Jongeneel, Roel

Research Institute of Agricultural Economics

Regionalisation in EU milk production and its environmental implicationsApplication of AGMEMOD to DairyRoel Jongeneel, with contributions from Myrna van Leeuwen, Joan Reijs (Wageningen Economic Research), Martin Banse, Petra Salamon, Verena Wolff (Thünen Institute) and MS-teams, including András Molnár (AKI))REU Conference “The Environmental Sustainability Dimension of Short-term Outlooks for Agricultural Markets”, Budapest, 9 May 20172Highlights: Sustainability and Dairy Production: Production increase in short run (2021) is limited due to recovery period after milk crisis About 75 percent of EU’s medium term (2026) milk supply increase (+14 Mil.ton) is realised by 5 MS (DE, IE, UK, FR, NL) Resumption in the decline in dairy herd  across EU is expected (IE an exception) Consumption & trade: Dairy is servicing growing consumer demand, with both EU intra and extra trade of similar importance Environment (COP21): It will be a major challenge for dairy to satisfy 30% reduction requirement (2030 -2005) COP21 creates undesired policy uncertainty and can have a serious negative impact on the future development of the EU dairy sector The EU Commission and MSs need to come as quickly as possible with a specific climate change policy (including specific targets) for the EU dairy sector3Policy environment Environmental restrictions (e.g. NL P-reduction plan/quota) Short term: exceptional measures aimed at voluntary milk supply reduction / farm restructuring:  Doubling intervention ceilings for skimmed milk powder and butter in 2016 Payment (e.g. €0.14/kg of milk not produced) / slaughter premium / liquidity support Expected milk supply reduction in 2016 estimated to be 1% Has some expected prolonged effects (farm exits) Voluntary coupled support is applied to dairy as well as beef (see beef presentation)4MS increase in raw milk production2016-2021 (short term)3.8%• In short-run milk production seems to be relatively stable (exceptions DE, UK, IR)-10,0%10,0%30,0%50,0%70,0%-500,00,0500,01000,01500,02000,02500,03000,03500,04000,0DE FR UK NL PL IT ES IE DK RO BE AT HUMilk - Change in Production, 2021 vs 2016, in 1000t and %in 1000 tons in percent5Drivers of Raw Milk production, 2016 - 2021• Strong yield growth in some MS (ES, PL) and low growth in others (UK, IT)• Resumption in herd decline across the EU is expected (IE, UK an exception)• Which MS can expand in low price situation (2015/16 milk crisis) ? • IE, NL and DK show strong performance (growth in 2015 and 2016)• NL production constrained from 2017 due to P-reduction plan and P-quota (2018)• Environmental constraints potential future concern for IE, DE (reg), FR (reg), DK*) Legend: traffic light colour code used to indicate “strong” (green), “average” (orange), or “weak” (red)  performance or “positive”(green), “average”(orange), or “negative” (red) impact on dairy productionDE FR UK NL PL IT ES IE DK RO BE AT HUEstimated supply growth (%)4.5 -0.2 4.9 -0.3 -2.2 3.9 2.4 33.3 3.8 -4.7 6.5 6.5 3.8Yield growth Dairy herdCompetitivenessEnvironment6MS increase in raw milk production2016-2026 (medium term)9%• About 75 percent of the EU’s milk supply increase (+14 Mil.ton) is realized by 5 MS (DE, IE, UK, FR, NL);   Special uncertainty exists w.r.t. UK0,0%10,0%20,0%30,0%40,0%50,0%60,0%70,0%80,0%0,0500,01000,01500,02000,02500,03000,03500,04000,0DE FR UK NL PL IT ES IE DK RO BE ATMilk - Change in Production, 2026 vs 2016, in 1000t and %in 1000 tons in percent7MS change in dairy cow herd• Dairy herd declines in most EU-28 MS, except for Ireland (and possibly IT and UK)-30%-20%-10%0%10%20%30%40%-400,0-300,0-200,0-100,00,0100,0200,0300,0DE FR UK NL PL IT ES IE DK RO BE ATMilk - Change in Herd size, 2026 vs 2016, in 1000 animals and %in 1000 animals in percent8Herd evolution and structural change (hist) Dairy farm structure: specialized vs non-specialized Herd equation: h = dc/f  x  #fAverage 5.5%-20246810121416020406080100120140160180Farm scale (2013 herd size) and its evolution (2005-2013)herd size 2013 (left axis) annual growth herd size (2005-2013) average herdsize growth9Structural change and dairy herd evolution• Farm exit rates differ strongly by MS (in past 2005-2013 period; and have changed further) and are together with farm scale increase, a key driver behind the herd evolution and increasing specialization  (updated information needed)10Regional Typology of Milk Producing MSNorthDairy BeltSouth - WestSouth - East11Regional Typology of Milk Producing MS• Dairy Belt produces 80% of milk production increase in period to 2026• Dairy Belt produces 68% of EU milk production by 2026 (67% in 2015)• Milk Production in Dairy Belt growing only slightly faster than elsewhere in EU 1101 2140246810121416DairyBelt North South-West South-East EU-28mntonnesProduction Increase 2016 - 202612Environmental issues The milk quota as an“automatic brake” Further impetus to farm scale increase and increase in production intensity (85% milk coming from high input/output farming systems Manure  (nutrient imbalances; N-Directive, 1.7 LU/ha) GHG emissions Enteric fermentation ruminants CH4 N2O and CH4 emissions from (stored) manure Grassland & forage area: soil emissions N2O13Agricultural zonesMajor agricultural regions (% pasture)1) Nordic (11)2) British Isles (65)3) Western (33)4) Mediterranean (37)5) Alpine (62)6) North eastern (22)7) South eastern (34)8) Eastern (37)Source:: Olesen and Bindi (2002) E.J. of Agronomy14Dairy CO2 emission and Agric. Zones• The contribution of dairy expansion to GHG emissions 26.8 thousand tons CO2 (2015-2030) (+13%) • Increase is concentrated in British Isles and Western agricultural regions (75%)15Environmental policy challenges COP21 (in 2030 -40%) impose challenges also to dairy (Agr=5th largest contributor) Trend to specialization, scale increase, intensification of production (high I/O) Policy measures Feed management (private?, pol.incentives) Land management: AECS (CAP) Sustainable dairy production (chain)                Dutch sustainable dairy chain (SDC/DZK) program- 20% reduction of GHG emissions in 2020 (relative to 1990; Kyoto/EU; craddleto gate-approach) and climate-neutral growth (2011-reference)- 16% production of renewable energy in 2020- Increasing energy-efficiency 2% per year in 2005-2020... but clear targets still  lacking16In Summary: What do the results suggest ? Production is most countries is either stable or increasing The numbers of MS where production is falling is relatively few (medium run) Structural change (farm scale increase, farm exits, specialization) is continuing Steady milk yield increase (ranging from 1 to 2 percent per annum) Intensive dairy production regions will face environmental constraints and societal concerns (especially in Dairy Belt) Greenhouse gas emissions of dairy will increase, irrespective of the projected decline in dairy herds Increase is concentrated in British Isles and Western agricultural zones CAP climate schemes should address especially the dairy sector with attention paid to animals (diets) as well as soils (optimizing manure storage & application) Quick clarity w.r.t. to specific EU dairy climate change policy is needed

Regionalisation in EU milk production and its environmental implications

http://repo.aki.gov.hu/2641/1/Roel%20Jongeneel.pdf

Regionalisation in EU milk production and its environmental implications

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