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Author: Elmar Hannen, former vice-president, European Milk Board
Food prices have increased in recent years in the European Union. In March 2023, food inflation reached a record of 15%. In Germany, consumers pay almost 30% more for food than in 2021, even if energy and production costs have decreased. Some economists have attributed this to food processors and retailers collecting profits to the English Channel to the detriment of low -income households. Meanwhile, the share of retail food prices reaching farmers continues to shrink. German producers, for example, received only 21.7% of retail prices in 2021, and this figure continues to drop. The drop in bread price farmers is a striking example: in 1970, farmers gained 19.2% of the price of the set; By 2022, this share had dropped five percent.
Milk producers face similar challenges. Between 2014 and 2024, milk prices have still not covered the increase in production costs. Consequently, many farms operate at a loss and depend on subsidies to survive. Farmers should produce high quality foods while providing – often under heavy bureaucratic requirements – protection of the environment, climate and animals. But as the creation of value moves away from producers, the benefits are increasingly concentrated among a few powerful processors and retailers.
The generalized demonstrations of farmers at the beginning of 2024 revealed a deep frustration in the EU agricultural sector. The political response was disappointing. Meanwhile, the basic problem – guarantee fair prices along the value chain – has not been sufficiently resolved.
Four key reforms
Repairing the broken food supply chain in Europe will require more than cosmetic changes. The prices must be set from bottom to top, which involves four key reforms, starting with the application of contractual obligations. Dairy producers, in particular, often deliver their products without knowing the price – an arrangement that would be unthinkable in most other sectors. EU law already provides for a room for maneuver for reform, as shown by France and Spain, where binding written contracts are compulsory. Spain even prohibits sales below production costs. In Germany, however, attempts to introduce similar measures were blocked by the agricultural lobby and its conservative and liberal allies.
Second, contractual obligations must extend to agricultural cooperatives. Although based on progressive principles, many of these cooperatives now operate as large conventional companies, prioritizing the lowest possible purchase prices compared to the interests of milk producers. However, in countries like Germany – where cooperatives represent 70% of milk treatment – they remain exempt from such requirements.
The repair of the broken food supply chain in Europe will require more than cosmetic changes
Third, the rights of producer organizations must be reinforced. While dairy giants like ARLA and DMK would control up to 13% of the EU milk volume after their planned merger, the current EU rules set the market share of producer organizations led by farmers at only four percent. Despite years of intensive discussions, this imbalance persists, hampering fair negotiations.
Finally, EU political decision -makers must limit market concentration in food retail. In Germany, only four retailers control 85% of the food market. The food processing sector is also very concentrated. A 2024 report from the German Monopole Commission warned that the increase in market concentration was damaged both producers and consumers.
In the middle of these challenges, promising models are starting to emerge. An example is the recently piloted tripartite contract of Germany, which is based on the French model. Instead of blindly deliver products to processors, which then sign separate contracts with retailers, the three parties agree in advance on appropriate partners and conclude long -term agreements – generally lasts three to five years – with clearly defined price structures.
These three -party contracts contain clauses requiring quarterly journals to adapt to market and cost fluctuations. Beyond the prices, they deal with the layout of products, marketing strategies and animal welfare standards and environmental sustainability. By promoting a sense of shared responsibility, these agreements promote quality improvements and fair compensation. They also help producers and consumers at market volatility, to create added value throughout the supply chain and to offer a basis for best practices that can be placed on a national and regional scale.
Since European agriculture can only remain viable if farmers are able to cover their costs, the European milk office considers tri-party contracts as an important step towards a fairer and more durable market structure. These agreements could ensure the stability of income and planning security, benefiting all stakeholders: farmers, processors and consumers, who too too paid for low -cost and mass reduction food.
The equitable prices would also improve the resilience of Europe to crises, war and climate change. The artificially low current prices are made possible by the overexploitation of natural resources – both in Europe and in the world – alongside poor animal welfare, precarious migrant work and the incessant financial pressure exerted to farmers. With many EU farmers faced with overwhelming debt and the increase in input costs, it is not surprising that under 12% are under 40 years of age. If Europe wants to eat in the future, it must make economically and ecologically sustainable agriculture – not by increasing subsidies, but by establishing fair market conditions and introducing robust sustainable sustainability standards. Solutions based on the market such as triparties contracts show that a positive change is possible, as long as Europe remains the course.