Sour taste for EU

There are fears that today's EU summit could be overshadowed by a dispute over Portuguese milk quotas. The country has long complained of losing out on the amount of milk that its remote Azores islands are allowed to produce with EU subsidy.

The wide-ranging European farm reforms introduced in June this year were widely criticised by the Portuguese. The government felt that the new regime discriminated against its farmers, and significantly, Portugal was the only state to vote against the changes.

Nonetheless, EU ministers did give extra milk quotas to the Azores. This added 50,000 tonnes to the islands' annual quota giving a total of 550,000 tonnes, starting from 2005/06. And Azores' dairy farmers enjoy a 73,000-tonne exemption on their annual milk production.

However, this penalty-free allowance is due to fall to 61,500 tonnes in 2004/05 and disappear altogether in 2005/06.

There has been a long and rather bitter history of the issue of milk quotas threatening to sour relations at EU summits and major meetings. Back in March, www.dairyreporter.com​ reported that Italy was causing upset in its attempts to clinch a long-awaited savings tax deal. The country refused to support the quota plan unless it got a partial write-off on €650 million of fines the EU had slapped on its farmers for overproducing milk.

The Italian government had to call for a vote of confidence in May in a bid to reach an agreement on EU milk quotas. Government coalition parties backed the government's initiative, but one, the Northern League, remained totally opposed to the fines.

The issue of milk quotas has been one of the major obstacles that stands in the way of implementing a new European Union tax reform plan. This is because Italy linked EU approval of its milk quota repayments to the country's approval of an EU agreement on the taxation of income from EU savings held abroad.

In the end, the EU granted Italian farmers the right to repay over 14 years at no interest, although it had initially wanted a 30-year period.

In contrast, Portugal's milk request seems less political and more an airing of a long-held grievance. Reuters news agency quotes on EU diplomat as saying that "there have been skirmishes on this issue for quite a long time. This has been one of their perennial grievances - it's been an issue since their EU accession".​

The issue remains highly contentious. Stuck out in the mid-Atlantic, the Azores are highly dependent on revenue from the dairy sector as well as remittances from Portuguese nationals working abroad. It is this issue that threatens to overshadow weightier issues such as the war in Iraq, when EU heads of state gather today in Brussels.