Milk prices are plummeting in Europe. There are two big reasons:
- Demand is dropping due to Russian embargoes and there has been a drop in the demand from China.
- Supply restrictions and quotas have been lifted, leading to an increase in the supply.
Europe's dairy farmers were already reeling from the food embargo imposed by Moscow last year in retaliation for Western sanctions over Ukraine.
Russia was one of the EU's biggest markets for dairy products, accounting for 32% of cheese exports and 24% of butter exports.
A slowdown in demand from China, the world's biggest milk importer, is also hurting the dairy industry. China is a big buyer of powdered milk.
Europe's farmers are now calling for the reintroduction of production quotas to try to balance the market. The quotas were abolished earlier this year, leaving farmers free to produce as much as they like for the first time in 30 years.
The deregulation led to more oversupply, piling even more pressure on prices.
In the past, demand was high and supply was restricted. Then the demand curve shifted to the left (demand dropped) at the same time the artificial supply restrictions were lifted, leading to a rightward shift of the supply curve. Both these moves put downward pressure on the equilibrium prices of dairy products. From the link,
There is so much sloshing around the European Union that milk is often cheaper than bottled water. A liter bottle of water costs around $1.50 in the U.K.; a liter of milk $1.
In France, milk is also around $1 per liter, similar to the price of mineral water. And in German discount supermarkets such as Lidl and Aldi, a liter of milk can be as cheap as 55 cents, while a liter bottle of water costs around 72 cents. ...
While the price of milk in shops has fallen by around 5% this year, wholesale milk prices have collapsed by about 20% to around 37 cents.
And this may seem harsh: I feel a modicum of sympathy for the dairy farmers. But not much.
They have been cushioned by supply management and gubmnt programmes for years; they have been assuming market conditions and gubmnt regulations would remain unchanged.
Taxpayers and consumers owe them nothing. They made a bet and collected on it for years. Now they're losing on that bet.