EU subsidies are hurting dairy farmers in Bangladesh

Every year the dairy giant Arla Foods is exporting huge amounts of milk powder to Bangladesh. A new report from ActionAid criticizes the export: It creates unfair competition in Bangladesh, where local farmers are forced to lower their prices, thereby hindering their ascent out of poverty.

Dano milk powder in Bangladesh. Foto Bertel Henning Jensen

Every child in Bangladesh knows DANO. This Danish produced milk powder has reached a leading position on the market through years of extensive promotion, and today, many families prefer DANO over local brands. For Arla Foods, this is big business. In 2010 the sale of DANO provided Arla Foods with a profit of €27 million.

But according to the report ‘Milking the poor’ the export to Bangladesh is made on unfair terms, thereby hurting local farmers. The report by ActionAid Denmark is a harsh attack on the EU’s Common Agricultural Policy (CAP). The problem can be summed up as follows:

• EU’s Common Agricultural Policy (CAP) provides artificially low production costs for Danish dairy farmers. Thus making them able to sell milk – and milk powder – at prices below production costs.
• When Denmark exports cheap milk powder to Bangladesh, it puts pressure on local prices. Dairy farmers in Bangladesh are forced to sell their products cheaper than those of Arla Foods in order to compete.
• Meanwhile, the large amounts of imported milk powder hinders investments in the local dairy sector. This also keeps local famers poor.

The CAP is due to be reformed, final negotiations set to take place early next year. ActionAid Denmark encourages the Danish EU presidency to make sure that the future CAP does not entail damaging consequences for developing countries.

- Long ago, the EU decided that its agricultural policy, as denoted by the CAP, should not be unfair to developing countries. But we can conclude, that it still has horrible effects on the poorest people in the world, says Frans Mikael Jansen, Secretary General of ActionAid Denmark.

An unnatural export

It is expensive to produce milk in Denmark. So expensive that the production would lose money, if the farmers were not subsidized by the EU. This is one of the points, stated by “Milking the poor”. Without the subsidies provided by the CAP, milk production would have given a five percent loss in 2009.

- The situation is grotesque. It does not make sense, that we in Denmark use taxes, energy and carbon emission to dry fresh milk and transport it half way around the world, when farmers in Bangladesh would very much like to expand their own production, says Frans Mikael Jansen.

Unfair competition

In order to protect against the unfair competition, dairy farmers in Bangladesh are trying to get their government to introduce higher customs duty on imported milk. The local milk is only cheaper than the imported through the current customs duty, and the Bangladeshi government has expressed interest in lowering this customs duty.

Arla Foods does not agree that the milk powder from Bangladesh is competing on unfair terms.

- The prices on our milk powder is well above the local milk. And I doubt that our export has any noticeable effect on what local farmers earn on their milk, says Frede Juulsen, who is responsible for milk powder at Arla Foods.

- Also, DANO only consists of about 20 percent of the full-milk milk powder market in Bangladesh and several other imported brands are cheaper than ours. And this is despite the fact that they originate in countries outside of the EU, such as New Zealand for instance.

Local development is key

But the Arla Foods repudiation does not change the main conclusion of the report: EU subsidies provide artificially low production costs. Instead of exporting milk produced below domestic cost levels, Europe should work to help develop agricultural production in countries such as Bangladesh.

And there is plenty of room for improvement. A cow in Bangladesh gives two liters of milk a day on average. This is far less than in countries such as India and Pakistan. In Denmark, the average cow produces 29 liters a day on average.

One of Bangladesh’s main challenges is becoming self-sufficient with food. This is why ActionAid Denmark proposes that Arla Foods stops its export of DANO to Bangladesh and instead buy its milk from local farmers.

- In a time where the world is experiencing more and more problems with food security, it is essential to strengthen local production. The export of milk powder is doing the exact opposite, says Frans Mikael Jansen.

Frede Juulsen from Arla Foods does not remove this possibility for future planning:

- We are not currently thinking in those directions ,but in the longer term, this could be a possibility. Especially seeing as the rising demand could make it interesting from a business perspective. But I highly doubt that Bangladesh can become self-sufficient in terms of milk in the near future. I rather predict a growing need for imported milk powder as the overall prosperity of Bangladeshis rise.

That prediction is echoed in the report. This is exactly why ActionAid Denmark feels that it is a crucial time to develop the local dairy sector. The poor dairy farmers should be a part of Bangladeshi economic boom occurring at the moment.