Rising Dairy Prices Signal Globalization

Milk prices are rising amid soaring demand. Many dairy farmers are profiting as they threaten to sell elsewhere

By Julia Bonstein, Alexander Jung, Rene Pfister, Hans-Jurgen Schlamp and Wieland Wagner

Each year, buyers from Germany's largest food retailers come together to negotiate new milk contracts with the country's main dairy producers. Meeting at the headquarters of big supermarket chains including Aldi, Lidl, and Edeka, the retailers have often had the upper hand while dealing with the dairy farmers.

Both sides know and respect each other, but the retailers have had little trouble pushing down milk prices in past. Over the last five years they've dropped almost 15 percent amid a huge oversupply, leaving the farmers little choice but to offer it at a discount.

And that's how it was for years -- until the two sides sat down at the negotiating table this spring. Suddenly, the balance of power had changed. Germany's large dairy producers -- Nordmilch, Campina, Müller, and others -- presented a united and confident front as they demanded seven to ten cents more per liter of milk starting in July. And, to the surprise of many, the big retailers meekly acquiesced.

For the first time, dairy farmers could threaten to sell their products elsewhere since the global dairy market is suddenly thirsty for German milk. And there's particular interest in powered whey. Prices for the yellowy stuff, which is the foundation for many packaged food products, have more than doubled within a year. Globalization has finally reached a sector that for a long time was organized regionally. While the dairy sector in Germany is still connected with the image of the quaint Bavarian farmer and his bell-wearing cows, in reality it's become an industry of multinational corporations, stock prices and commodities markets.

Milk is in demand. The inventories of food producers have dried up. So too has Europe's proverbial sea of surplus milk. The much-maligned mountain of extra butter is also gone. Such positive developments have even encouraged the European Commission to consider reforming Europe's bloated agricultural policies further.

EU Agriculture Commissioner Mariann Fischer Boel wants to increase the bloc's milk quotas, which have been frozen in place for years. The intention is to push along the decision made by EU agriculture ministers to do away with the convoluted quota system that regulates Europe's milk production. But the quotas will only be completely eliminated in 2015. While that might not seem very ambitious, at least the basic laws of supply and demand have been reestablished for the first time since the regulations for the milk market were implemented in 1968.

Frank Jäger, the manager of the dairy association from the German state of Hesse, is amazed by all the changes: "Market forces are prevailing." But what makes dairy farmers happy doesn't necessarily please consumers. Prices for milk and other dairy products have skyrocketed lately in Germany. Cream, cheese, curd, butter and ice cream have suddenly become up to 50 percent more expensive. Quick condemnation has come from across the political spectrum: Conservative German Agriculture Minister Horst Seehofer has called such increases "unjustified" and Social Democratic parliamentarian Ulrich Kelber accused producers of "massive exaggeration." The chairwoman of the German parliament's agriculture committee, Ulrike Höfken of the Green Party, urged consumers not to put up with being "ripped off."

At the same time, prices for other foodstuffs are also on the rise. Bread, meat, beer -- globalization is making it all more expensive. But it's the higher cost of a wholesome glass of milk -- with its almost mythical qualities as the bedrock of nutrition for families -- that has really struck a nerve. Many people consider it almost a constitutional right that children have access to an affordable glass of milk. "Milk isn't a luxury good and it cannot be allowed to become one either," says another Green parliamentarian, Thea Dückert. She even believes Germany's unemployment benefits should rise to compensate for the higher prices.

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