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Uncertainty about European environmental rules is deterring investment in food production and pushing up prices, according to the head of Scandinavia’s largest dairy producer.
“The general worry is what will the long term regulation on farming be,” said Peder Tuborgh, chief executive of Arla. “When you have uncertainty, as a farmer, then you don’t invest in new stables.”
He added that the lack of clarity had caused a drop in milk production and this had pushed up prices.
Arla, an international co-operative owned by more than 12,500 dairy farmers in Europe and the UK, said milk production fell 1 per cent across its European farms last year.
Tuborgh said that global demand was currently growing faster than supply. “But if the milk is not coming, then you start to have this inflation situation again.”
Last year, the EU’s chief climate scientist told the FT that if the EU was to meet its proposed target of cutting greenhouse gas emissions by 90 per cent by 2040, the agricultural sector would have to start paying an emissions tax.
Farming contributes 12 per cent of total EU emissions, and about two-third of this comes from meat and dairy production.
Tuborgh said much of the relevant regulation was still “up in the air”, pointing to Europe-wide emissions targets, as well as country-specific policies in Denmark and the Netherlands.
Denmark has already introduced a carbon tax on farming. Cattle owners will be charged almost €100 a year for emissions from each cow.
“Until you have certainty on what will be the next 10, 20, 30 years of regulation, then you will probably see that some farmers will start to invest again,” Tuborgh said. “But for now, they’re all holding back.”
Farmers took to the streets of European capitals last year to protest against environmental rules. The demonstrations led the European Commission to scrap its target of cutting agricultural emissions by 30 per cent, and to weaken the environmental standards farmers have to meet to access EU subsidies.
Since Brexit, the UK has replaced European farming subsidies with its own system that rewards farmers for environmental initiatives such as tree planting. Critics of the policy say it incentivises farmers to produce less food.
Arla has its own incentive model, with farmers being paid a higher price for their milk if they pursue environmental initiatives.
The Danish-Swedish group increased its revenue forecast on Wednesday because of higher dairy prices, but warned that higher prices could hit demand.
Tuborgh also said that a boycott of Arla products related to its use of a feed additive in the UK had not affected revenues. Some social media users filmed themselves pouring Arla milk down the sink last year after the company said it was testing Bovaer, which is designed to reduce methane emissions from cattle.
