International Federation of Agricultural Producers

4th World Dairy Producers Round Table New Delhi, October 25-28, 2005 Meeting Report INTRODUCTION 1. The 4th World Dairy Producers Round Table was held in Delhi, India on October 25-28, 2005 at the Samrat Hotel. Over 100 representatives of farmers organisations from 22 countries attended this round table which was organised by the International Federation of Agricultural Producers Group on Dairy Products with the support of the National Institute of Agriculture of India (NIA) and the National Dairy Development Board (NDDB) in India and the participation of the International Dairy Federation (IDF). 2. The meeting was associated with two field visits to Mother Dairy, a dairy cooperative center in Delhi, and to a village cooperative in Anand which is part of the NDDB program (see workshop program). 3. The 4th World Dairy Producers Round Table was chaired by Mr. Bernard Airieau, Vice Chair of the National Federation of Dairy Producers (Fdration nationale des Producteurs de Lait FNPL) in France, and Chair of the IFAP Dairy Group. Ms Isabelle Mamaty (IFAP Secretariat) acted as Secretary to the meeting. TUESDAY 25th OCTOBER: DEVELOPING COUNTRIES SEMINAR:

4. In his opening speech, Mr. Bernard Airieau-FNPL recalled the importance of the developing countries seminar in the agenda of the dairy round table. He said that the main objective of this seminar was to enable developing countries to be more active in the upcoming debate on the WTO negotiations on agriculture. He emphasized the fact that the debate should be a dialogue between farmers and should be along the same lines as the IFAP work agenda, in particular regarding the issue of market concentration. He also informed the participants on the IFAP capacity building programme under the Development Cooperation Committee (DCC) for developing countries farmers organisations. In conclusion, he thanked the National Institute of Agriculture of India (NIA) and the National Dairy Development Board (NDDB) for hosting the meeting and the sponsors for their support. 5. Dr. Sarala Gopalan, Secretary General of the NIA and Vice Chair of the IFAP Dairy Group welcomed the participants to New Delhi and opened the floor to presentations. 6. Ms. Isabelle Mamaty, IFAP Commodity Analyst, made a presentation on the Overview of the WTO Agreement on Agriculture (AoA). After a brief history of the GATT and the Marrakech agreements, she presented the main reduction commitments of the three pillars of the agreement on agriculture and mentioned the growing participation of the developing countries that represent more than 60% 1

of the 148 WTO members in February 2005. She said that in implementing the AoA, the bound rates were generally higher than the applied rates, particularly in the case of developing countries, creating the so called water in the tariff. For the two other pillars, 34 countries only can use domestic support, while for the export subsidies, the number is 25 countries. Like for tariffs, the consolidated figures are by far higher than the applied numbers. Although the AoA is an important step in bringing agriculture under international trade disciplines for the first time and increasing transparency, most developing countries think that there are still imbalances in the structure of the AoA e.g. use of domestic support, export subsidies and SSG that need to be addressed, she concluded. 7. Mr. R. Gopalan, Joint Secretary of Ministry of Commerce and Indian Trade Negotiator, gave an Overview of the Negotiations on Agriculture. First he said that Indias concerns within these negotiations are broad based and defensive position owing the importance of agriculture in poverty reduction as well as the diversity of the agriculture sector with a large variety of commodities. The average farm size in India is between 1 to 4 hectares with 60% of farms having less than 1 hectare. The majority of the population earns less than 2 dollars US per day. In addition, there are 107 million of landless people living on 57 cents a day. 8. The objectives of India in this WTO Development Round are to address the reduction of distortion, in particular the elimination of export subsidies and the issue of special and differential treatment, designation of sensitive products, and designation of special products based on food security and level of rural development and special safeguard mechanism to face surges in imports in developing countries. In addition, the de minimis level was very important for India as it is an important tool to support its agriculture. 9. Mr. Gopalan said that the dairy sector still has high tariffs and most imports are under TRQs. Tariffs for Whole Milk Products (WMP), Skimmed Milk Powder (SMP), Butter, Butter oil, Cheese and Whey are between 40% and 60%. There is important support on dairy and sugar in US and export subsidies on dairy in EC. For major exporters like Australia and New Zealand, the main objective is to expand their markets, and this is already made possible by the signature of regional trade agreements (RTAs). There is some fear from these major exporters that India becomes a big player in the next five years, Mr. Gopalan explained. 10. The new agreement on agriculture may lead to a tariff reduction in the dairy sector as well as TRQs expansion with reduction of in quota tariff and more transparency in TRQ administration. India could use the SSM and special product designation for the dairy sector. In future, Mr. Gopalan explained that the Indian dairy industry may suffer more from SPS measures than from nontariff barriers. India has to defend its interest within the Codex Alimentarius. It should be recognised that many developing countries are not involved enough in the Codex Alimentarius. However, one alternative for India is to undertake bilateral discussions with countries introducing new standards and if it does not succeed then use the DSM of the WTO, Mr. Gopalan suggested. 11. Mr. P.M.A. Hakeem, Secretary to the Government of India, Dairy Development and Animal Husbandry Program, made a presentation on the Overview of the Issues relating to trade in the Dairy Sector. With 15% of world animals and more than 90 millions of tonnes of milk production, India was the largest dairy producer in the world. The main results of the Indian dairy industry are as follows: the dairy 2

production has been multiplied by four within 15 years with an annual growth rate of 4%, and the quantity of milk collected has risen by 7%. This is mainly due to the emergence of: (1) the cooperatives as there are 12 million members of cooperatives producing 20 million kg of milk /day (2 litres/producer/day with an average of 2 cows); and (2) the private sector with a Milkshed link to cooperatives. 12. Despite this performance, productivity in the Indian dairy is 50% less than average world productivity. The main challenges of the Indian dairy sector are to reduce the gap with world productivity, to preserve the indigenous animal races, to increase the share of hybrid animal population, and to eliminate diseases. Many efforts have been made and now there are free-disease zones. In order to achieve these objectives, there is a need to increase the quantity of milk in the market and the consumption of milk/per habitant. One way has been to promote milk consumption within the schools. In addition, cooperatives should be able to transform fresh milk into other products but this appears to be difficult and not profitable. 13. Only 4% of the production is exported and the main obstacles to exports are the difficulty of controlling diseases and the fact that the hygiene and the quality of the products do not meet international standards. Although the cooperative movement and the private sector are very present, there is still a large amount of milk that is sold through the unorganised sector. Milk is produced by small scale poor farmers who do not receive any subsidy from the government and this makes it difficult for them to compete in the international market where most of the milk products are subsidised, Mr. Hakeem concluded. 14. Professor Vijay Paul Sharma, from the Indian Institute of Management in Ahmedabad, made a presentation on the impact of WTO on dairying in Developing Countries. He explained that dairy markets are thin with about 6-7% of the production that is exported while prices in the world markets are volatile. Indeed, world dairy prices have registered 50% to 100% fluctuations during the 1990-2004 period. In addition, Professor Sharma said that the dairy industry is one of the most distorted markets, characterised by high levels of domestic support, mainly in the EU, US, Japan and Canada, the high import tariffs and import quotas, bound tariffs being high for dairy products in developed countries compared with developing countries, the use of export subsidies (direct and indirect) and the price supports to producers and intervention prices to processors. 15. As far as market access is concerned, in certain cases, India has negotiated high tariffs on products that did not need protection such as fresh milk and cream (100%), yoghurt and buttermilk (150%), whey and whey powder (150%) and some lower tariffs were committed to products that needed higher protection (milk powders 60%, butter, ghee and cheese 40%). 16. Professor Sharma said that the difference between developed and developing countries in building their dairy public policy was the focus on food safety and the environment in developed countries, while in developing countries more emphasis is put on food security, self-sufficiency and equity. He also explained the three stages of the development of the dairy sector in India. The first two stages, i.e. 1950s & 60s and 1970s & 80s, were characterised by an import substitution strategy (with licensing) and no link between rural producers and urban consumers. The third stage starting in the 1990s was characterised by the abolition of the licensing, the beginning of the White revolution and trade liberalisation 3

within the dairy sector through the signature of the WTO agreement, e.g. elimination of NTBs including the QRs on dairy products. 17. As far as the WTO negotiations are concerned, the idea to reduce the de minimis level for developing countries mentioned in the July package in 2004 is a problem for India where more than 70% of its domestic support is under the de minimis category. In addition, there is still an agreement to be reached on, in particular: (1) the formula for domestic support, (2) the tiered formula for market access, and (3) the selection and treatment of special products. 18. In conclusion, Professor Sharma recognised that the WTO AoA was an historic turning point and worked well to some extent but immediate quantitative effects on trade and protection levels are moderate. Therefore, there is a need to strengthen the AoA disciplines and to address their weaknesses. The future challenges will be to accommodate non-trade concerns such as societal objectives like rural development food security and poverty alleviation in a way that they are targeted, transparent and minimally trade distorting. In order to face these challenges, developing countries need to adapt their policy options and strategies. General discussion 19. The relationship between the private sector and the cooperatives was among the main concerns of the participants. Indeed, many participants were concerned about the growing importance of the private sector vis vis the cooperatives. Indeed, one participant recalled that although half of the milk is collected by the cooperatives and half by the private sector, this latter represents of the value added of the milk. In that context, the development of the private sector may be a danger for the cooperatives. 20. It is true that there is some pressure on cooperatives in certain areas of India by the private sector, Nestl in particular. But the collection of milk by cooperatives has increased by 7% per year. It should be recognised that the private sector is generally more innovative than cooperatives and this may be a problem in a longer term. Indeed, the private sector invests in value added products and quality. This is actually an incentive for producers and cooperatives. However, many participants mentioned that the main difference between the private sector and cooperatives is that the benefit of the cooperative is shared among producers, while the benefit of the private sector does not go to producers. In addition, one advantage of the cooperatives in the case of India is that they cover most of the country which is not the case of the private sector. 21. In the longer term, cooperatives should become autonomous, more innovative, and be able to influence prices in order to face a growing private sector. Indeed, dairy prices are not fixed by the Indian government but by the states and provinces which pay different prices to producers, which vary from one state to another and from one season to another. 22. How to face the international market? Each developing country representative presented briefly the dairy industry in their country and their view on the WTO negotiations. In Argentina, 25 % of dairy production is exported which is why the Argentinean producers are in favour of a more open international market. For Kenya, the DOHA mandate should be reaffirmed and certain issues such as complex tariffs and TRQs on selected products should be addressed. In 4

Madagascar, dairy products are still considered a luxury as many people cannot afford them. Dairy production constitutes a complementary income for producers and is done under three systems with different productivity levels: (1) production from local animals (4 litres/day); (2) production from cows (8 to 20 litres/day); and (3) industrial production (50 litres/day). The main problems faced by the producers are insufficient pasture areas and expensive prices for high productivity animals. The industrial milk production is made by TIKO with modern farms and transformation units and a developed network of selling places. In addition to the milk produced on its own farms, TIKO also buys milk from neighbouring producers but most of them are complaining about the low prices given by TIKO. 23. The participant from Nicaragua highlighted the need for capacity building and the fact that farmers should raise their concerns towards the MFN and act collectively. The Philippines is a net importer of dairy products. Despite government assistance to dairy producers in order to promote this sector, there is still a gap between production and consumption. The participant from the Philippines emphasized the need to strengthen the link between small farmers all over the world and to exchange marketing techniques. Rwanda is a rural country with about 90% of the population engaged in (mainly subsistence) agriculture. In general, producer prices are still low and the research in the dairy sector is still very academic. 24. In Senegal, three million people work in the dairy industry, mainly women and young people. The local production of around 110 million litres could not by far cover the local needs. The dairy sector suffers from a structural deficit and problem of organisation, collection of the dairy, conservation and transformation of the dairy products. In order to improve the productivity, there is a need to define and implement a development policy taking into account the potentialities of the different regions and make investments in that sector. The participant from South Africa said that there are lots of common ground among dairy farmers worldwide. However, developing countries face more challenges and problems that he believes should be addressed in a well structured body. The participant suggested that the statements of the third round table should be part and parcel of the following discussions. 25. The dairy sector in Uruguay is dominated by the cooperatives and the national production of milk is 1,120 million of tonnes from which 65% is exported. Therefore it is important for Uruguay to be able to export everywhere in the world. The participant from South Africa said that milk producers suffer from a multinational policy and the Doha mandate should really focus on development in all developing countries. He explained that developing countries have been suffering from free trade, particularly from cheap imports. Then he explained that when the South African government instituted an anti-dumping levy on cheese imports from Ireland, it was found that the producer price paid to the Irish farmers were more than double the price at which the cheese was sold in South Africa and imported by a multinational. Another issue of interest to developing countries, he explained, was food aid that may be used as a form of legalised dumping. Thus, a study produced by ABARE has shown that food aid increases when world prices are low and decreases as world prices decrease. In Zimbabwe, due to the political situation, the agricultural sector has registered a decrease in production. However, the dairy production has registered a drop of 15% which is still less than the other sectors.

WEDNESDAY 26th OCTOBER INAUGURAL SESSION: INTRODUCTION 26. Mr. Bernard Airieau, welcomed the new participants and once again thanked the National Institute of Agriculture (NIA), the National Dairy Development Board (NDDB) and the sponsors for their financial contribution. He said that the main objective of this round table was a dialogue among farmers and the sharing of information on the recent developments of the AoA. 27. Dr. Bhishma Narain Singh, President of NIA, made a welcoming speech and wished the participants a fruitful meeting. Then, Mr. S.M. Wahi, one of the

genetic improvement of the indigenous/native breeds of cattle and buffaloes by expanding the network of artificial insemination to the farmers doorstep Conservation of livestock breeds facing the threat of extinction Immunisation programme to control prevalent animal diseases Improvement of feed and fodder quality Strengthening infrastructure and programme for clean milk Production

After the inaugural addresses, the session on WTO started with a presentation by David King, IFAP Secretary General.

SESSION 1: WTO NEGOTIATIONS- OVERVIEW UPDATE ON THE WTO NEGOTIATIONS 32. Mr. David King, IFAP Secretary General, made an update of the WTO negotiations on Agriculture. Since the Doha Round was launched in November 2001, all the deadlines have been missed. Indeed, it was only in 2004 that the WTO General Council agreed on a framework for negotiating the modalities under the July 2004 framework package... It is almost certain that the deadline for final agreement will not be met in Hong-Kong. However, the new WTO Director General Pascal Lamy is hoping that two-thirds of the issues can be agreed in Hong-Kong, Mr. King said. 33. In considering the three pillars of the AoA, namely market access, domestic support and export subsidies, Mr King explained that market access remained the area where there are still many issues to be agreed upon, i.e. no agreement on the selection of tariff bands and the rate of reduction in each band and how to handle sensitive products. However, the higher tariffs would be cut the most. 34. The new AoA will include measures for S&D for developing countries, since the Doha Round is a development round. However, Agreement is still needed on how (which criteria/indicators) developing countries should designate Special Products essential for their food security, livelihood security and rural development needs. In addition, the technical formula of a Special Safeguard Mechanism to face import surges and prices volatility for developing countries is still under discussion. 35. On domestic support, a decision needs be made on the number of bands in which to divide up different levels of amber box support, and the base period to use for the cuts. Countries giving the highest levels of support would face the largest cuts. Once the structure for making the reduction commitments in domestic support is fixed, negotiators will have to decide on a cap or ceiling on a commodity basis. Mr. David King said that it should not be difficult for most developed countries to negotiate a substantial cut in the Amber Box support as most of this tradedistorting support has already been converted into the Blue box or Green Box support. 36. Blue Box measures are still under negotiations for a new Blue Box to include the counter-cyclical payments of the USA, which are not linked to production but which are linked to price. The Green Box will be enlarged to incorporate development-friendly support measures in order to suit the situation of the 7

developing countries, overall support, i.e. the sum of amber box, blue box and de minimis will be reduced in the new AoA. 37. Finally, on the issue of export competition, negotiators have already agreed to phase out all forms of export support in the new AoA. This is straightforward for export subsidies, but negotiators are still working on the set of rules for the use of export credits, rules for the operation of StateTrading Enterprises (STEs) and rules to ensure that food aid does not displace commercial sales.

OUTSTANDING ISSUES IN AGRICULTURE NEGOTIATIONS OF PARTICULAR CONCERN/ROUND TABLE DISCUSSION 38. Following Mr. Kings presentation, participants expressed their views. Mr. Michael Lambert, Chairman of the COPA-COGECA Milk Committee, said that it is difficult for the EU Commissioner to represent 25 countries with diverging interests. The UK is in favour of the elimination of export subsidies by 2010, while France would prefer a longer period. Mr. Lambert explained that the main changes for farmers in Europe are already occurring following the CAP reform with (1) a decrease in the value of export subsidies, and (2) an increase in decoupled payment to farmers. He said that 90% of dairy production is consumed within Europe while 10% is exported. However, this situation may change with increased imports of dairy products in the future. 39. Mr Wally Smith, 2nd vice president of the dairy farmers of Canada said that Canada has nothing to win in these negotiations as far as dairy products are concerned. Indeed, the supply management system for dairy products put in place in Canada is a well functioning system that guarantees good prices for farmers and limited surplus. But this system is regarded at WTO as being a government intervention mechanism. One option for Canada would be to look for a sensitive product designation of the dairy products which implies less reduction. 40. Mr. Carlos Chiavassa, President of ALECol, Argentina, explained that Argentina is an exporter of dairy products and its interest is to expand its market access. Mr. Jacobus Koos Pienaar, Deputy Chairman of Milk Producers Organisations of South Africa said that the use of export subsidies and the presence of import and non-tariff barriers as well as SPS measures are a big obstacle to the development of the dairy industry in developing countries. He added that the issue of food aid and effects of the multinational enterprises should be considered within the negotiations. 41. As far as Australia is concerned, Mr. Allan Burgess, President of ADFF said that market access is a pillar that may constitute an obstacle if subsidies are reduced. Indeed if there is a reduction of subsidies, prices may increase but with no additional market access, no one would benefit from this increase in prices in the international markets. The dairy industry is a very complex sector compared to the others as there are more than 600 tariff lines and numerous differentiated products. That is why there is a need to understand which products are concerned by market access and use the right data for that, he added. 42. In India, the main issues of the dairy industry are the nature of import tariffs in general and the issue of specific duty in particular. In that latter case, the tariff equivalent issue needs to be addressed. The minimum access of 5% of production 8

under TRQs should be considered case by case because, regarding the dairy products in India, 5% of 90 millions of production is very important. Another issue of importance to the dairy sector is the SPS and TBT standards. The representative of India argued that, in many cases, there is a deviation of the initial objective of the SPS agreement to harmonise the international and national standards. As far as domestic support is concerned, he said that the proposal of reducing the de minimis level and broadening the blue box would not help the developing countries. In addition, he suggested that there is a need to cap subsidies on product-by-product basis. 43. Mr. Joachim Contente from USA NFU pointed out that the reference price used in the AMS calculation is not a good indicator as it eventually allows an overestimation of the AMS really received by the farmers. He added that the OECD calculation of PSE was not a good indicator because the calculated transfer from consumers to producers is not received by farmers. Most of the PSE is based on the difference between domestic and world market prices, and thus changes with exchange rates. These two indicators should be questioned particularly because producer prices keep declining while consumer prices are rising. 44. Mr. Douglas Aleman from Nicaragua said that there are differences among governments but not among producers. Infrastructure, financing, access to capacity building and technical assistance are topics of importance to all farmers, particularly from developing countries, that should be discussed within IFAP as well. 45. Mr.Christer Eliasson, President of the Swedish Dairy Association said that the CAP reform has led to a 10 to 25% cut in milk prices. Some producers are now under pressure and have some difficulty in continuing their farming activity. With the coming WTO negotiations, it is important to consider the winners and the losers. 46. The Philippines imports more that 90% of its national dairy needs mainly from multinational companies. In order for producers from importing countries to benefit from this trade, it may be possible to consider the development of joint ventures with cooperatives from importing countries, suggested Mr.Granada, from the Federation of Free Farmers. 47. Mrs. Awa Diallo from CNCR in Senegal, said that it is important to have the specific support for women in the dairy sector and to strengthen their capacity as they play a major role. Despite limited national production, dairy producers in Senegal have difficulty in accessing the local market due to imported milk powder. Indeed, the price of imported milk powder is half the price of domestic milk. 48. M. Lok Bahadur Khadka, Manager of Central Milk ProducersCooperative Union from Nepal said that Dairy producers in his country do not succeed in selling their products in the international markets because in general the dairy production systems in Nepal are traditional systems and have difficulty in following the WTO rules, in particular in complying with the international quality standards. One participant from India explained that the cooperative movement has always benefited the poorest people and that WTO should address the problem of poverty reduction and give more flexibility (space) to cooperatives.

49. Mr. John Mc Queen from ADFF said that dairy is the most distorted market. In Australia, the domestic market price reflects the world market price because there is no regulation. As a consequence, farmer returns keep decreasing. Thus, the farmers return was 30-33 cents/litre in 2001, 20 cents/litre in 2003 and between 22 and 24 cents/litre in 2005. It is important to be ambitious in the negotiations on market access in order to touch applied tariffs, to actually expand the access to market and to reduce water in the tariffs, he concluded. 50. Mr. Kield Winter Rasmussen from the Danish Dairy Board, argued that the reduction of subsidies will not solve the market access problem as nobody knows about the impact on prices that would result from that reduction. He added that the water in the tariff in the dairy sector (the applied rate being lower than the bound rate) has been eliminated in the EU tariff structure. 51. According to Mr. Joseph NGeera from KENFAP (Kenya), governments should ensure that farmers are paid at a sustainable price. In addition, attention should be given to food aid to avoid milk being dumped in the market through aid. 52. Mr. Bernard Airieau, Vice President of FNPL, France, recalled the growing importance of China as a big player in the world dairy market. Indeed, Chinese production grew from 5 millions tons in 2001 to 25 millions in 2005.
53. Mrs. Sarala Gopalan, NIA, India said that, even if producers are competitive,

their wages are still low so how to get better wages? One answer to that question was given by Mr. David King, IFAP Secretary General, who said that there is a need to develop job opportunities in the rural areas, to get farmers involved in the supply chain in order to capture more value added.

54. Mr.Jacobus Koos Pienar, Deputy Chairman of the Milk Producers organisation of South Africa, said that developing countries could not compete wicocez3ugC(kz6lgN3(36Vzj

10

THURSDAY 27th OCTOBER SESSION 2: PRODUCER MARKET EMPOWERMENT COMPETITION POLICY: CASE STUDIES 58. Mr. John Mc Queen from ADFF made a presentation entitled An Overview of the Role of Competition Policy Worldwide. He explained that the dairy market is distorted by measures from governments but also by concentration of firms upstream and downstream that is eroding farmer market power in all countries around the world. Thus, in Europe, only 3 firms cover at least 50% of all food sales while, in the US, 5 firms account for about 80% of the total food sales. In addition, food retailers are becoming global players e.g. Carrefour in France, Royal Ahold of the Netherlands and Wal-Mart in the USA. Thus, Mr. John McQueen pointed out that government support has not stopped market concentration. Indeed, farmer market power is being eroded even in the countries where there is significant government intervention through regulatory support. The most important effect of concentration is that firms increase their bargaining power over farmers and therefore there is a need for farmers to have a tool to concentrate their voices in the market place. One option is the adoption of a competition law to ensure that markets function competitively but this law should not prevent farmers from working together. 59. In Australia, the response of ADFF to higher industrial concentration was collective bargaining with written contracts negotiated between farmers and companies. This approach was possible only if there was an exemption from the competition law and therefore discussions started in 2000 between farmers and the Australian Competition and Consumer Commission (ACCC). An agreement was reached in 2002 to allow dairy farmers through the ADFF to undertake collective bargaining with supply and price conditions included. Following an ADFF report on Advancing Dairy Australia and under the pressure of ADFF, the Australian government initiated a review of the competition laws in 2002 and it accepted the recommendations of the review when the report was released in 2003. If passed by Parliament, the exemption for allowing collective bargaining in competition law will be quicker for farmers to achieve although it is not a panacea but a valuable tool for balancing market power. Mr. McQueen recalled that one of the recommendations of IFAP is to call on WTO to look closer at trade and competition issues and that balance of market power is a fundamental issue for the success of a multilateral trading system. 60. Mr. Joachim Contente from USA NFU made a presentation on the US case study on Competition Policy and Cooperatives. He illustrated the importance of concentration in agricultural and retail markets. Thus, since 1999, NFU has commissioned a series of studies and the latest update report in February 2005 reveals that the top four firms in most agricultural sectors have tightened their stronghold since the 2002 study. Cooperatives in the US handle over 80% of the total milk production; however not all of them actually process their members milk. From the beginning of the 1900s till early 1980s, the Federal government had set prices for dairy products that were tied to the cost of production. This system was replaced with a ratcheted down price support system in 1981 under the Reagan presidency. In 2003, cooperatives and producers joined together in a program to address the lower price issue. Like in other industrialised countries, market concentration is growing and milk companies as well. Some milk cooperatives are dominating the milk distribution market. As a consequence, there are 60,000 dairy farms marketing milk today through 200 cooperatives while they 11

were 180 000 dairy producers marketing through 1000 cooperatives half a century ago. In his conclusion, Mr. Contente stressed the need for the producers to become more engaged in the political arena at the local, state, federal and international levels. 61. Mr. Rick Philips, from the Dairy Farmers of Canada, made a presentation on the role of competition policy in the search for balance. Like the previous speakers, he highlighted the rise of market concentration within the dairy sector. Thus, at the processing level in Canada, three dairy processors have 70% of sales while at the retail level, the top 10 have 90% of sales. He explained that the main objectives of the Canadian dairy supply management system are: (1) to ensure orderly marketing of milk by balancing supply with demand; (2) to balance the negotiating power between stakeholders to obtain fair prices for the producer; (3) to ensure that consumers have access to adequate supplies of high quality products. This system has three pillars that are equally important, i.e. import controls, producer pricing and production discipline, and its implementation has been made possible because of the change in the competition law. 62. In the case of Australia, in order to face the deregulation of the milk industry, Mr. Wesley from ADFF explained that dairy producers wanted a mechanism that enables them to negotiate collectively. Some producers have only one processor to deal with so to negotiate collectively in that case is a good means to improve their price. The collective bargaining group was created when new processors came in the region. Then producers had more choices. However, there is no obligation for producers or for processors to enter into collective bargaining. It is done on a voluntary basis. 63. Mr. Carlos Chiavassa from Argentina presented a case study on Argentinas dairy sector situation. He explained that in 2001 the milk industry was operating under a free market, with unilateral pricing, unilateral determination of physical chemical and sanitary standards to apply for milk pricing, absence of state intervention and poor organisation of primary production. In 2002, milk production dropped by 8,2% and by 23 % in 2003. This situation led to a national forum with dairy farmers, dairy processors and government in order to solve the structural problems of the dairy sector. Following that forum, a technical Executive Board was created to implement a pilot plan to determine the reference milk standard with the assistance of independent laboratories and establishment of a milk grading system to be applied for price determination. In addition a commission was created, including farmers organisations, in order to define a pricing mechanism, supply management and to improve the transparency within the dairy chain and also be able to resolve conflicts in the future. This is an on-going process with a final objective to come up with a Dairy Act.

DISCUSSION AND CONCLUSIONS 64. One concern was raised on how to handle the free market and the gap between the retail price and the farm price. The best option was to consider the narrowing the gap between consumer and producer prices instead. 65. Another concern was raised regarding competition law. Mr. Rick Sharma from India said that each country has its own competition law and to link that to trade is 12

debatable taking into account the differences. A competition law should be considered at the national level and trying to harmonise them at WTO will be difficult. 66. The issue on how in the future the cooperatives will evolve vis vis the big companies was raised as well and the fact that some cooperatives are becoming powerful and then may act as multinationals has also been raised. 67. What is the position of cooperatives in Australia regarding in particular the growth of collective bargaining? The cooperative movement in Australia is shrinking; only 50% of the milk collection is done by cooperatives. The idea is that there is a need for a flexible entity where the competition law is not in favour of producers. 68. In Argentina for example, cooperatives have difficulty in getting organised in the market and in supplying the market. As a consequence, it may happen that they pay a cheaper price to their members compared to non-members. 69. All participants agree that if the cooperatives could control the price then they could transfer the maximum price to the producers. An example of a cooperative in India that controls the price in the market and therefore is able to transfer 80 per cent of the price received from the consumers to the producers was discussed. But still questions are raised as to what are the measures that could push producers to be part of a cooperative and where are the benefits of cooperatives going? 70. Another question was asked about potential protection for cooperatives. The question was raised in the particular case of Australia and whether there were laws to protect cooperatives. The answer was that there is a need for a minimum of 70% of the vote to sell a cooperative but there is no legal instrument to prevent the selling of a cooperative and mergers. 71. Mr. Ortiz from CNFR (Uruguay) explained that the situation was quite disorganised in his country because the cooperatives are not able to deliver on time. They are funded by the government and the reference price is fixed three months in advance meaning that it is not connected to the market at all. PRODUCER EMPOWERMENT: CASE STUDIES 72. Mr. Arun Narke, director of the Kolhapur Dairy Cooperative in India gave an overview of the achievements of this company. The Kolhapur region covers 3256 village dairy cooperatives, including 585,000 farmer members with a processing capacity of 700,000 litres per day. In this region, the Gokul cooperative includes 3556 village societies that supply milk. In addition to the milk collection, rural development programmes started in 1990 in order to provide additional services to milk producers. The cooperative got an ISO 9000 certification in 1995 and provides a fund Mechanism to farmers. The cooperative provides also education and management, health and leadership development programmes. 73. Mr. Keld Winther Rasmussen from the Danish Dairy Board presented a case study on the situation of the cooperatives in Denmark. Danish dairy products are mainly sold in the EU, e.g. 60% of the total, and cheese is the main export commodity followed by preserved milk and butter. Less than 1% of dairy products are sold off the farm, the rest is delivered to dairies. There has been a considerable structural development amongst farmers since 1965 in Denmark with on average 50% of 13

milk producers leaving the sector over a period of 10 years. Today, there are 5950 milk producers producing on average 750,000 kilos of milk per year and it is estimated that, within the next ten years, half of the milk producers will quit and the rest will be producing 1,670,000 kilos per year in 2015. 74. The Danish dairy market is dominated by cooperatives, with 90% of the milk being delivered by the cooperatives although their number is declining. Indeed, the number of cooperatives in 2004 was 13 compared with 218 in 1975. The first dairy cooperative was created in 1882, followed by the other sectors including export associations. The cooperatives are established on a voluntary basis for membership and the system is one member one vote irrespective of the quantity of milk delivered. The economic risks and profits of the cooperative are shared among members in proportion to milk deliveries. 75. Mr. Rasmussen explained that the political decisions on agriculture are taken at the national level in Copenhagen, at the European level in Brussels and at the international level by WTO in Geneva and therefore the political lobby takes place at these three levels. He also explained that at the national level, farmers are part of the Danish Agricultural Council which include among others supply and processing cooperatives, private companies and the Danish Agricultural Advisory Service and local farmers unions which constitutes the United Farmers Union. The main challenge that the cooperatives are facing today is how to respond to the globalisation of the market. In particular, how to face the international orientation of functions such as research and development, marketing and production. Thus, the main European dairy company, Arla Foods, is the result of the merger between the Swedish cooperative Arla and the Danish cooperative MD Foods back in 2000. Mr. Rasmussen concluded that the cooperatives have to face the globalisation challenge. 76. Mr. Wally Smith, Vice President of Dairy Farmers of Canada presented a case study on the Canadian supply management experience. Canada used to be a major exporter of butter and cheese but with a low return for the producers. The producers turned then to the domestic market. The Canadian dairy system had imbalances market power due to the fact that there were over 16 000 dairy farmers acting on an individual basis to face a small number of retailers and processors. Thus producers in each province establish a board or associations and seat all together at the negotiating table. These provincial boards together negotiate with the processors (cooperative or private enterprises) the following elements: plant supply, milk quality, classes and prices, and payment terms. Mr.Wally Smith explained that the management system resolves the problem of market surplus but not at the expense of other producers. But the system is questioned at WTO. 77. Finally Mr. Bernard Airieau presented a case study from France on French dairy producers and interprofessional agreements. He explained that, in France, private industry and cooperatives share the national collection of milk more or less equally, while the processing and manufacturing are dominated by more than 70% by the industry. For all these reasons, since the 60s with the development of the milk industry, regional cross-industry organisations were set up on voluntary basis including producers and processors. Nowadays, there are about 20 throughout the country. The prices, quality of milk, seasonal adjustments etc.. are decided within these structures. At the national level, in 1974, the three producers organisations (FNPL), the dairy cooperatives (FNCL) and the private industry (FNIL) created a common organisation, or an umbrella organisation called the Centre 14

Interprofessionnel de lEconomie Laitire (CNIEL) that was recognised by the government through act of parliament. 78. In the 90s, the reduction of the EU support plus the growing concentration in the distribution sector has led to pressure on milk prices for the processors. At the national level, the producer price of milk ceased to be a compromise and became fixed unilaterally by the industry. In 1997, after a demonstration by the producers, an agreement was reached between producers, processors and the distribution sector on the modalities of pricing. The main result was linked to changes in dairy products prices on a quarterly basis. But again the CAP reform of 2003 has reduced the intervention prices to dairy producers and delinked payments from production. This has had an impact on the relationship between milk producers and dairy companies that wanted to reduce the producers prices following the reduction of the intervention prices done by the Community. In September, an agreement on milk prices was found and negotiations are under way to find another permanent agreement under the CIEL. DISCUSSION AND CONCLUSIONS 79. Many questions were raised during the discussion. One question was related to the coexistence of cooperatives and private companies and how they get along. Another concern raised was that, if the producers population is reduced, producers will have more and more difficulty to influence policy in their favour. Regarding the status of the cooperatives within the WTO, it was suggested that cooperatives should be recognised and be included within the Green Box in the WTO. 80. At the national level, the discussion was oriented towards the relationship between the Government and the producers and some developing countries such as India, recommended that the Government eliminate taxes to producers on sales and revenues in order for them to be able to survive. 81. The main conclusion of this discussion was that the case studies show that dairy farmers round the world have the same problem, i.e. how to increase their power within the market. Indeed, they found different solutions according to their country specificity. Collective bargaining in the case of Australia. In Canada, there was a need for an exemption under competition law to enable the farmers to put the supply management system on place. The main concern for all farmers is how to deal with the growing power of multinational firmsmaybe there is a need for international rules or competition policy in order to get better protection for producers. This is the conclusion participants came to.

DAIRY ROUND TABLE RECOMMENDATIONS 1. WTO WTO rules are needed for managing world trade, but these rules must give space to public policies in developing countries in order to allow the small-scale dairy industries to develop, and balance market concerns with societal concerns. It is vital that national governments prepare their local agriculture to benefit from the results of the WTO negotiations by putting in place domestic infrastructures such as roads, electricity for milk cooling, a regulatory framework to meet international standards, and a policy framework to promote the organisation of farmers in dairy cooperatives and associations. 15

2. Market instruments It is critical to empower producers in the market place so that they are able to receive a fair return for their work. Dairy farmers are facing low prices as one consequence of the growing power of supermarkets and the concentration in the processing sector. International organizations should explore experiences from different countries on how producers organise themselves in the market and

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