Jamie Gray is a business reporter for the NZ Herald

Dutch dairy can cut it without EU price supports - execs

Farmers in the Netherlands have little appetite for state support, despite low prices
Outdoor grazing is often out of bounds for Dutch cows, which spend half the year indoors.
Outdoor grazing is often out of bounds for Dutch cows, which spend half the year indoors.

The European Union's decision to do away with dairy production quotas last year unleashed more product onto world markets at a time when demand was poor.

The result was a prolonged and severe fall in global dairy prices, from which farmers in New Zealand and around the world are only now starting to recover.

In response to low prices, the European Union (EU) stepped in to support its farmers, but in the Netherlands -- a key member of the trading bloc -- they would rather go it alone, said the Dutch Dairy Association's (NZO) director of international affairs, Jan Maarten Vrij.

The EU is paying farmers 14 euro cents per kg of milk, provided they produce less than they did in their reference period last year. New Zealand farmers have long done without state intervention, and it seems Dutch farmers have come around to the same point of view.

"We did not ask for that package and we don't really support it," Vrij said in an interview with the Herald at the NZO's office in The Hague.

"We would rather not have the complication of support systems."

"Yes, we see increased price volatility over the last decade partly due to the fact that we have no export subsidies," he said. "Only a minority of Dutch farmers think that the government should be responsible for their income."

Despite the industry's current difficulties, Vrij said the Dutch dairy sector was competitive on the world market, but within the EU there were differing opinions on how the dairy industry should be run.

The French believed there should be a reaction from the state when there was a problem in the market, while the Germans tended to be more trade-oriented, he said.

EU free to produce

Dutch farmers, with their EU counterparts, are for the first time since 1984 free to produce as much milk as they want, following the abolition of production quotas last April.

When the shackles came off, EU production surged just as demand was easing.

The market has since rebounded somewhat, but dairy farmers around the world have a way to go before they can rest easy.

For Vrij, the issues facing the dairy sector cover protectionism, water quality, world overproduction, Brexit and sustainability.

We did not ask for that package and we don't really support it.
Jan Maarten Vrij, Dutch Dairy Association

A third of the Netherlands' income comes from trade. It is world's fifth largest exporter.

Its land area -- 33,800sq km -- is only a little bigger than Otago's, yet it is the world's second biggest exporter of agricultural products after the US.

Hans de Boer, president of business and employers' organisation VNO-NCW, is proud of the Netherlands' agricultural and environmental track record. "Agriculture 30 or 40 years ago, we thought was going to be a thing of the past," he said.

"The Rhine was like an open sewer in the last few decades and we have managed to clean the whole delta."

De Boer brags that salmon have returned to the famous river after a 50-year absence.

Outward focus

Like New Zealand, the Dutch dairy industry has an outward focus.

For the Dutch, the most pressing issue on the agenda has been world prices.

Dairy countries worldwide have been under the cosh of low prices -- driven largely by higher production from the EU and, within the EU, much of the extra coming from the Netherlands and Ireland.

"The protracted downturn has been quite unusual compared with other dairy downturns -- in previous times they were deep but short," NZO's Vrij said. But in the Netherlands, the sector is not crying "crisis" just yet.

The protracted downturn has been unusual compared with other dairy downturns -- in previous times they were deep but short.

Nevertheless, farmer confidence has taken a knock and Vrij expects consolidation into fewer farms over time.

Vrij sees the depressed market as resulting from a combination of lower demand from Russia and China, growth in supply from the US and New Zealand, and the end of the quota system, which has seen extra production come from the Netherlands, Ireland, Denmark and Germany.

Vrij does not buy into the idea that there is more to it than just a cyclical downturn. "No, there is nothing structurally wrong with the dairy market," he said.

"Everybody in the EU had to get used to the idea that there are no quotas any more," he said.

Lower production

As it stands, there is a drought in France and less hay and maize is being grown.

France, like New Zealand, has a had a big cow cull so it is using less compound feed. Vrij said he was confident that EU farmers could work their way through the issues of oversupply.

"We are confident that we will see lower milk production from the EU, at least until the northern spring next year," he said.

The introduction of phosphate limits is likely to further inhibit production. This is under discussion in the Dutch government but Vrij expects limits to be in place by January next year.

"The visible impact of that [on production] will probably be during the course of next year," he said.

Dutch farmers have the ability to farm far more intensively without the usual attendant problems with runoff -- cows spend about half the year in cow barns, which makes the effluent more containable.

VNO-NCW's De Boer, like many others spoken to, is strong on free trade. "The trend towards protectionism is on the decline around the world overall and in general we support that trend because we believe that sectors should be able to act on their own," he said.

"If there was one sector that could survive, it would be the Dutch agriculture sector."

Netherlands Foreign Minister Bert Koenders. Photo / AP
Netherlands Foreign Minister Bert Koenders. Photo / AP

Singing the same song on free trade

Britain's decision to leave the European Union has shaken the Netherlands, but the move is unlikely to mean short-term changes to the Dutch-NZ trade relationship, says Foreign Minister Bert Koenders.

The Netherlands was on similar ground to New Zealand, particularly when it came to free trade, he said.

Speaking to Australian and New Zealand journalists at The Hague, Koenders said Brexit was unlikely to bring any immediate change to his country's relationship with its Australasian trading partners.

"No, not in the short term," he said. "I think that we will continue to strengthen our bilateral trade relationships."

The Netherlands is among the largest European investors in New Zealand, through multinationals Shell, Unilever and rural lending specialist Rabobank.

Fonterra has a joint venture with Dutch premium cheese manufacturer A-ware Foods Group, establishing separate but "mutually beneficial" cheese and dairy ingredient plants in Friesland, in the north of the country.

Whey and lactose from the cheesemaking process goes straight from A-Ware's new cheese factory to Fonterra's whey and lactose processing plant next door.

Trade between the countries runs in New Zealand's favour. Last year, exports to the Netherlands came to $809.6 million, while imports were worth $559m. Both countries are big dairy producers. Last year the Netherlands produced 14.0 billion kg of milk compared with New Zealand's 21.5b kg.

"International trade is a lifeline for this country," Koenders said. "We will definitely be proponents of free trade agreements, both with Australia and New Zealand."

Koenders said there was a risk of protectionism returning.

"We are all struggling with what Brexit will really mean for all of us," he said. "That it is a loss politically and economically is clear; the question is to what extent will that be the case."

Hans de Boer, president of the Confederation of Netherlands Industry and Employers , said "We are very unhappy about the Brexit thing ... we regard Britain as one of our friends."

A Netherlands trade mission and state visit to Australasia takes place late this month and next month.

- NZ Herald

Jamie Gray travelled to the Netherlands courtesy of the Dutch government ahead of next month's trade mission and state visit.

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