime, that is specific to a given time and place.
12While initially based on macroeconomic thinking, regulation theory has gradually shifted its focus to sectoral issues, especially those relating to agriculture (Bartoli & Boulet, 1990; Laurent & Du Tertre, 2008; Touzard & Labarthe, 2016). Several authors have tried to identify different institutional arrangements that govern agricultural market regimes. In this article, we focus on the dairy market regime, specifically the interplay between the production, consumption, and trade of dairy products made from cow’s milk. As such, we present a framework for analyzing dairy policies that connects (i) other related institutional frameworks that govern the dairy market regime, such as forms of competition and global integration, (ii) the existing dairy market regime and, (iii) the mode of regulation and cross-sectoral accumulation regime (Figure 6). We will especially study links between dairy policies and dairy market regimes on the one hand, dairy policies and forms of competition on the other hand. However, connections with other institutional frameworks won’t be addressed. Finally, the inclusion of these sectoral dynamics in more global dynamics will also be taken into account.
Figure 6. Scheme of dairy policy analysis, linked to sectoral and cross-sectoral dynamics
Source: Gouin & Trouvé, 2020
13Moreover, we reject the notion that institutional changes are essentially driven by the quest for efficiency, ultimately leading to the emergence of a single optimal institutional framework. Rather, institutional change depends foremost on how political compromises evolve over time. These compromises are negotiated by agents, individuals, and organizations tied to social groups with often opposing interests (Amable & Palombarini, 2009) and vary from one period or place to another, giving rise to distinct forms of development and regulation, as has been analyzed in numerous regulationist studies.
14Regulation theory explores how institutional frameworks emerge, stabilize, and, ultimately, decline. As such, it raises questions about the sustainability of current dairy regulations and the likelihood of a crisis, which could occur if policies were no longer able to resolve social disputes (Amable & Palombarini, 2009) or regulate the new dairy market regime. Indeed, a new regime can produce changes that invalidate the institutional framework in place and require the drafting of a new compromise (Boyer, 2015). Furthermore, the evolution of institutional frameworks and the crises they face are often tied to changes in cross-sectoral regulations. In the last fifty years, these regulatory systems have been marked by the shift from Fordism to a post-Fordist era marked by the rise of neo-liberal economics and politics (Dardot & Laval, 2014; Harvey, 2014). During this historical transition, the “inserted state” (Delorme, 1984), also known as the “Keynesian welfare national state” (Jessop, 2002), experienced a crisis and was criticized for its interventionist role in the market and for enacting state “administered” regulations (Boyer, 2015). While the state continues to intervene in various ways, the crisis led to a regulatory framework more accommodating to the competition and globalization of markets. New relations are formed between institutional forms, with a change in the institutional hierarchy, the state being forced to adapt itself to global markets and competition (Van Apeldoorn et al., 2009). As we saw in the introduction, the dairy sector was no exception to this historical trend.
15It is therefore not necessarily a retreat of the State, but a transformation of its objectives and modes of intervention. The forms of state can vary greatly according to national and regional areas (Schmidt & Thatcher, 2013). This study aims precisely to characterize and explain the diversity of these forms of state in a global capitalist and neo-liberal regime, starting from the analysis of one sector – the dairy production.
16Our study is grounded in a historical comparison of dairy policies in the United States, New Zealand, the European Union, and Canada during the last half-century. Each of these countries and regions draws upon different policies to regulate its dairy sector, organize contractual agreements, and manage participation in global markets. Inside European Union, the case of France will be especially addressed, knowing that its sectoral mode of regulation is quite different from the one of other major European milk exporting countries, such as Netherlands and Germany (Trouvé et al., 2016), that we will present more briefly.
17The data we use was sourced from the scientific literature, institutional records, and available fiscal statistics. The study focuses on the production of milk commodities of standard quality, which represent the bulk of production in the studied countries and regions and which are the first to suffer from international competition.
18Our analysis thus is trying to lead to a better understanding of different dairy policies, as well their purpose, limitations, and potential for sustainability. Based on the theoretical framework developed before, the study of each country and region will address in the second section (i) the evolution of dairy policies from the Fordist period to a post-Fordist period marked by economic neo-liberalism and the reasons of these changes, especially the impact of the overall mode of regulation and the new social compromises, (ii) the articulation with other institutional arrangements in the dairy sector. It will be summarized in a table at the end (Figure 9). In a third section, we will discuss the contradictions generated by these new sectoral regulations.
19Due to the deteriorating macroeconomic conditions prevalent at the beginning of the 1980s, the only option seemingly available to the New Zealand government was to rapidly and drastically deregulate the economy, which it did beginning in 1984. Furthermore, given the agricultural sector’s importance to overall macroeconomic stability, not only was it not exempt from the changes proposed, but was considered a priority for reform (Moffit & Sheppard, 1988; Gibson et al., 1992).
20Subsequently, the New Zealand dairy sector was forced to rely on world prices to remunerate all stakeholders and resources engaged in production. The Milk Board, which regulated the domestic milk market through quotas, was also dismantled, along with programs that provided subsidies for dairy production intended for export. In addition, a price stabilization program managed by the Dairy Board no longer benefited from an interest rate reduction that had been subsidized by the government. The program was, thus, forced to finance itself on capital markets, which led to its cancellation. This reform was followed by the abolition of the Supplementary Minimum Price (SMP) Scheme (Johnson, 1986), a program that today would be described as countercyclical in design. Nevertheless, the Dairy Board, which was a state enterprise and the sole exporter of dairy products from New Zealand, resisted the drive towards deregulation for many years. It was only in 2000, following the merger of two large dairy cooperatives that supplied the Dairy Board, that a new private entity, Fonterra, was created. The company controlled 95% of total milk collection and, thus, took on most of the Dairy Board’s responsibilities. It can be argued that the New Zealand government took a pragmatic approach by not dismantling the Dairy Board before an alternative organization, with the same level of control over exports, could take its place.
21While New Zealand dairy producers now depend almost exclusively on international markets for their revenue, it is important not to neglect the role that the Dairy Board, and now Fonterra, played in shaping competition. From its dominant market position, Fonterra fixes benchmark prices for producers, based on the outlook for world markets (Dana & Schoeman, 2010). Any forecasting errors that occur lead to adjustments in producer prices during the dairy year in progress. As well, producer members of Fonterra receive a year-end dividend payment if the overall results of the company’s processing and business activities allow for it. These dividends are even accounted for in the company’s official producer price figures. As a result, Fonterra members receive the same average producer price and share in the added value created during processing and marketing activities.
22Canada is very active in trying to secure bilateral or multilateral trade agreements and can be classified, along with New Zealand, as a neo-liberal state (Jessop, 2002) and, more generally, as a “liberal market economy” (Witt et al., 2018). The strong regulatory approach to dairy production constitutes an exception to the free market position that Canada often advocates for during trade negotiations. In fact, since the beginning of the 1970s, the Canadian dairy sector has evolved under a regime of supply management and production quotas (Bowler, 1984) and has resisted calls for deregulation that have brought down similar systems in other parts of the world. Even the Canadian Wheat Board (CWB) was unable to resist the wave of deregulation that swept the country. A state-owned company, the CWB had a monopoly on exports of wheat and barley produced in the Canadian Prairies. However, in 2012, it lost its monopoly status, and the company was completely privatized in 2015.
23Dairy market regulations via supply management are based on three core principles that emerged from an “overall compromise” between the government and the farm unions (Gouin & Morisset, 1988). The first principle establishes the overall Canadian quota based on total domestic demand, measured in butterfat. This total quota is then distributed among the provinces and, finally, among individual producers. It is also adjusted periodically, according to changes in demand and dairy stocks.
24This arrangement, however, produces a structural surplus of milk protein above the needs of the Canadian market. Surplus production is, therefore, sold at a loss on the domestic market or abroad. The second principle, though, addresses this issue. Specifically, it makes producers financially responsible for selling their surplus stocks. As a result, dairy farmers receive a lower price for a portion of their milk shipments.
25According to the third principle, producers receive a price for supplying the domestic market that is based on production costs. This trade-off was agreed to in exchange for limiting production through quotas and requiring producers to be responsible for their surpluses. For this reason, the arrangement reflects an overall compromise among dairy stakeholders.
- 6 At the time, a production subsidy existed, but it was abolished in 2002.
26For many years, researchers have tried to understand the reasons behind the continued existence of this regulatory system. Already in 1988, Gouin and Morisset sought to explain why the policies remained in place despite “economic upheavals” and the negotiation of the first free trade agreement with the United States. They attributed this stability to the declining fiscal costs associated with the policies6, the ineffectiveness of neo-liberal criticisms, and the efficiency of the system’s managing operations, which removed the need for any further government intervention. More recently, Skogstad (2008a; 2008b) and Royer, Couture and Gouin (2014) argue that dismantling the regulatory system would generate additional fiscal costs since the farm income support programs generally available to the rest of the agriculture industry would be extended to the dairy sector.
27It can thus be argued that the government maintains the policies in place for reasons of “path dependency” since making changes would involve political and economic costs. Royer, Couture and Gouin (2014), however, dispute the notion that the regulatory system is maintained because the short-term adjustment costs are too high, despite the supposed long-term economic benefits of reform, which, they argue have not been proven.
28Canada’s supply management system is reinforced at the provincial level through a collective organization of dairy marketing. A dairy producer association in each province is tasked with managing individual producer quotas and setting the rules regarding quota allocations and transfers. The associations also play a much larger role. Specifically, they are supported by legislation that allows them to set up marketing boards for the purpose of negotiating terms of sale with processing companies on behalf of producers (Royer, 2011). Producers decide via referendum whether to pursue collective marketing and the supervisory authorities must sign off on the proposal. If approved, collective marketing becomes obligatory for all farmers concerned. The producer association is then accountable to the general assembly of producers and negotiates marketing agreements on their behalf.
29Producer prices for milk are negotiated in each province based on the support price decreed by the Canadian Dairy Commission (a state agency), which is calculated according to production costs. To maximize the revenues of dairy farmers, processing companies are required to pay different prices for the milk they purchase, depending on its final use. Dairy processors, therefore, pay more for milk used to make goods that offer higher margins, compared to other, less profitable product lines. Under this payment system, every producer receives the same monthly price, which is based on the composition of the milk (fat, protein, lactose) but is not tied to what the dairy plant uses the deliveries for. The marketing board in each province receives milk payments from processors and then pays producers. It also organizes the collection and transport of milk from farm to plant in order to optimize routes and reduce overall costs. Finally, having collectively decided to share transport costs, producers receive the same net farmgate price, regardless of their distance from the dairy plant. Whether or not a producer belongs to a cooperative does not affect these arrangements. Every producer is, therefore, subject to the same rules, which also apply to both private and cooperative-based milk purchasers.
30Not only does the supply management system guarantee farmers a milk price that is stable and largely shielded from world market fluctuations, but it also frees them from having to individually negotiate prices and terms of delivery with buyers.
31Likewise, due to the institutional framework that structures the dairy market regime in Canada, producer prices are more stable and higher than in other countries or regions (Figure 3). Neo-liberal critics have focused on this price difference to argue that market liberalization would benefit Canadian consumers (Beaulieu & Venkatachalam, 2018), although this has yet to be demonstrated (Export Action Global, 2018).
32Until the beginning of the 1980s, dairy regulations in Europe and the United States operated on the same basis. Producers were guaranteed certain prices, which were relatively high, compared to world market prices: when domestic prices fell to certain guaranteed prices, then a mechanism of purchase (at these guaranteed prices) and storage by the public authority was triggered. Exports were also subsidized to allow surpluses created by the price supports to be sold abroad. Dairy stocks, however, grew to record levels (Figures 7 and 8), and the fiscal costs associated with these policies began to increase. Faced with a growing crisis, the European Union and the United States chose two different paths of regulatory reform.
Figure 7. Changes in public stocks of dairy products (in thousands of metric tons), European Union, 1981-2019
Sources: based on Centre national interprofessionnel de l’économie laitière & EU Milk Market Observatory
Figure 8. Changes in public stock purchases of dairy products, United States, 1981-2019
Sources: based on United States Department of Agriculture
33In 1984, the European Union established a production system based on quotas. While the policy was introduced for fiscal reasons, it was also a response to an early debate between free market advocates and those who sought to “maintain the compromise reached with the peasantry” (Hairy & Perraud, 1988, p. 17). Certain member countries pushed for drastic reductions in the prices that producers were guaranteed in order to resolve the market imbalance. Others, notably France, proposed instead a differentiated minimum pricing policy that would have penalized large suppliers. In the end, the allocation of quotas based on historical production levels in each country and farm was agreed to as a compromise that would rapidly restore market balance, without fully vindicating either side in the debate. Indeed, Figure 7 shows that public stocks of dairy products quickly fell following the implementation of the new agreement. Each country was also allowed to manage its own quota system. France, which adopted a strong regulatory approach, chose to prevent the commodification of quotas and to link quota transfers between farms to the transfer of land ownership. Production levels were also set in each administrative department. In other countries, however, quota markets were established that operated without government intervention.
34Europe’s Common Agricultural Policy (CAP) underwent significant reforms in 1992, although dairy policies were only changed in 2003. Nevertheless, the 1992 CAP reforms represented a major turning point. Specifically, the changes were carried out within the context of the Uruguay Round negotiations underway at the time and even helped shape the outcome of the talks. As part of the reform process, the CAP began to phase out its traditional interventionist policies, namely price supports and export subsidies. Direct payments to producers, however, were introduced in exchange for reductions in guaranteed prices.
- 7 According to data from the Farm Accountancy Data Network.
35The free market position thus began to win the debate initially described by Hairy and Perraud in 1988, including within the context of dairy regulations. Beginning in 2004, guaranteed prices for non-fat dry milk and butter were reduced by 15% and 25% respectively. The price cut was partially compensated by direct payments to producers per hectare that were decoupled from production. During the last decade, these payments have represented 70 to 150% of the net revenue of French dairy producers, depending on the year7. While the number of dairy quotas increased in tandem with these changes, the quota system was eventually abolished in April 2015. At the same time, the ability of price guarantees to stabilize the dairy market was further eroded, due to limitations placed on public stock purchases at certain times of the year, as well as restrictions on the quantities that could be bought.
36At the start of the 1980s, the United States froze the prices that dairy producers were guaranteed. Until then, these had been tied to a parity index that followed general inflation (Manchester & Blayney, 2001). Subsequently, from 1982 to 1989, guaranteed prices were reduced by 23% in constant dollar terms and then remained relatively unchanged until the policy was finally abolished in 2014. Figure 3 illustrates how American producer prices for milk became increasingly volatile as support prices fell, not unlike what happened in the European Union in the 2000s. Prices also started to converge with those in New Zealand, implying a closer alignment with world market prices. To counter this growing instability, starting in 1999, American dairy producers began receiving direct countercyclical payments, which varied depending on prices and production costs during the period in question. However, the version of the plan – known as the Dairy Margin Protection Program (DMPP) – as outlined in the Farm Bill for 2014-2018, offers producers little compensation when prices fall. Consequently, American dairy farmers are often left to manage price fluctuations on their own. Following a 30% drop in producer prices between 2014 and 2015, the net payments associated with the program were even negative. In other words, the annual premium that producers paid to register with the program was greater than the amount of compensation received (Richard, Chotteau & Perrot, 2016). In the spring of 2018, the federal government announced changes to the DMPP, including a premium reduction. The proposed changes, however, do not appear to sufficiently address the problem of volatility in producer prices and dairy farm revenues.
37Finally, while dairy policies in the United States and the European Union do differ in some respects (relatively insignificant countercyclical payments in the United States, guaranteed prices that are too low and ineffective at stabilizing the market and direct payments per hectare in the European Union), both leave it to the market to ensure that the dairy supply chain responds to demand.
38Nevertheless, price and income support policies can be reinforced by different mechanisms for negotiating prices between dairy producers and processors, as we saw with collective marketing in Canada and the operations of the main cooperative in New Zealand. In the United States, Federal Milk Marketing Orders (FMMOs), which fall under federal law, rule how producer prices are set. The program has existed since 1937 (Manchester & Blayney, 2001), and, while a major restructuring effort reduced the number of orders to 10, the system continues in existence, despite the many regulatory changes that have occurred in the dairy sector. In addition to the 10 FMMOs currently in place, a few other programs operate under state jurisdiction, such as the California State Milk Marketing Order. As a result, more than 90% of total dairy production in the United States is covered by this regulatory policy.
39Each FMMO sets monthly guaranteed prices, and the pricing system is organized around four milk classes. The price that processing companies pay for milk also varies depending on its end use, as is the case in Canada. Minimum prices for class 3 (cheese) and 4 (butter and milk powder) products are set according to wholesale prices from the previous month, which, in turn, are influenced by world market conditions. In the case of class 1 (fluid and beverage milk products) and 2 (soft dairy products) items, prices are formulated based on a positive differential relative to prices for the two other product categories (Sumner & Balagtas, 2002). For class 2 products, the differential is constant and the same for all FMMOs. The Class 1 differential is also constant but does vary from one FMMO to another. As well, geographical areas where the availability of dairy products is limited benefit from a higher differential to ensure an adequate milk supply (Manchester & Blayney, 2001). Each FMMO also equalizes payments to farmers, meaning producers covered by an order receive the same average price for milk. Without the FMMO system, there would be no positive differential for class 1 and 2 prices paid by processors. Instead, a single milk price would prevail and be subject to downward pressures from the last liter of milk supplied, which has the lowest market value.
40In the European Union, marketing boards operated in the United Kingdom but were eventually dismantled due to European competition laws, among other reasons (Royer, 2009). Nonetheless, many collective organizations, most of which are cooperatives, continue to exist, and some even have a strong presence in certain countries. For instance, in the Netherlands, a dairy cooperative holds a dominant market position similar to that of Fonterra in New Zealand. Comparable situations exist in Denmark, Northern Germany, and, to a lesser extent, Ireland. In France, dairy processing is carried out by large, privately-owned companies, by cooperatives, and by a web of small and medium-sized businesses spread across the country. Producers and processing companies negotiate prices and terms of delivery and must agree to five-year contracts. These mandatory agreements were imposed by the French government in 2010 to prepare for the end of the quota system and the weakening of the dairy interbranch. In order to better negotiate delivery contracts with dairies, French milk farmers can join producer organizations on a voluntary basis. The result has been a dramatic increase in the number of such organizations: 51 are now identified (De Geyer d’Orth, 2019). Apart from certain milk products with Protected Designation of Origin status and covered by strong local regulations (Dervillé & Allaire, 2014), this upsurge has compromised the negotiating powers of producer associations since they are usually too small and often tied to a single company or even a single plant. As a result, their room for maneuver during contract negotiations is minimal if not zero (resulting in the company taking unilateral decisions) (Lambaré & You, 2016; Dervillé & Fink Kessler, 2019).
Figure 9. Main characteristics of current milk policies and links to the overall sectoral regulation
|
Dairy policy
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Links to other institutional arrangements, especially forms of competition
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New Zealand
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Complete deregulation of prices and volumes of production
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Control of almost all milk collection and export by a co-operative company
-
same producer price and share in the added value for members
-
year-end dividend payments according to the results of the company
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Canada
|
Strong supply management (quotas)
Producer prices set according to production costs
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Dairy producers association managing quotas and negotiating terms of sale for all producers of the province
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United States
|
Complete deregulation of volumes of production Producer prices based on the prices markets for dairy products (butter and cheese)
Countercyclical payments offering little compensation to farmers when prices and revenues decline
|
Federal milk marketing orders (under federal law) setting producer prices
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European Union
|
Complete deregulation of volumes of production
Very low guaranteed prices, not stabilizing producer prices
Direct decoupled payments
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In some northern European countries and regions, dominant position of dairy cooperatives
In some others, large part of privately-owned companies, with possibly obligation of contractualization but weak organization of producers (France)
|
Source: Gouin & Trouvé, 2020
41Some contradictions are generated by these regulations and question their sustainability. A crisis could arise if the existing framework was no longer able to resolve conflicts among stakeholders or regulate the new economic regime.
42First of all, some contradictions may be related to socio-economic tensions and environmental impacts, calling into question the social compromises that underpin the regulatory system in place. Many studies address the social and environmental consequences of the neo-liberal policies in the dairy sector, for example concerning the dismantling of quotas in the European Union (Kroll & Trouvé, 2012). This article does not pretend to analyze all these consequences. It focuses on one kind of socioeconomic consequences, the added value distribution inside each dairy market regimes. Then, it enlarges the analysis to some of other social tensions and environmental impacts.
- 8 Data from New Zealand are not presented because the domestic market consumes only 5% of the milk pr (...)
43While it is important to understand the impact on the dairy market regime of the different institutional frameworks discussed, not enough data is available to determine how added value is shared among the various stakeholders in the dairy chain. As such, we shift our focus towards the “total margin” obtained during processing and distribution. This margin is equal to the difference between dairy consumer prices – measured by the consumer price index for dairy products – and producer prices, which are also expressed as an index (Figure 10)8. Such an analysis makes it possible to assess the evolution of the relative share of the production sector and that of processing and distribution in the dollar spent by consumers on their purchases of dairy products.
Figure 10. Changes in “total margins” from dairy processing and distribution in constant national currencies, 1991-2019 (index 0 in 1990)
Sources: our calculations, data from United States Department of Agriculture, Quick Stats; New Zealand Dairy Statistics; Centre national interprofessionnel de l’économie laitière; Groupe Agéco
- 9 When the slope of the curve is negative, it means that the transformation-distribution margin decre (...)
44Currently, competition in the dairy sector and rules set by public authorities play an important role in determining how added value is shared and how much revenue producers earn. Firstly, we can observe that the total margin for processing and distribution was considerably more stable in Canada, which was the only country regulated by a quota system and mandatory marketing boards during the entire period under consideration. Before 2000, France showed a similar picture. However, following the CAP reforms of 2003, the total processing and distribution margin grew rapidly and started fluctuating much more than previously9. The CAP reforms, which reduced price supports, were partially mitigated through direct payments, but still ended up exerting downward pressure on producer prices. In United States, where support prices ceased to play a stabilizing role in the market, having been frozen for a long period before being eventually abolished, the growing volatility in producer prices appears to be associated with an increase in the total processing and distribution margin.
45However, in Canada like in United States, producers benefit from price equalization pools and the requirement that dairy plants pay different prices for milk depending on its end use. It allow producers to receive a better share of sales proceeds from the most profitable lines of dairy products. Similarly, in New Zealand, the Fonterra cooperative distributes earnings to member producers through dividend payouts. In all these countries and contrary to some European countries like France, each producer does not have to negotiate himself or with a little group of other producers the price and other terms of sale with transnational enterprises. French dairy producers, however, appear to lack the necessary clout to obtain a greater portion of the value added from dairy processing activities. Due to free market forces and the imbalanced relationship between fragmented groups of dairy producers and large purchasers, producer prices tend to match the per liter price for processed milk sold on the least profitable market. It remains to be seen whether a drive to consolidate producer organizations could improve the bargaining power of French dairy farmers during contract negotiations. For the moment, this consolidation has yet to occur.
46More generally, except in Canada, deregulation of markets has led to market instability and periods of overproduction, declining prices, and lower producer revenues, as was the case from 2014 to 2016. The dairy crises of 2009 and 2015 highlighted the failure of the new policies to balance the market in the absence of quotas (Pouch & Trouvé, 2018). Producer prices fell dramatically over a long period (Figure 3). In the European Union, directs payments are often an important source of revenue for producers, allowing them to supplement their farming income. Nevertheless, deregulation has led to greater volatility in prices and agricultural revenues, a rapid loss of individual farms, and greater geographical concentration of production, all of which raises social and environmental problems. In the United States, the dismantling of interventionist policies, which were older than those in Europe, has forced producers to manage price shocks on their own. This neo-liberal approach is somewhat mitigated through countercyclical direct payments and price setting mechanisms. While these mechanisms ensure that a certain amount of the added value is shared with producers, they do not protect American dairy farmers from the volatility in prices.
47A case in point is that of New Zealand, where, despite strong producer price volatility, the regulatory structure clearly influenced the direction of the dairy market regime. From 1991 to 2018, total production increased by a factor of 2.7, making New Zealand the world’s secondary exporter of dairy products (Figure 2). However, this growth was fueled by an “intensification” of production practices and rising indebtedness, which partially inflated New Zealand’s cost advantages over its international competitors (Perrot et al., 2018) and put a great deal of stress on the environment (Richard et al., 2017; Hugonnet & Devienne, 2017). Consequently, sustainable growth can only resume in New Zealand if the dairy sector is able to find ways to resolve these issues. In the same way, in some European regions with a high concentration of milk production, the pollution of water and soil with excess of nitrogen and phosphorus from surplus livestock manure, is such that it is very difficult to comply with European environmental regulations (Baron et al., 2019).
- 10 The acronyms refer to the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), (...)
48Contradictions may also occur between existing dairy policies and the overall dairy market regime and cross-sectoral regulations. Thus, in Canada, dairy regulations enable producers to earn prices and revenues that are higher and more stable than in the other countries and regions presented. As a result, imports and exports of dairy products are relatively limited. However, despite high tariffs, Canada runs a slight dairy trade deficit, and lower-priced imports could potentially increase. At the same time, dairy policies are gradually being brought in line with cross-sectoral regulations in Canada, and there has been a shift towards more neo-liberal forms of state. As a result, with each successive free trade negotiation, Canada has agreed to further open its domestic dairy market (17,000 metric tons of cheese as part of CETA, 3.25% of the domestic market under CPTPP, and 3.6 % of the market following the renegotiation of NAFTA)10. These concessions slowly erode the stability and advantages of the dairy system in place.
49Such contradictions appear in European Union and United States, between existing dairy policies and the overall dairy market regime and cross-sectoral regulations. If price supports in the European Union or countercyclical payments in the United States began to sufficiently protect the revenues of dairy producers during periods of low prices, then structural surpluses would inevitably reappear on the market. In such a case, the fiscal costs of maintaining the current regulatory framework would increase dramatically. It would also mark a return to the conditions that existed at the beginning of the 1980s, except that the world market could no longer be used to sell dairy surpluses, since a WTO agreement adopted in Nairobi in December 2015 put an end to the use of export subsidies. Thus, even with a very low guaranteed price – renamed “safety nets” and no longer playing a stabilizing role in the market –, the European Union in 2016 still found itself with close to 400,000 metric tons of milk powder in stock, a level that had not been reached since the beginning of the 1990s (Figure 7).
50The diffusion of neo-liberalism and its institutions significantly altered dairy regulatory policies. However, apart from Canada, the timing and course of reforms varied, depending on the country or region. Ultimately, these reforms overturned the prevailing institutional hierarchy, forcing the state to accommodate itself to global markets and competition. The case of Canada, however, shows that not all large dairy-producing countries chose the path of deregulation. This suggests that neo-liberalism, which was imposed on all the countries and regions presented, does not necessarily give rise to a “laissez-faire” approach. Rather, neo-liberalism has been able to adapt to national and regional contexts, characterized by different forms of state. As a result, the state continues to intervene in various and sometimes important ways. Nevertheless, we showed in the third part some major contradictions generated by the global capitalist and neoliberal regime and its national and sectoral regulations, disputing their sustainability.
51How do the dairy regulatory systems we presented, each shaped by distinct forms of state and competition, connect to larger state forms and cross-sectoral modes of regulation, as identified by various authors? Thus, Amable (2005) distinguishes between different forms of capitalist state in Europe. Depending on the country, the economic model can be described as “market-based” (United Kingdom), “continental European” (including France and Germany), “social-democratic” (Northern European countries), “Mediterranean”, or “Asian”. Jessop (2002) puts greater emphasis on state forms and makes a distinction between neo-liberal, neo-corporatist, neo-statist, and neo-communitarian forms of capitalism. The first three models align with those identified by Schmidt (2002) who suggested that capitalism can be “market-based”, “managed”, or “statist”. Finally, Witt et al. (2018) distinguish, among states classified according to indicators of institutional structures, those of “liberal market economy” (including Canada, New-Zealand, United States), those of “coordinated market economy” (including Germany) and those of “European peripheral economy” (including France). We use these typologies to situate the institutional dairy market framework within more general forms of state capitalism.
52In the case of New Zealand, a market-based approach was used to organize the dairy sector, which is now fully integrated into global markets and subject to changes in world prices. In order to achieve this outcome, the government gave dairy stakeholders a great deal of decision-making autonomy. While the state in New Zealand clearly takes on a “neoliberal” form and is part of a “market-based” or “liberal market” economy, it played, nonetheless, an important historic role in organizing the dairy sector, as evidenced today by the fact that a producer-run dairy cooperative has near-monopoly status. For the gain of international market shares, the state takes on a “neo-corporatist” form: “[the] resources and actions are used to back or support the decisions reached through corporatist negotiation” (Jessop, 2002, p. 261). At the other end of the spectrum, Canada’s dairy regime is highly regulated, and the government intervenes in all regulatory issues (competition, global integration, etc.), in a “neo-statist” way.
53In the case of the European Union and the United States, the regulatory framework set up appears to combine neo-liberal, neo-statist, and even neo-corporatist principles. The American economy has been described as “market-based” or “liberal market”, which is also how its dairy sector can be classified, given the current absence of regulations around price level and production volumes. At the same time, dairy regulations in the United States also embody neo-statist principles since the government distributes countercyclical payments and intervenes to fixe prices through Federal Milk Marketing Orders.
- 11 Speech by Emmanuel Macron at Rungis (France) on October 11, 2017.
54The European Union also incorporates elements of neo-statism by guaranteeing prices (although this policy no longer plays an important role) and by distributing direct payments, which, while substantial, do not have a countercyclical purpose. Nevertheless, neo-liberalism played a major role in shaping dairy policies in member states, following a European-wide push for market deregulation. This drive was part of an overall process of European integration “based on a neo-liberal framework” that promoted the “flexibilization of labor markets, monetarist monetary policy, financial market liberalization, [and the] free movement of capital across Europe” (Becker & Jäger, 2012). Member states reacted differently to these changes, in terms of how they chose to reorganize their dairy industries. Certain countries that embody more neo-corporatist forms of state and that could be described as “managed capitalism” or “coordinated market economy” encouraged the formation of cooperatives with monopoly status (case of the Netherlands, Northern Germany, etc.) or developed producer organizations strong enough to negotiate effectively with downstream industries (case of Southern Germany), which at times benefit from government support, either directly or indirectly. Due to these changes, the countries in question were able to maintain and even increase their production and exports of dairy products. The reorganization effort was also driven by a process of “extraverted productive accumulation” that generally characterizes their economies (Becker & Jäger, 2012). However, in other countries, such as France, which is usually described as having adopted a “neo-statist” approach, producers are left to negotiate prices and conditions of delivery with dairy companies on their own or in small organizations. This power imbalance persists, despite the wish expressed by the French president to “reverse how prices are determined, which will be based on production costs”11, a statement which seems completely contradictory to international integration of dairy markets in which European Union fully subscribes.