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Milk quota abolition ‘soft landing’ expected – EC report

By Mark Astley , 13-Dec-2012

The European Commission (EC) is expecting a “soft landing” when European Union (EU) milk quotas are abolished in 2015.

The EU milk quota system was introduced in 1984 to address the problem of over-production in the region. Each Member State has two quotas - one for deliveries to dairy processors, and the other for direct sales at farm level.

It is, however, set to be abolished in April 2015. A gradual increase of 1% per year is in place in the meantime to prepare for the abolition.

In its report, Evolution of the market situation and consequent conditions for smoothly phasing out the milk quota system, the EC said that for the vast majority of EU Member States, milk quotas are no longer relevant to limiting production.

It added that the milk quota price – the fee paid by farmers seeking additional quota – is already zero or close to zero.

The ‘soft landing’ report is the second to be published and adopted by the EC.

‘Soft landing’ on track

“Both the evolution of milk production versus milk quotas, and the downward trend in quota prices show that ‘soft landing’ is on track,” said the report. “In the vast majority of Member States, quotas are no longer relevant to limiting production and the quota price has already reached zero or is approaching it.”

Year-on-year, milk quotas are gradually becoming less relevant, as actual milk output falls short of these ceilings in a majority of Member States.”

In quota year 2010-11, only five Member States exceed their milk quota and overall EU production was 6% below quota.

In the 2011-12 season, dairy farmers in six EU Member States were hit with ‘superlevy’ penalties totalling more than €78m for exceeding their national milk quotas.

“With milk quota becoming less and less relevant, EU milk supply can better respond to market opportunities, farmers’ response to price signals is less distorted and efficiency gains can be achieved through restructuring,” the report added.

“In Member States whose milk deliveries are well below quota ceilings, the quota price is already very low or equal to zero, and no fundamental changes are expected before the expiry of the quotas regime.”

Medium and long term prospects

The report added that increasing dairy demand from emerging markets, such as China, may support the industry through the transition.

“Medium and long term prospects are favourable for the dairy sector in line with population growth and appetite for western diet in emerging economies.”

It added, however, that this anticipated growth does prevent “short term market fluctuations.”

“Price developments since the publication of the first soft landing report show a trend towards higher levels with some ups and downs along the curve. Within the latter, the current difficulties endured by dairy farmers in certain areas more severely hit by the hike in the price of feedstuffs cannot hide the overall positive picture of sector,” said the report.

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