New CAP reforms may boost UK dairy

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Milk prices paid to UK producers are notoriously low, yet tough
streamlining has positioned the dairy industry well to cope with
new EU CAP reforms and subsidy cuts that seem increasingly likely,
writes Chris Mercer.

This week, Robert Wiseman Dairies, one of Britain's three big milk processors, announced it would cut the price it paid to farmers for milk by 0.25p per litre.

It does not sound a lot, but producers are concerned about a downward spiral. Wiseman said its hand had been forced after recent cuts by a major competitor - likely Arla, which chopped prices by 0.35p in June.

"We cannot compete in a market where one of our major competitors is buying milk for just short of one pence per litre less than the price we are paying."

Wiseman will still be paying more, at 20.11p, than some others, but the UK's average farmgate milk prices have been the lowest out of the old EU-15 countries for a few years.

Yet the long-term future for Britain's milk sector is bright, according to Tom Heind, chief dairy advisor at the National Farmers' Union (NFU).

"The product mix we have in the UK dairy industry and the competitive efficiency that has been created through much heartache and rationalisation, has made us better prepared to deal with CAP reform,"​ he told​.

And, as the row deepens between Britain and other member states over agricultural subsidies and the EU budget, Heind said there was a "strong possibility there will be more CAP reforms in the next few years".

"My experience in Brussels makes me suspect that reform will again be discussed after there has been some clarity on the budget, the next round of World Trade Organisation talks and the accession of Bulgaria and Romania."

The Commission has agreed to publish an interim report on current CAP reform in 2008 and Heind said it was possible that new proposals would surface then.

He said there was likely to be more rationalisation in the UK dairy sector but that long-term visibility was key, to allow farmers to plan ahead.

Heind also said there was also a general movement away from agricultural subsidies, an area of the EU budget heavily criticised by UK prime minister Tony Blair and chancellor Gordon Brown this week.

And the NFU man said the EU was right to break the link between subsidies and production, arguing that this did not have to mean the end of EU support for the agriculture sector.

The EU currently spends around 40 per cent of its budget on agriculture, a figure criticised by the British Government, which will now hold the EU presidency for six months.

Britain is the fifth largest recipient of EU agricultural aid, receiving €9bn per year of which €3.5bn is given in subsidies. France is the largest recipient, getting around €23bn in aid - €9bn more than any other member state.

Scandal has recently broken in the British press after it was revealed, under the Freedom of Information Act, that some of the UK's wealthiest people were receiving hundreds of thousands of euros in CAP funding.

EU agriculture commissioner Mariann Fischer Boel appealed for a solution to the 2006-2013-budget dispute in Paris this week.

She highlighted a proposal from Luxembourg, the out-going EU president state, to cut agriculture spending to 33 per cent of the budget, and a Commission proposal to take spending below 30 per cent before 2013.

France, as the biggest beneficiary, has vehemently opposed any change and wants to stick to the original agreement between member states in 2002, which pledged to maintain CAP spending at €43bn per year until 2013.

Boel said the Commission was ready to negotiate with the British presidency, but warned the 2002 agreement must be respected. "Those who want to tear up this pact should bear in mind that farmers' individual payments will probably be slimmed down in any case from about 2007,"​ she added.

In the mean time, Boel said a budget agreement was needed soon to allow the industry to plan long-term.

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