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SMP tenders shake-up on agenda at stocks crisis 'summit'

This article is powered by Dairy Markets

The European Commission is considering the idea of a fixed-price tender to encourage traders to take more of the EU’s huge stockpile of intervention skimmed milk powder stocks off its hands, traders have revealed.

Representatives of European dairy organisations have been convened to a meeting with the Commission on April 12 to discuss this and other novel options for disposing of the increasingly ageing 370,000t SMP stockpile.

The meeting is seen as an acknowledgement that, with market prices for SMP still at basement levels, the Commission’s current strategy of holding monthly sale tenders is not delivering the required results.

The first three tenders of 2018 shifted just 10,000t in aggregate, and the Commission is aware that, at this rate of progress, it would take another five-and-a-half years to clear the stockpile completely.

Market managers at the Commission are reluctant to move away from the competitive tendering idea, as this preserves an element of market orientation in the sale process – and the Commission is aware that, at a selling price (at the last tender) of just EUR1,050 per tonne, it is making a loss of around EUR650 on every tonne sold (the intervention buying-in price being EUR1,698/t).

More confidence

But the idea of a fixed-price tender is nevertheless understood to have some support in Brussels. The idea would be to allow traders to buy as much SMP as they want at a set price, for a limited period of time.

“This would give traders more confidence to bid,” commented one trade source. “At present, no-one wants to be the idiot who puts in a bid at above the minimum selling price.”

Meanwhile, the idea of reintroducing a subsidy to incentivise the incorporation of powder into animal feed – an EU programme which was abolished some ten years ago – has been floated in some quarters, but it has reportedly been rejected by the Commission as overly bureaucratic (and is unpopular with the feed industry).

Other more unconventional ideas have included releasing the powder to be converted into biomass.

EU dairy trade association Eucolait has suggested that the standard tenders could be held more frequently (perhaps every two weeks) to inject more dynamism into the bidding process – at present they are held monthly. 

It has also suggested making the whole quantity of intervention SMP available for tender, and then setting different selling prices, depending on the age of the batch being tendered for. Under the current tender, only powder bought in before April 1 2016 is available for sale.

Customer resistance

Meanwhile, it has also been reported that some traders are finding it impossible to sell the intervention SMP as food-grade powder because some authorities are requesting an expiry date for the powder. This is despite the fact that, under EU food law, expiry dates are not required for business-to-business sales of agri-food products.

The Commission claims that all SMP released from intervention should be of food-grade quality – but, because product storage is the responsibility of member state intervention agencies, it is unable to give firm guarantees that the powder released is still of the requisite quality for the food industry.

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