Parmigiano Reggiano and Grana Padano PDO-the most famous Italian hard cheeses, only seemingly similar (1)-actually express two radically different production systems.
A large proportion of the farmers who supply milk for Grana Padano are now at the end of their rope. And it is on them, and the feeding of the cow, that the quality of the milk and the product depend.
The system is in danger of imploding, and the ban on sales below cost, introduced by Leg. 198/2021, (2) may not be enough to resolve an underlying anomaly. Who regulates supply and demand, and why?
1) Parmigiano Reggiano and Grana Padano cheese, productions and production plans.
1.1) Production volumes, 1970-2021
Production volumes of the two historic cheeses have more than doubled, over the past half century, recording the rise of Grana Padano over Parmigiano Reggiano. Some insights:
– 1970. Out of a total of 3 million wheels (whose weight was then 30kg), about 2 million were Parmigiano Reggiano (PR, 67 percent) and 1 million were Grana Padano (GP, 33 percent),
– 2001. Out of a total of 6.747 million wheels (already 40kg in weight), GP outperformed PR, with 3.869 (57%) v. 2.878 (43%) million wheels,
– 2015. Out of a total of 8.1 million forms, 4.8 million (60%, 183,564 t) GP and 3.3 million (40%, 132,800 t) PR,
– 2020. Total wheels 9.193 million, of which 5.255 (57 percent) Grana Padano and 3.938 (43 percent) Parmigiano Reggiano,
– 2021. Total wheels 9.325 million, of which Grana Padano is 5.234 (56 percent) and 4.091 (44 percent). Average weight forms, 38.74 kg the GP and 39.99 kg the PR (source CLAL database).
1.2) Early attempts at ‘self-discipline’
In 1983, the two consortia had established an initial ‘self-discipline plan’ that provided for a total annual production of 130 thousand tons/year, equally divided between PG (51 percent) and GP (49 percent). However, the gentlemen’s agreement was immediately thwarted with the entry into force of the European ‘milk quota’ system (EEC Reg. 856/84).
In 2002, the Grana Padano Consortium was trying to introduce an agreement to reposition the product in the market. In 2004, however, Antitrust declared the self-regulatory supply system set up by the Grana Padano Consortium to be unlawful as an agreement restricting free competition. (3)
1.3) Law 231/05, production plans for Italian PDO cheeses.
Law 231/05 introduced the possibility for the Ministry of Agriculture and Forestry to enhance the value of Italian aged cheeses by definition, by its own decree, of ‘production plans for quality and market development, not exceeding five years in duration, prepared by the productive protection consortia for cheeses with protected designations of origin‘ (Article 1-quater. See footnote 4).
A unique case in the European Community, which found justification in its delimitation to cases of ‘thepresence of abnormal market conditions‘. Conditions expressed in a drop in the average unit producer price of milk of at least 10 percent from the average of the previous three years.
1.4) Grana Padano PDO, start of production plans.
Thus, at the end of 2005, the Grana Padano PDO Consortium was activating an overall production plan that envisioned physiological annual growth (+1.7 percent) and a break-even point at 4.220 million wheels subject to ordinary contributions. In case of ‘overrun’ additional resources were to be allocated for promotion, to market the production surplus.
Production quotas were, and still are, allocated to dairies-rather than to stalls (farmers’ farms)-and expressed in number of wheels. In 2006 the new category ‘Reserve’ was introduced. A Grana Padano PDO with more than 20 months of aging, expressing 3.6 percent of total production (156 thousand wheels/year). As a rule, Grana Padano is placed on the market at 15/16 months and reaches a maximum maturity of 24 months.
1.5) Parmigiano Reggiano PDO, start of production plans.
In 2005-2006, the Parmigiano Reggiano PDO Consortium in turn prepared a five-year production plan (2006-2010). The initial break-even point (so-called reference point) was set at 3.1 million forms, with moderate annual increases. Each dairy distributed the allotted wheels among its conferring/supplying dairies, in relation to their individual contributions to their determination, based on predetermined coefficients. The system was cumbersome, as milk quotas of contributing farmers and ‘shape quotas’ assigned to dairies coexisted in it.
The complexity reached its peak in transfer scenarios-both owned and leased-which required a coupled transfer of milk-breeder quotas and related mold-cheese factory quotas. The ‘overruns’ again involved an additional contribution that, after various offsets at the district and dairy level, fell on the latter and cascaded down to the farmer. The first production plan was followed by a second three-year plan (2011-2013) in continuity before the turnaround.
2) Market regulation. The breakthrough in the ‘Milk Package’
The ‘Milk Package,’ reg. EU 261/2012, introduced the possibility for member states – ‘for a limited period of time‘ and with the prohibition of restrictive agreements on competition (TFEU, Article 101) – to introduce ‘binding rules for regulating the supply‘ of PDO cheeses, at the request of the respective Protection Consortia. (5) Only two member states have embraced this ‘opportunity,’ France (with the PDO cheeses Comté, Beaufort, Reboclon, and Gruyère), and Italy with Asiago, Grana Padano, Parmigiano Reggiano, and Pecorino Romano.
The price of milk – despite the declared objectives of prioritizing the protection of livestock farmers as the weakest parties par excellence in supply chain contractual relations – has nevertheless remained pegged to the strategies and planning deliberated by the Consortium for Protection, in both cases of Pecorino Romano DOP cheese (as has already been shown in the appropriate analysis. See footnote 6) and Grana Padano DOP, as will be seen. For one simple reason, the asymmetry of power, which the Parmigiano Reggiano Consortium has instead been able to compensate for.
2.1) Parmesan cheese, quotas to farmers.
Parmigiano Reggiano’s breakthrough came with the 2014-2016 supply regulation plan under the chairmanship of Giuseppe Alai. The Consortium, in self-regulation shared with its members (see section 5 below), has set a production benchmark that is up from the previous three years and allocated a milk quota to each farmer. If production is in excess, dairies are subject to an increasing additional levy, effectively fines whose amounts are then divided among farmers in proportion to the liters of milk in excess of the “quota.”
This supply chain on closer inspection has some peculiarities that increase business risk in relation to market fluctuations:
– production cycle. After the new animals have been brought into the barn and entered production, the maturing of the product (22-24 months on average) should be considered. Market phenomena thus reflect production choices made 30-36 months earlier,
– production costs. Producing milk from only grass, hay and a few other plant feeds (without resorting to silage) involves costs that effectively rule out alternative destinations, except for minimal quantities of unbranded cheese (so-called white cheese).
2.2) Why allocate quotas to farmers?
The document outlining Parmigiano Reggiano’s breakthrough is crystal clear: ‘the reference model identified is that of an additional economic contribution mechanism correlated with the allocation of a district production reference and production references – Parmigiano Reggiano milk quotas (henceforth QLPR) – allocated to individual producers. These references are only a tool for determining additional contributions aimed at market expansion actions. Therefore, any farmer will remain free to produce milk suitable for Parmigiano Reggiano production and the Supply Regulation Plan is not a restriction on access to the system. For greater clarity,
milk from a farmer without a Parmigiano Reggiano milk quota does not lose its eligibility for processing into Parmigiano Reggiano DOP (as long as it complies with the specification). To define the setting of production benchmarks, the general objectives of Reg. EU 261/2012:
– ‘agreements that contribute to stabilize the market and dairy farmers’ incomes and strengthen transparency in the sector’ (Recital 3), – ‘there is in many cases a low concentration of supply resulting in a imbalance of bargaining power within the supply chain between farmers and dairies’ (Cons. 5), -‘ for ensuring sustainable development of production and thus to ensure a Fair standard of living to dairy farmers, its bargaining power vis-à-vis dairy producers should be strengthened, thus leading to a fairer distribution of added value along the supply chain’ (Cons. 14), -‘ given the importance of PDOs and PGIs, particularly for vulnerable rural regions’ (Cons. 17). (7)
2.3) The only choice consistent with the objectives of the EU legislature.
‘Following further study and discussion, it was felt that the only choice capable of meeting these purposes was to allocate production quotas to dairy farmers. Alternative solutions related to the allocation of quotas to dairies/cheese factories, on the other hand, would be contrary to the aforementioned purposes of EU Regulation No. 261/2012. Such shares take on the nature of “intangible assets.”
The operational planning tool consists in the determination of an additional contribution in the hands of the dairies, and the amount of this contribution emerges from the comparison between the quantities of milk processed and the quotas (QLPR) supported by the processed milk. In view of the fact that about 20 percent of Parmigiano Reggiano production is obtained in mountainous areas with particularly vulnerable and disadvantaged conditions, under Recital 17 specific rules have been defined to safeguard the production potential of these areas.’ (7)
2.4) Productive landmarks. Not the forms but the milk
‘The adoption of the Plan is linked to the definition of a basic tool, the register of farmers’ production reference points, expressed in kg of PDO-eligible milk, which takes on structural significance for the supply chain (QLPR Register).
The decision to change the unit of measurement of the reference point from the number of cheeses produced (which was the parameter adopted in the Consortium’s previous Production Plan) to kg of milk processed, responds first of all to the need to eliminate distortions among entities subject to the Plan, where the average weight of cheeses shows often large differences between different dairies, due to the different production choices of cheesemakers.
Consider that the distribution of average weights ranges from 37 kg/shape to weights above 43-44 kg/shape, thus with relative differences of up to 15/20%, which would be reflected with distorting effects on the application of the additional contribution.’ (7)
2.5) The value of PR Milk Shares.
The allocation of Parmigiano Reggiano Milk Quotas (QLPR. 1 quota equals 1 quintal of milk) to farmers has generated new economic value. The share is an intangible asset on the asset side of the balance sheet ‘that you can sell, lease, pledge as collateral to obtain credit‘. And it was created just when the old European milk quotas ceased to apply, on 1.4.15, which at the time had been the subject of even conspicuous investments (as well as atrocious messes to this day unresolved by Minister Stefano Patuanelli, in defiance of the diktats of the EU Court of Justice).
The PR Milk Quota Register has been online since 12.11.14 and is public. Anyone can consult it, on the Consortium’s website, for a view of the producers operating in the area and their shares, in the name of transparency. With evidence also of their average monthly values in both sale and rental cases.
3) Grana Padano Consortium, no breakthrough
No breakthrough was achieved at the Grana Padano PDO Consortium, however. Still collecting signatures for the posthumous approval of the seventh production plan (three-year period 2022-2024, effective 1.1.22 with good regard to the scheduling needs of those raising cows on continuous feed. (8)
The ‘reference point’ – that is, the production share, and its value, on the asset side of the balance sheet (9) – has remained with the dairies and its unit of measurement remains the cheese wheel, as it has since 2006. Therefore, the production plan compares exclusively with the markets, and compliance with the targets concerns only the dairies, not also the farmers.
3.1) Grana Padano, quotas to dairies.
The dairies therefore received from the Grana Padano Consortium an asset, the forma quotas, the value of which had been created by farmers through investments on the EU milk quotas that have since ceased to exist. An asset to which corresponds a bargaining power in turn taken away from farmers:
– the GP dairy can produce the wheels allocated to it by paying the ordinary fee to the Consortium. That is, renting or buying ‘mold shares’ from other dairies, including those in other regions and provinces, to increase production by the same amount without having to pay an additional charge,
– the GP barn is not bound to maximum production thresholds, except to risk having to (s)sell ‘GP milk’ for different destinations. Other PDOs in the area (e.g., Gorgonzola, Asiago, Taleggio, Provolone). But also as a commodity for other uses (drinking milk, non-PDO cheese and fresh dairy products), competing with foreign milk suppliers.
3.2) Speculations on GP form shares.
The establishment of GP form quotas and the freedom to market them (sell and/or rent) without territorial constraints has given rise to speculation that has resulted in three consequences:
– the impoverishment of many territories, in the vast area of Grana Padano PDO, which includes 4 regions (Piedmont, Lombardy, Emilia-Romagna, Veneto) and 2 autonomous provinces (Trentino, Alto Adige)
– the concentration of manufacturing in only one region (Lombardy, 73.9 percent) and three provinces. Mantua 30.4%, Brescia 22.1%, Cremona 17.5%. At a distance Piacenza 11.4 percent and Vicenza 6.6 percent. Below 3 percent the other 11 provinces (CLAL source, 2021 data),
– the soaring value of form shares, from €30 in 2014 to €250 in 2016. Rumors refer to the sale of 35 percent of the shares form-in 2017, to ca. €300-from private to cooperative dairies, with a total value of about €550 million. The member farmers of those cooperative dairies thus paid their ‘old’ milk quotas a second time.
In addition to the harm, the hoax.
4) Winners and losers
In both consortiums, for different reasons, it is the ‘padanists’ who win. The 10 large groups that at the same time hold the bulk of the GP form shares and at month 12 buy about 60 percent of the PR forms from the approximately 305 dairies. However, some differences remain, which are not insignificant:
– the 2,600 farmers who contribute to the Parmigiano Reggiano PDO supply chain at least maintain the value of PR Milk Quotas and related bargaining power,
– the 4,000 farmers who supply milk for Grana Padano PDO are subjected to the production plans decided by the giants and cooperative presidents. (10) Without even receiving, with rare exceptions, that ‘fair correlation’ between GP price trends and milk prices to which they would be entitled.
5) Who represents what interests?
The key step that enabled Parmigiano Reggiano PDO to make the quantum leap-from form quotas to PR Milk Quotas-was the extension of participation in the Consortium’s deliberative assemblies to all dairies, achieved on 4/28/10 after a period of lively debate.
Until then, deliberative assemblies were attended by a small number of dairies, delegated by the sectional/provincial assemblies of the Consortium and ‘appropriately selected’ by the agricultural confederations, under the hegemonic control of Coldiretti. As is still the case in other Consortia, thanks in part to a DM of highly dubious legitimacy. (10)
6) Interim Conclusions
The at least partial emancipation of farmers from those representing party interests, armchairs and various other businesses-often in conflict of interest-has put an end to the ‘divide and rule‘ method. And it has enabled the rebirth of a system, PR, that now works better than any other.
Following the aforementioned meeting 28.4.10, the agricultural confederations continued to participate in the meetings of the Parmigiano Reggiano DOP Consortium, but the debate and votes went back into the hands of the working people. And milk is paid twice as much as elsewhere.
#CleanSpades
Dario Dongo
Notes
(1) Dario Dongo. Grana Padano cheese and egg lysozyme, preservative needed? The Italic anomaly. GIFT (Great Italian Food Trade). 3.7.21, https://www.greatitalianfoodtrade.it/etichette/grana-padano-e-lisozima-da-uovo-conservante-necessario-lanomalia-italica/
(2) Dario Dongo. Unfair trade practices, the woes of Leg. 198/2021. GIFT (Great Italian Food Trade). 4.12.21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-i-guai-del-d-lgs-198-2021
(3) AGCM, Case I 569 – Consorzio Grana Padano. Measure 24.6.04, no. 13300. https://bit.ly/3AVtuGm
(4) Law 11.11.05, no. 231. Conversion into law with amendments of DL 9.9.05 no. 182, on urgent interventions in agriculture and for public bodies in the sector, as well as to counter anomalous price trends in agribusiness supply chains. On Normattiva, https://bit.ly/3gq4BJE
(5) Reg. EU 261/2012, so-called Milk Package, Amending reg. EC 1234/2007 [so-called Single CMO] regarding contractual relations in the milk and milk products sector. Repealed by subsequent reg. EU 1308/13, new single CMO (see. Article 150, regulation of the supply of cheese with protected designation of origin or protected geographical indication)
(6) Dario Dongo, Guido Cortese. Sardinia, Antitrust investigates milk and pecorino cheese prices. Some market data. GIFT (Great Italian Food Trade). 19.2.19, https://www.greatitalianfoodtrade.it/mercati/sardegna-l-antitrust-indaga-sui-prezzi-di-latte-e-pecorino-alcuni-dati-di-mercato
(7) Consorzio del Parmigiano Reggiano DOP. Offer Regulation Plan, three-year period 2014-2016. Implementing regulations for the establishment and operation of the Parmesan Milk Quota Register. https://registro.parmigianoreggiano.it/qlpr/linkDocument?n=Regolamento+Applicativo+Piano+2014-16+-Testo+integrato.pdf&a=true&f=true&d=true
(8) The production plan of the Grana Padano PDO Consortium is three years and must be approved by at least 2/3 of the dairies representing 2/3 of the wheels produced and 2/3 of the milk producers representing 2/3 of the raw milk used to produce the cheese (see EU Reg. 1308/13, Art. 150.2)
(9) EU rules do not provide for (or even prohibit) the marketing of ‘shape quotas.’ Instead, MiPAAF provided for it as possible, without even imposing as logical a duty to bind them to the individual provinces where they were originally issued
(10) See MiPAAF decree 15.2.19, laying down the procedures for the submission and approval of Plans for the regulation of the supply of PDO or PGI cheeses. https://www.%252FD.7110ba98513e7be7cc7e/P/BLOB%
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
