Speaking at a dairy sector seminar held on Friday concerning a health check review of the Common Agricultural Policy (CAP) reform, Mariann Fischer Boel outlined the key challenges that lay ahead for bringing greater competitiveness to dairy production. After a year of strong pricing for dairy goods like milk and butter, which continued to eat into the margins of dairy processors, the commissioner said she was determined to push through with the planned reforms to drive competition in the bloc's dairy sector. The Commissioner stressed that if the industry acted now on key issues like production quota reform, Fischer Boel pointed out that 2007, while certainly not uninteresting, was an extremely important year for the dairy sector, despite some difficulties in particular for processors as depleted stocks led to increased commodities costs. "Market forces pushed prices up, just as now they are bringing prices down," she stated. "The high prices were good news for farmers, and they created a new dynamism in the sector that had not been seen for a long time." While some issues including ensuring that agricultural support mechanisms like production quotas and Intervention may be temporarily retained, the Commissioner called for major changes to ensure the industry can compete on a global basis. Export Refunds Despite being temporarily revoked in July for the first time since their inception 40 years earlier, the issue of export refunds was at top of the bill for Fischer Boel at the seminar. Though the commissioner stressed that the Commission would not relinquish the right to reinstate the measures as it saw fit, she said that the days of export refunds were "surely numbered". "It's hard to see how they can contribute to the competitive, market-oriented agriculture that we want," Fischer Boel stated. "They draw criticism from around the world again and again, especially with regard to development issues." The refunds were used to subsidise EU milk against competition from non-EU producing nations. As part of the Doha Round of WTO talks, the European Commission (EC) says it has conditionally agreed to phase out the mechanism by 2013. Private Storage The Commissioner stressed that after consideration, Private Storage aid may be bought back for farmers in occasional years when markets were found to be in turmoil, after being disposed of by the European Parliament last August. The scheme was designed to cover the costs of storage for dairy products like cream and butter to obtain a better price later on in the market. "One of the original purposes of private storage aid for butter was to act as an alternative to intervention," stated Fischer Boel. "But we have already slimmed down the role of intervention." However, rather than reinstating the aid system on a permanent basis, the commissioner suggested an annual review of the market to asses the current state of the dairy market. She added that this review was particularly important for cheese, which had been the "star performer" in dairy production for some years. Intervention The issue of intervention price was another important area of debate for the health check, with Fischer Boel saying she was keen to ensure that the measure was a safety net for producers and not a tool to set market prices for milk. The commissioner said therefore that some change would be needed with the current system, which was failing to reflect dairy pricing on the world commodity market. "The world is prepared to pay more for skimmed milk powder than for butter; but our intervention system pays less," she stated. Fischer Boel asked the Commission to decide if it should continue to allow the current system or consider a cut to the butter intervention price. Quotas Fischer Boel also recommended that a gradual increase in restrictions on milk production should be introduced annually from 2009 up until 2015, due to reflect growing global demand for dairy goods. A two per cent increase in the total allotted milk production has already been set for this year. The Commission added that its own research predicted that milk prices would return to the same levels seen at the beginning of 2007 by the proposed end of the production quota system in 2015. While Fischer Boel conceded that predictions are rarely cast in stone, she said that it offered an important guide to judging future production supply. However, without the potential gradual hikes in production, Fisher Boel claimed that producers and processors would both face extreme difficulties over commodity costs. "If we do nothing before 2015 - when the quota system expires - things would be less smooth," she stated. "Prices would rise for a few years as growing demand chased static supply, then they would drop sharply when quotas ended." The commissioner added that discussion was also needed on the affects of ending production quotas for areas dependent on milk farming. Farmers in mountainous regions were highlighted as being particularly at risk from the reforms, as the viability of other types of farming was restricted due to their location.