Caught between a depressed domestic market, embittered commercial relations and a national propensity for pessimism, many in the French dairy industry see the abolition of quotas as a threat rather than an opportunity.

“Farmers think they could put more milk on the market if processors had invested in capacity earlier. France is four years late compared with northern Europe when it comes to tapping into emerging markets,” said Hervé Bonnard, treasurer of France’s majority dairy farmers’ union, FNPL.

French co-ops, which represent half of the country’s 23bn litre milk pool, have export projects in the pipeline – yet most will not come online before 2016. Two flagship driers have been the focus of much of the recent attention: Isigny has just completed a €55m infant formula powder plant in Normandy with funding from its Chinese partner Biostime; in Brittany, Sodiaal is beginning construction on a similar development – albeit twice as large –with another Chinese investor, Synutra.

“We have invested €750m between 2012 and 2014, including in five driers and cheese ingredient plants,” said Dominique Chargé, who chairs the National Federation of Dairy Co-ops.

By contrast, the private processors accounting for the other half of the French industry “have long shown little interest for ingredients – except Lactalis. They prefer high-end, French-branded consumer products,” Bonnard said.

The National Federation of Private Dairy Processors has not replied to requests for interviews with the Irish Farmers Journal, nor has Lactalis, the privately held company claiming a €16bn turnover – the largest in the global dairy industry. The notoriously secretive group, however, is reported by local media to be planning a €68m infant lactose and powder plant in Brittany and an extension to its fresh products joint-venture with Nestlé in Normandy.

The rest of the private processing industry is proceeding with caution. The latest figures from the food business federation ANIA show that dairy products output has been on an annual growth trend of 4% to 5 % for the past year.

A round of negotiations between processors and retailers took place in February and ANIA complained of undue pressure on prices from large multiples, some of which often account for more than 25% of a processor’s output. In annual results posted on 26 February, the cheese giant Bongrain blamed dwindling profitability on “the milk crisis and the Russian embargo”.

The company said it remained confident in its strategy and financial soundness, but warned that “the end of milk quotas, concentration in the retail sector and the evolution of geopolitical crises that emerged in 2014 limit its visibility” for the coming year.

A small number of farmers are put off by such pessimism and prefer to focus on the niche high-end farmhouse market. “I’m worried for those who go on world markets: large contracts are being signed with China, but they are very exposed to geopolitical risk, as we have seen with Russia,” said Georges Lesniak, who milks just 15 Bretonne Pie Noire cows on 15ha in inland Normandy and produces homemade cheese and desserts valued at €2 to 3 per litre of milk produced.

According to farmer representative Bonnard, the French model remains one in which milk is “pulled” in line with the processor’s plans. However, he acknowledged that French co-ops were slowly moving towards a northern Europe-style “pushed” flow, in which processing expands to fit farmers’ supply.

“We don’t see the end of quotas as unbridled volume expansion,” said Damien Lacombe, chair of France’s largest co-op Sodiaal. “There are growing markets, and we need the right tools to satisfy that demand; then there is our members’ production and our industrial vision. We need to find the fit between the three to solve the dairy equation,” he added. Sodiaal members intend to grow their output by 12% to 15% by 2018 and the co-op will regulate supply through an innovative pricing system that is setting a standard for the industry.

Sodiaal suppliers now get paid in three slices: price A is mostly indexed on a mix of products on the internal EU market, which is considered stable. Price B fluctuates with global butter and powder prices. Initially, 90% of each farmer’s former quota is paid under price A and the remaining 10% under price B. The co-op may accept more A/B volumes if domestic demand grows in the future. Any expansion above that is paid under price B, up to a maximum determined by the co-op each year depending on supply and market forecasts. Any farmer who supplies more than the agreed volume will be paid price C on the surplus – a deterrent rate, currently 5c/litre.

“Even though this system is complex, it works well: it secures our members while giving them signals from the market,” Lacombe said. Young farmers who start up with Sodiaal will also get 300,000 litres under the A/B price mix and vouchers for financial and technical advice – Lacombe says he is concerned about replacing the older generation of dairy farmers.

Michel Cabanjous, 61, is a case in point. “I’m retiring at the end of this year and the person who is coming after me will stop dairying to do veal,” said the farmer from the southern Massif Central region.

Such isolated cases could spread, especially in the southwest where tillage offers an attractive alternative. For the past 30 years, the French authorities first limited quota transfers to the county-sized administrative divisions, then within nine main regions. There are now fears that dairying could become concentrated solely on the northwestern grasslands. “We are pushing the French authorities to open the debate in Brussels on disadvantaged and mountainous areas, where collection and transformation costs are higher and cheese under protected denominations of origins cannot absorb all production overnight,” said the co-op federation’s chair Dominique Chargé. “If dairying stops in those areas, there will be nothing else.”

Expansion

Even in the rolling green hills of the northwest, expansion is no religion. “There will be no major change. We are at cruising altitude, in our forties, and we don’t want to become slaves to our work,” said Michel Besniard, who farms 260ha in partnership with his three brothers in Normandy. They milk 80 cows, keep 55 suckler cows and cultivate 120ha of cereals. “If things are bad for one type of production in any given year, the others will make up for it,” he says.

Should he want to produce more milk, his dairy, Lactalis, would probably not take it. Relations between the French leader and its suppliers hit a low earlier this year when two of its producer organisations used new legislation allowing class actions to sue the company for breaking the milk price calculation set in its supplier contract. “They took away 1.5c/l in April and promised to pay it back in September – when volumes are much smaller. This is pure theft,” said Besniard.

The FNPL union has joined the lawsuit, which is now under mediation and could end up in court. The plaintiffs have applied for an average €7,000 per farm in lost revenue from Lactalis. The company replied in a statement that “going to court was no solution to market difficulties” and negotiated a better price with more accommodating producer organisations in what FNPL has described as “an attempt to divide the movement”.

Most observers agree that French legislation was rushed through in preparation for 2015, allowing private processors to impose unfavourable supplier contracts before strong producer organisations were established. “Those organisations are divided. They should reach across suppliers to co-ops and private processors, with powers to draft template contracts with each processor and negotiate prices at the regional level,” argued Laurent Leray, the livestock secretary of the alternative farmers’ union Confédération Paysanne.

In the long term, he wants to go further: “Under an agreed price, production should be restricted. We will need volume regulation – EU states will come round to it when we have a crisis,” he said.