28. Memorandum submitted by the Jamaica
Dairy Farmers Federation Limited
INTRODUCTION
1. The Jamaica Dairy Farmers Federation
(JDFF) is a NGO formed by the dairy farmers of Jamaica in 1998
as a Company Limited by Guarantee Without Share Capital. The JDFF
was formed to efficiently organize and rationalize production
and collection of milk, to set up a dairy plant to process and
market milk and milk products while continuing to supply milk
to the traditional milk processors. The JDFF promotes the participation
of additional numbers of small farmers. It has worked and will
work in partnership with government and other private sector interests
to ensure that milk producers have access to the necessary inputs
to increase milk production.
2. The JDFF is making this submission of
evidence to demonstrate the negative impact of EU export subsidies
on the market for fresh local milk in Jamaica. While Jamaica has
a history of milk production in rural communities and resources
of land, labour, water and livestock, the dairy farming sector
is in rapid decline due to unfair competition from subsidized
milk powder. Dairy farmers do not have an alternative legal activity
to keep their land in agricultural production. The declining dairy
industry is contributing seriously to the economic pressures being
experienced in rural communities resulting in urban drift and
inner city crime. Increasing food imports and the negative impact
this has on balance of payments also makes Jamaica more vulnerable
to external shocks and has a detrimental effect on Jamaican food
security.
3. This submission also serves to demonstrate
Jamaica's productive capacity and the efforts that have been made
to build these capacities.
4. Finally the submission suggests ways
in which the UK and EU may be able to improve or partially remedy
the situation.
BACKGROUND
5. Jamaica annually consumes 170 million
litres equivalent of milk and milk products (roughly 20 million
litres fresh milk, 60 million litres cheese and 90 million litres
milk powder). Because of cheap imports of milk powder the market
for fresh milk has been shrinking from 38 million litres in 1993
to 18 million litres in 2002 for the dairy farmers. Of the nearly
J$7 billion (3 per cent GDP) milk and milk products market the
farmers were only getting J$0.5 billion in 2001.
6. Jamaica has a tradition of dairying that
was particularly enhanced in the 1950's when Nestle came to Jamaica
and in collaboration with government set up a programme to encourage
milk production for local consumption through churn milk collection
routes and condensed milk production. In the 1960s there were
4,000 small farmers and milk production met the requirements of
the market. At that time there were 200,000 acres of improved
pasture because livestock production was profitable. Today there
are less than 200 dairy farmers, most of whom are small farmers,
but 50% of milk production is from 2 corporate farms.
7. Agriculture is the most important employer
in Jamaica at 20% of the people and supporting some 150,000 families
in rural areas. While farming is the most important livelihood
for people in rural areas 40% of the population live there and
72% of the poor live there.[69]
[70]The
World Bank reported that small farmers constitute the largest
proportion of the rural poor and there is a crucial need for poverty
reduction programmes.[71]
8. The past decade has been marked by continuing
decline in the local production of milk; from a peak of 38.8 million
litres in 1992 milk production declined to about 18 million litres
in 2002. This decline was largely a result of the negative impact
of trade liberalization and specifically the dumping of subsidized
milk powder which followed the lifting of trade restrictions in
1992.
9. Following a problem of milk dumping the
government implemented in 1986 a parity transfer mechanism to
use duty from milk powder imports to supplement the price processors
paid farmers for their milk. During this period a state-owned
company was the sole importer of skimmed milk powder from the
European Economic Community. This brought the price of heavily
subsidized milk powder up and lowered the price of fresh milk
and made it equally beneficial for a processor to buy either.
In this market environment the milk production rose by an average
7.5% per annum.
10. In 1992 the parity transfer mechanism
was removed and import duties on milk powder reduced because of
a structural adjustment loan from the World Bank. This resulted
in large increases in imports of milk powder, primarily from the
EU and dairy farmers were again caught with an uncertain market
for their milk. First milk was thrown away and then farmers either
cut back production or went out of business.
11. In 1994 the dairy farmers commissioned
a study by International Accountants KPMG which they presented
to the Jamaican Anti-Dumping Advisory Board. It took years for
them to investigate and finally make a recommendation of 137%
countervailing duty (against dumping) to the Parliamentary Committee
on Production. The result was that in 1996 Parliament decided
that import duty on Whole Milk Powder be increased from 30% to
50%, but the problem for the dairy farmers was that at the same
time the concessionary import duty of 5% that Nestle enjoyed was
extended to all manufacturers.
RECENT DEVELOPMENTS
12. In 1996 the Commonwealth Secretariat
sent a team to investigate the viability of the Jamaican dairy
industry at the invitation of the government as a result of farmer
outcry. The team spent three months in the country before presenting
their preliminary findings to the public. The Commonwealth Secretariat
stated that Jamaica could be self-sufficient in milk and proposed
a development programme. "A Milk Production Strategy for
Jamaica" was printed in November 1996 and was accepted in
principle by the government in 1997. Later that year an advisor
was sent to assist the government in implementing what became
known as the "ComSec report".
13. In 1997 the result of the new import
duty regime was researched and proven that the collection of duty
on milk powder of both whole milk powder (WMP) and skimmed milk
powder(SMP) combined had declined because the ratio of SMP had
increased and virtually all importers classified the end use for
manufacture and enjoyed the concessionary duty of 5%.
14. In 1998 the Jamaica Dairy Farmers Federation
was formed as recommended by the ComSec report with optimism and
high expectations of the farmers. The estimated cost of the Milk
Marketing Project and the Milk Production Enhancement Programmes
that it was to undertake was US$22. The first activity the JDFF
undertook was the bulk procurement of feed and was able to negotiate
on volume for the lowering of the feed price by one third.
15. In 1999 the government received funding
from USAID through the PL480 Programme and the sale of rice which
was identified for the JDFF's Milk Marketing Project. The project
was expected to see the construction of a new 60,000 litre per
day processing plant started in 1999 to demonstrate that the margin
on processing milk could be reduced and the retail price of milk
brought down while expanding the opportunities for dairy farmers.
Funds are being slowly released by government and Cabinet is still
to approve the expenditure on building and equipment.
16. In 1999 the Jamaica Dairy Development
Board was set up within the Ministry of Agriculture as a statutory
body to guide government policy, which the ComSec report had also
recommended. Whereas the JDFF addresses itself to the dairy business,
the Board manages national issues in the overall context of the
global marketplace. The Board now has three technical members
of staff and has produced three annual publications of "Dairy
Facts & Figures".
17. In 1999 Nestle had discussions with
the Dairy Board and the JDFF about their need to cut back on fresh
milk sales by 30% (6 million litres, per annum) due to competition
from manufacturers and retailers who did not use any fresh milk.
The JDFF had done a test run with some fresh milk through the
Ministry of Education's School Feeding Programme in 1998 and was
able to suggest this as an alternative to cutting back fresh milk
production. The JDFF then negotiated with the Ministry of Education
and this resulted in a reduction in farm gate price of this milk
from $22 to $19 per litre.
18. It was in April 1999 that the dairy
farmers protested Nestle's offer of $13 per litre to take fresh
milk when the schools were closed, that is when the School Feeding
Programme could not take any milk. The protest took the form of
farmers giving away 4,000 litres of chilled pasteurized milk outside
the gates of Sabina Park during an internationally covered cricket
match in the inner city of Kingston. Nestle did not change their
position. The JDFF refused to settle at $13 per litre this price
and milk was left unsold or farmers unofficially sold to Nestle.
The event did catch the attention of development organizations
in Europe.
19. Later in 1999 a Dutch student studied
Jamaica's dairy sector and felt the case was strong enough to
be a part of the lobby for the removal of export subsidies, which
is Eurostep Dossier on CAP & Coherence. A dairy farmer and
a staff member of the JDFF traveled to Europe and met with officials
in Den Hague and Brussels to present the case.
20. In 2000 the JDFF bought an existing
processing plant to speed up their entry into the market. The
farmers' expectations were that the plant would be able to take
all the milk they were unable to sell elsewhere. The plant required
considerable refurbishing and was not of a capacity to handle
all the milk that farmers had to sell. There was also limited
retail market access for the JDFF to start from scratch. The JDFF
started having cash flow problems as the feed business activity
was unable to collect monies owed. The JDFF was finding it increasingly
difficult to pay the salary of required professionals. Farmers
were becoming disillusioned with their Federation.
21. In 2000 the EC's Eastern Jamaica Agriculture
Support Programme (EJASP) collaborated with the JDFF on the implementing
of a small milk project in Guy's Hill, St. Mary. The government
was keen on the bulk coolers for the project to be bought by the
project from Nestle. Nestle was moving away from churn milk collection
to cooling stations. While this plan was the same as that of the
JDFF the speed at which Nestle wanted to implement the change
could not be accommodated by the JDFF. Nestle erected the shed
and bulk cooler themselves and the JDFF now has a Field Assistant
working in the area. There are roughly 15 suppliers pooling 1,000
litres per week. Nestle is paying $14 per litre despite the project
being designed for cooled milk price of $20 per litre.
22. From 2000 to 2002 all across Jamaica
the 300 farmers who had supplied milk in churns and had it picked
up by truck were trying to accommodate the mandate by Nestle that
farmers bring their milk to one of 4 cooling stations. By January
2002 all churn collection routes had ceased and passed the milk
processors expenditure on collection to the small farmers. Yet
in the same month they reduced the price from $18 to $14 per litre.
Of the 300 dairy farmers there are about 50 still supplying milk
to Nestle through the cooling stations.
23. One churn collection route in Manchester
had 25 small farmers in 1999, but by July 2002 only one was left.
As one farmer tells it, steadily the situation worsened; first
Nestle told him to bring his churns to a cooler 10 km away but
this arrangement did not work. Then he was told to take his milk
to a cooler 40 km away. Then the hired pickup driver said the
trip was not viable and stopped. Now the farmer has no way of
getting his milk to the cooler and has sold his milking cows to
a butcher. He still has two heifers which he will breed if a market
for fresh milk opens up.
CURRENT SITUATION
24. Of the JDFF members 15% are no longer
actively in milk production.
25. While the objective of the JDFF is to
collectively pool and market all the milk from its members it
is actually buying from 20% of the active members.
26. The retail price of milk is $56 /L (pasteurized)
or $62 /L (UHT) as opposed to $66/L for either at the time of
writing the Milk Marketing Project in 1999 (15% price reduction).
This is despite the devaluation of the Jamaican dollar from J$38
: US$1 to J$52 : US$1 (37% devaluation). The value of the milk
price has reduced 20% since 1999.
27. The farm gate price of milk has fallen
from $22 /L to an average $18 /L while the currency has devalued
37% since 1999.
28. The price of fresh milk is falling,
the price of inputs of feed, fertilizer, electricity and labour
are rising.
29. Fifty percent of Jamaica's fresh milk
is produced by two corporate farmers, 40% is produced by the medium-sized
farms and co-operatives and less than 10% is produced by small
farmers. Whereas, in 1996 the number of small farmers was 470,
in July 2002 there were 90 small farmers able to sell their milk.
30. Dairy Board statistics show that dairy
product imports have risen from 16,823 tonnes, valued at US$38.1
million in 1997 to 20,374 tonnes, valued at US$48.3 million in
2001. Ice cream imports gained particular attention by rising
by 58.7% between 2000 and 2001.
31. The government is torn between a policy
of cheap food and agricultural development.
32. All major sectors of agriculture are
struggling. Coffee shows the greatest profitability but is restricted
to specific geographic regions. The political defense for maintaining
the sugar industry is strong because it employs so many people,
but is not based on efficiency or sustainability. Bananas are
an export crop that cannot compete in the global marketplace any
longer. Citrus has been damaged by a debilitating virus. Dairy
has not been considered as a foreign exchange earner but has the
potential to save on foreign exchange and create 10,000 productive
jobs and could market throughout the Caribbean region.
33. The lobby effort by manufacturers and
retailers is much stronger than farmers. There does not appear
to be justification for the strength of their negotiating strength
other than the depth of their financial resources.
34. The ComSec report and the Jamaica Dairy
Farmers Federation has had stout supporters in some heads of government
but this has not been able to see policy change through to Cabinet
level. For three years proposals for the Dairy Board Act and increased
milk product import duty have been passed between the ministries
and still have not had Cabinet approval.
WAYS TO
IMPROVE THE
SITUATION
35. The external world environment is currently
hostile to the interests of Jamaican dairy farmers. Subsidies
(notably EU export subsidies on milk powder) distort the world
market and these distortions penetrate the Jamaican domestic market.
36. The removal of export subsidies would
allow EU milk powder to compete fairly with fresh Jamaican milk.
This would also allow more efficient milk producers globally to
enter the market, New Zealand specifically. But New Zealand does
not have enough milk to supply the entire world demand and the
international price of milk products would rise.
37. Given current levels of world market
distortions and the importance of dairy to Jamaica's rural economy
and poverty levels we would like to see a rise in the Jamaican
milk powder tariff levels. But our experience with the Jamaican
government has shown that they are under external constraints
and internal pressure from the World Bank and lobbying from the
Jamaican food processing industry. We would like to see a loosening
of these constraints, especially from International institutions,
in the interest of Jamaica's food security and rural livelihoods.
38. Nationally, JDFF are trying to influence
the Jamaican government to effect policy that would aid dairy
development such as countervailing duty or a parity transfer mechanism
to protect itself from dumped milk powder. To harvest the concept
of productive job creation as opposed to short-term cheap food
policies.
39. In restitution for damages done by dumped
milk powder, the EU could give to the JDFF milk powder that would
then be sold in Jamaica. Proceeds from this milk powder would
go towards implementing the Milk Production Enhancement Programme,
MPEP (US$ 12 million). This would also demonstrate that the JDFF
could manage the role as the sole importer of milk powder.
JDFF
January 2003
69 Figures from 1998 and 1999 respectively, World Bank,
World Development Indicators 2001. Back
70
"Agriculture, trade and food security issues and options
in the WTO negotiations from the perspective of developing countries-Vol.
II country case studies", FAO, 2000. Back
71
World Bank, "Jamaica-Small Farmers Support Services Project"
1997. Back
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