World Economy

German Dairy Farmers Going Bankrupt

German Dairy Farmers Going BankruptGerman Dairy Farmers Going Bankrupt

Many dairy farmers in Germany work long hours though their pay is dropping and a growing number of farms are going bankrupt. They have a low opinion of subsidies.

Michael Greshake is struggling with low market prices for the dairy products put out by his farm in Velbert, in the state of North Rhine-Westphalia. His main buyer, a Dutch company, has contractually agreed to buy a set amount of milk, DW reported.

However, Greshake’s farm assumes the risk for overproduction. If contracted farms such as Greshake’s suddenly produce a surplus—and demand fails to grow—purchase prices sink.

That is why Greshake does not think much of subsidies. “They distort the market,” the 52-year-old said.

He was referring to the bonuses the EU pays per hectare (2.5 acres) of agricultural land, the milk quota that was abolished in 2015 and investment aid. “Without them, many fellow farmers would not be on the verge of bankruptcy today,” Gershake said.

German farmers have turned to global markets for business, and the federal government supports them in this. Promoting national investment has encouraged many farmers to build huge cattle barns. The dairies work at full capacity to pay back loans that can reach six or seven figures, but milk is still produced more cheaply elsewhere.

  EU Intervention

To grasp how serious the situation has become, it is worth taking a look at the recent course of the EU’s intervention system, meant as a safety net to keeping prices from plummeting in times of crisis.

If the cost of milk drops below 20 cents, the government would step in and buy up to 109,000 tons of powdered milk off the hands of dairy producers.

“Until now, nobody took any interest in the program,” said Eckard Heuser of MIV, an association of German dairy producers. But this year is different. The EU had bought out the limit by April.

It then doubled the limit—and then quickly reached it again, piling up 218,000 tons of powdered milk in its possession. That’s more than two billion liters of milk, or 1.5% of Europe’s yearly production. Yet prices continue to sink.

  ‘Milk Summit’

In 2015, the European Union promised to provide farmers with €500 million ($556.6 million) in liquidity assistance. Of those funds, German dairies will receive €70 million ($78 million) in 2016.

The German Farmers’ Association is now asking for help from the federal government. Moreover, Food and Agriculture Minister Christian Schmidt is meeting with industry representatives on May 30 for a “milk summit” to discuss a “fair distribution of market risks” within the value chain.

Bernhard Rub, spokesman of the German Chamber of Agriculture, or LWK, does not believe that the summit will prevent the decline of milk producers. “The current low price may accelerate this development,” Rub said, “but, despite everything, this trend has been progressing for years.”

Since 2000, the number of milk cow owners in Germany has almost halved, to about 73,300.