 Every now and again new professions appear on the job market. One of the most curious is to be seen in the dairy farming industry, where one can become an “armchair milker”. This is a farmer who lets another farmer do the milking without having to pay for it, but at the same receives money for it. This is how it works.
In the mid-Eighties a quota was set for production of milk. European milk production was much higher than the needs of European consumers. The surplus was sold outside of Europe, but the prices on the foreign market were - and still are - much lower than the European prices. The farmers were compensated by Brussels (read the European taxpayer) for the price difference.
In this way, the farmer not only milked the cow - but also the taxpayer -slowly but surely dry. And this is still going on. The more farmers milk, the higher the costs rise for Brussels, as an increasingly larger portion of milk production needs to be sold outside of Europe. When these costs began to rise a little too high, Brussels introduced a production stop.
When production limitation – known as “quota” in professional terms – was implemented, the Dutch farming community protested to the then minister of agriculture. This measure, due to the limitations it enforced, would mean the end of Dutch dairy farming. Thirteen years later the minister of agriculture at the time proposed abolishing both the production limitations and the subsidies. As if bitten by a snake, the agricultural leaders wondered whether the minister of agricultural had lost his senses.
However, the proposal to abolish both the quotas and the subsidies is not such a crazy one at all. European farmers turn a blind eye to the fact that the mechanism of protection is on a slippery slope. Everywhere in the world, the wind is blowing from the free market. In many branches of industry, such as shipbuilding and textile, protection constructions have been removed or have been significantly reduced. Now it is the turn of the farmers. Without protection from European subsidies, the European milk price will slowly but surely drop to the level of the global market. Under these circumstances an enforced limitation of production is no longer required, because a free market means freedom of production.
It is not so strange that the farmers, at least the Dutch farmers, wish to maintain production limitation (and thus also the subsidies). In The Netherlands, the right to produce a kilo of milk is worth a lot of money, an amount that farmers wishing to expand their businesses readily pay.
As soon as production limitation has been abolished, the rights to produce will be worthless.
For Dutch dairy farming, abolishment of production limitations and subsidies would form a double disaster. Without subsidies, Dutch dairy farming cannot compete with dairy farmers outside of Europe. The cost price of a kilo of Dutch milk fluctuates between the 25 and 27 eurocents. In Australia and New Zealand the price is half of this. It is pointless to transport fresh milk to Europe from Australia or New Zealand. So, for the production of fresh milk, or anything resembling it, European farmers are needed. But for the preservable part of dairy products – butter, cheese, desserts and powdered milk – those transport arguments do not apply.
More than 90% of Dutch milk production is converted to one or more preservable form. Again: the cost price here is between the 25 and 27 eurocents. Elsewhere, this can be done for half the price. In a free dairy market the non-European competition would very soon drive the Dutch colleagues out of the market.
The many farmers, who would then be forced to stop, would have to sell their businesses. Land, farms, cows and tractors are always worth much money, but a useless production right is not. Dutch dairyfarming may now produce about 11 billion kilos annually. In business terms, this means that The Netherlands has a quota of 11 billion kilos. Abolishment of the quota then implies for the sector a destruction of capital of some 22 billion Euros.
It would also mean the end of the comfortable financial compensation schemes which have taken place and are still taking place in dairy farming. Dairy farmers, who, for whatever reason, stop their businesses, can count on a comfortable old age, thanks to the value now represented by their quota. On average, a Dutch dairy farmer has a quota of around 600,000 kilos. Sale of this would yield 1,2 million Euros, and then there is still the land, the buildings and the cows.
But it gets even crazier. His quota affords the farmer three possibilities. He can milk it out or he can sell it, but he can also rent it to another farmer!! And that happens on a wide scale. The normal rental costs fluctuate around the 17 Euro cent per kilo per year. By renting his quota at a price of 17 cents per kilo per year, the farmer earns an annual income of more than 100,000 Euros. The farmers who do this, and there are a lot of them, are called “armchair milkers” in dairy farming.
Of course, a farmer does not need to rent his entire quota; renting a part of it is also possible. So, smart farmers who chose to take it easy, simply keep some cows themselves and rent out that part of their quota they do not use, which nicely augments their annual incomes.
Quota renting is big business. An average of some 5000 farmers trade 577 million kilo quotas in this way. A price of 17 Euro cents per kilo yields an annual turnover of more than 100 million Euros.
The possibilities of renting and selling production rights in dairy farming have also led to a new type of auctioneer. There were already auctioneers in houses, ships, airplanes and office buildings. Now there are also auctioneers who bring the sellers and buyers of quotas together. All they need is a mobile phone and good connections. These milk auctioneers earn an estimated 10 million Euros per year in fees.
The quota madness has also turned the agricultural wedding market upside down. Whereas, in former times, an unmarried farmer’s son was principally looking for a farmer’s daughter who would be willing to work hard, the current tone of contact advertisements in professional magazines has changed: “Young farmer, unmarried, seeks a farmer’s daughter for permanent relationship. With quota.”
As long as production limitation remains in force, nobody in The Netherlands will hear a dairy farmer complaining. Even so, the quota sounds a death knell for the sector. Structural reforms and rejuvenation in the sector are killed by it. For the successors, taking over a father’s farm - certainly where there are more children, who wish to profit from it - has become as good as impossible due to the exorbitant quota prices. The established order in dairy farming is wealthy and is making itself even more wealthy, whilst potential successors have to forget about the farm. In this way the aging dairy sector is wiping itself out.
Farmers wishing to expand or to take over an industry, not only need to purchase land and cows, but also, importantly, the right to milk. The average annual production per cow lies around the eight thousand kilos of milk. An expansion per cow costs a farmer thus some 15,000 Euros extra and then he still needs to buy the cow, which costs a further 1,500 Euros.
Throughout Europe, production limitation applies in dairy farming, but there is not a country in Europe where production rights are worth so much money. This is because farmers in the rest of Europe have not allowed themselves to be carried away to the extent that the Dutch farmers have done.
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