The dairy industry is warning of the industry’s loss of competitiveness compared to other countries in the region. Union European. President of the National Dairy Federation (Fenil) Luis Calaboso analyzes the data of the first edition barometer produced by the employers’ association to understand the situation facing the sector.

What is the current situation with milk production in Spain?

From 2015 to the present, we have increased the production of cow’s milk by 1.4 million tons. Thanks to this, we were able to completely replace the import of raw milk as a raw material; displace some cheese imports; and conquer foreign cheese markets. What have we seen in our response to the crisis? Well, we lost competitiveness mainly because of milk prices. We had no records of Spain being the country with the most expensive cow’s milk in the entire European Union, with the exception of Malta and Cyprus, which have non-market prices.

And how did this price increase affect consumers?

During 2022, we again grew significantly in imports, and this trend also accelerated in the first months of 2023. And we have fallen in the exports we have won, especially those with high added value, such as cheeses.

We have lost our cheese consumption. The consumer is moving from more expensive products, which are Spanish cheeses, to cheaper products, which come to Spain at a price of 3.5 to 4 euros per kilogram. If each cheese contains about 8 liters of milk, this is very far from what we are capable of producing.

The loss of competitiveness fundamentally leads to the loss of the domestic market, especially for cheeses and yoghurts, which are more price sensitive. Not so much in the fall in milk consumption, because it is more inelastic, since it is a more basic product. No matter how much the price increases, its consumption will not decrease much; and, no matter how much it decreases, little more is consumed.

How will this affect the sector?

We are noticing a loss of temporary competitiveness as a result of the cost and profit crisis that the whole of Europe has experienced. We, in terms of milk supply, have responded much more strongly to ensure the supply of Spanish milk. And hence the rise in prices significantly.

What about the primary sector?

Once milk production costs were adjusted and profitability restored, we noticed that – especially in southern Europe – for the first time, with such large price increases, with costs adjusted, production was not stimulated. This means that there are factors other than price and profit that determine the attraction of people, money and investment – that is, structural factors that we must pay attention to.

What are the main problems?

There are regulatory factors, application of European environmental regulations and directives with more power and shorter time frames due to which livestock entrepreneurs and industrial entrepreneurs are reluctant to invest or enter into this sector. We have financial problems and environmental problems in manufacturing that are greater than in other countries. This is observed in Southern Europe and, above all, in Spain.

What is the future of Spain’s dairy sector? Farm closures don’t stop for years.

Our message aims to identify which livestock models, investors and entrepreneurs are betting on the sector. Identify these types of models and do not put restrictions on each person choosing and searching for their own model or size. Today there are models that are profitable and at the same time competitive, capable of attracting investment and achieving prices that allow the dairy industry to see the future and not depend on the outside world. Today, cheeses are imported through distribution, and milk for consumption is produced here. But there may be a limit to this if the problem is not resolved.

What operating models are you thinking about?

The minimum size is important depending on the environment in which you are working. Because milk production is a continuous task that cannot be stopped. Those who have the opportunity to hire external labor go to dairy companies. And you have to attract it to these non-urban environments, which is more difficult. This is not to say that there is a specific model. But there are places where size allows us to cope with environmental investments. For example, a purine reactor installation requires a minimum size to cover this investment.

Is the same thing happening with sheep and goat farms?

Prices are the highest in history, but this is not encouraging production as much as in the past. In the past, price increases at these levels resulted in increased sheep and goat production very quickly. The drought has had its share, but it is linked to production models that need to be adapted. The restructuring is still under consideration.

Will we see prices drop on the shelves?

Today, when the price in Spain is the highest in Europe, in France it is impossible to find a retail brand of consumer milk for less than 1.05/1.10 euros, whereas here it costs 90 or 88 cents. What happens in the future will depend on the liquid milk distribution strategy.

“What happens in the future will depend on the liquid milk distribution strategy.”

Publishing its barometer, the Union of Small Farmers (UPA) says they have been buying below average milk from them for 15 years.

Our idea is very far from the position. We wanted to see what are the foundations and pillars of the maintenance and survival of this sector. In this first barometer we saw competitiveness. Essentially, this crisis led to a sharp increase in milk prices due to the industry’s reaction to guarantee milk supplies. In fact, this growth, since it is not accompanied, first of all, by an adjustment in world prices, leads to a loss of competitiveness.

During this crisis, industry profits were such as to finance the ability to maintain or supply milk at these prices. If the crisis has done anything, it has disrupted distribution practices that use it to drive consumer traffic to set milk prices.

Are they now being paid less than they should be?

I do not agree that Spain received lower prices throughout all cycles. In 2008, it had the highest growth in the entire European Union, which led to the start of an investigation by the CNMC (National Market and Competition Commission), which remained in the previous proceedings, since it was seen that Spain responded, given the increase in the cost of raw materials, much better than neighboring competitors. It is true that prices in Spain have risen less and fallen less in recent years because we created a structure with a package of long-term dairy contracts that smoothed out the price waves coming directly from the world market.

Currently, due to the instability of costs, prices and international prices, long term contracts are being shortened by livestock farmers who expect that prices may rise in the short term. And it has also led to a much stronger price reaction in Spain for milk paid to farmers, which is sometimes inconsistent with the consumer’s ability to consume Spanish products at that price.

Many livestock farms have been seriously affected and many are on the verge of closure. How are they dairy industry?

Everyone can see the reports published by dairies. In consumer milk, margins have fallen enormously. And in the production of cheese and other dairy products, small and medium-sized companies over the past year and a half have faced losses and the closure of many SMEs. If there’s one thing the dairy industry has done, it’s absorbed most of the cost increases.