Policy Impacts in the Dairy Supply Chain: The Case of German Whole Milk Powder

The dairy sector is one of the most important agro-food markets in the European Union (EU). In addition to the fresh dairy products, cheese and butter considerable amounts of other dairy products with long sell-by dates are produced like skimmed milk, semi skimmed milk and whole milk powder. These products have some advantages in longer storage periods and easy transportation and thus they are often designated not only for domestic storage but also for international markets. As other internationally traded dairy products milk powders depict remarkable price variations in the last years which do find good matches in the domestic markets. Despite these variations the German industry regards milk powder as an interesting product for further investments driven by luminous international demand prospects. So the likely impacts between the international and the domestic prices movements are an important topic for the German dairy industry as well as German milk producers. In the past, the EU dairy market has been highly supported by the Common Market Organization (CMO) while, at the same time, milk supply has been restricted by the milk quota regime. High administrative price for dairy products were protected by significant import tariffs isolating the EU dairy sector from international trade. In addition, exports subsidies allowed successful competition with exports from third countries, not only for intervention products but also for other dairy products like whole milk powder. However, with the restructuring of the support starting with the Agenda 2000, the coupled market price support in form of intervention prices of butter and skimmed milk powder were stepwise reduced in favour of decoupled payments. Also invention purchases were restricted and the abolition of the milk quota regime was announced for 2014/15 and phased in by yearly increases of the national quotas. At the same time applied export refunds were suspended for most dairy products