Danish dairy farmers have had a hard time in recent years. The trust in dairy cooperative Arla Foods is high, but there are fears of a pending carbon tax and unwilling banks. Sjoerd Hofstee reports.
Denmark has among the highest milk production per cow in the world. An average of 10,518kg milksolids were produced in 2021 at the country’s 2575 dairy farms that are still active. The number of dairy farms has fallen dramatically in the last 10 years, with at least 40% closing.
A major factor for that rapid decrease was the large land price drop Denmark was confronted with in 2007-2008. In the years before, land prices had risen to an average of about €45,000/hectare (about $NZ77,000/ha). In one fell swoop, prices crashed to average just over €20,000.
Many dairy farmers saw their equity evaporate, along with the surety for bank loans they had taken out. In the following years, many Danish dairy farmers went bankrupt. And that still doesn’t seem to be over, with a leading role for the Danish banks. More about that later.
Most remaining Danish dairy farmers are now running relatively healthy businesses. Record milk prices have been fluctuating between €55 and €60 per 100kg in recent months.
Farm sizes vary greatly, but on average farms carry more than 200 cows. In total, the country has about 560,000 dairy cows, of which few are grazed.
Holstein-Friesian is the dominant breed in Denmark, but you will also find many Jerseys, especially at organic farms.
Dairy cows at organic farms must be able to access grazing, but by far the bulk of Danish dairy cows are in stables all year round.
This helps to account for the aforementioned high average milk production. Another reason for high milk production is the relatively high percentage of replacements. That is still above 40% due to the availability of relatively large farms with feed grown onfarm. Many Danish dairy farmers keep all their young cattle and often select them as replacements as soon as a cow shows problems and suffers a lower milk production.
Dairy farming in Denmark differs greatly from that in New Zealand without the use of grazing. The comparison is large at another point. Just as in NZ, the Danes are the first country in Europe where their government is preparing a law to tax greenhouse gas production.
While the amount of tax to be levied on carbon dioxide emissions is yet to be decided, farmers fear that for their farms would face an extra cost of several hundred thousand euros and bankruptcy of the entire sector. Later this year it will become clear whether the problem is really that big or whether the height of the tax is not that bad.
Where Denmark deviates from other dairy countries, is the way most farms are financed. It is possible to finance up to 70% of the farm from loans via a credit fund. This is the property of the largest Farmers Union. The remaining 30% of financing must come from equity or a loan through a bank.
Banks in Denmark often finance relatively small amounts for dairy farms, yet their influence is big. Dairy farms are classified as having a high-risk profile. For that reason dairy farmers, who, according to the banks do not perform well enough, can be declared bankrupt overnight, in contrast to other northwest European countries. Danish dairy farmers who have a loan at a Danish bank are often heard to say they fear “the bank can make and break you.”
In addition, a few years ago, Danish banks also worked with loans that were linked to swap financing.
These SWAPs had to protect companies against the interest rate rise, but when the interest rate dropped, a lot had to be paid. Thousands of Danish dairy farmers have lost hundreds of thousands of euros and hundreds of farmers have ended up in bankruptcy.
The structure of the Danish dairy industry is also comparable to NZ, characterised by the enormous dominance of one party. In Denmark that is Arla Foods. About 90% of all Danish milk goes to this large cooperative which is based in Denmark but is active in seven countries with factories and collecting members milk. Arla processes a total of 13.6 billion kg milksolids, in Denmark that is 4.9 billion kg of a total of 5.6 billion.
Four other milk processors of serious size are also active in Denmark – two private companies and two that focus on organic milk. Arla also collects relatively large volumes of organic milk – Danes consume the most organic milk per person in Europe after Austria.
While in many other countries with a dominant large dairy cooperative is often critically commented on, the Danes are relatively chauvinistic. You don’t hear a lot of criticism of Arla.
What attracts attention in Danish dairy farming is animal welfare. This is reflected in, among other things, relatively low antibiotic use, one of the lowest in the world. This is partly because veterinarians have to provide almost all medicines and dairy farmers themselves are allowed to do almost nothing.
What requires further attention from Danish dairy farmers is the tightening of rules on dairy stables, enlarging the space available.
Many dairy farmers are not yet actively preparing for all these new requirements. But if they have not recently built a stable that meets the new requirements, it probably requires the necessary adjustments and investments.
The expectation is that not all Danes want to meet the new rules and the number of dairy farms will continue to fall steadily in coming years.
- Sjoerd Hofstee is a dairy journalist at Persbureau Langs de melkweg, Netherlands.
