Cheese is likely to be the big winner of CAP reforms, with production across the European Union (EU) expected to rise almost one million tonnes to 9.2m by 2012, according to a new Commission report.
Skimmed milk powder, however, is set to go the other way, with production forecast to drop from 1.3m tonnes per year in 2003 to 944m by 2012. Butter production is expected to fall by 2m tonnes.
Milk production is predicted to remain at its current 145m tonnes per year.
The market shift, largely anticipated by much of Europe's dairy industry, is expected as part of a general switch to manufacture of higher value dairy products in the European Union.
A number of big firms, including Arla Foods and Campina, have said this will be necessary to offset CAP reform and remain competitive in the wider world.
Dutch dairy Campina said aid it received from the EU dropped from €140m to €127m between 2003 and 2004, and was forecast to plummet to €58m in 2005.
"Campina's strategy is aimed at reduced dependence on the European market and pricing policies, and on price movements for basic dairy products. This is achieved through international growth, innovation and cost control," said the group in a statement.
The EU cut a deal with other big trade blocks at the recent World Trade Organisation ministerial to abolish its export subsidies for commodity products, like butter and milk powder, by 2013 - as long as others get rid of their equivalent measures.
CAP reforms already involve price cuts for such commodities, with butter fat prices scheduled to drop by a quarter. And a recent report by the US Babcock Institute said EU membership was likely to transform Poland from a net dairy exporter to a net importer within five years.
The Commission report does, however, reiterate there is money to be had in higher value products, especially cheese.
It says cheese consumption per person across the 25 EU member states should rise from 17kg in 2004 to 18.3kg in 2012, helped on by a projected 32 per cent growth in consumption among the accession states.
The Babcock Institute report on Poland said Scandinavian dairy group Arla Foods was looking to expand production of hard cheese in Poland in a move to corner more of Europe's economy cheese market.
A food enzymes report by Frost & Sullivan last year highlighted cheese as one of the major growth drivers for Europe's $65.5m (€55m) dairy enzymes market. Ingredients firm Chr Hansen leads the dairy enzymes market, although rival group Danisco claims to be the leader in cheese ripening cultures.