Milk quota reforms distort trade, says UK dairy industry

By Lorraine Heller

- Last updated on GMT

Related tags: Uk dairy industry, Milk

EU agriculture ministers yesterday agreed on further measures designed to progressively liberalise the bloc’s dairy sector, but industry associations have said these will simply lead to more market distortion.

The deal passed Thursday on the Common Agricultural Policy (CAP) Health Check increases milk quotas gradually, leading up to their abolition in 2015.

According to European Commission, the 1 per cent increase per year in milk quotas for each member state will generate a ‘soft landing’ as the quota system is phased out.

The annual quota increase will be implemented between 2009/10 and 2013/14. As an exception, Italy – one of the bloc’s major milk-producing countries – will be allowed to implement the entire 5 per cent quota increase immediately in 2009/10.

Europe’s commissioner for Agriculture and Rural Development Mariann Fischer Boel said the measures implemented in the Health Check would help free producers to “follow market signals”.

Market uncertainty

However, the UK dairy industry said that although the reform is a step towards market liberalisation and deregulation, it does not provide certainty in the medium term.

“Having two reviews of quota policy in the next four years will not deliver that,”​ said Dairy UK Director General Jim Begg.

“No matter how tightly defined the remit for these reviews it will still be an opportunity for the whole principle of abolition to be re-opened.”

The quota system was originally set up as a way of controlling milk production in Europe. Each member state was given a national ceiling for the quantity of milk it is allowed to sell in a year. In order to remain within the limit, farmers are required to buy quotas equivalent to the number of litres of milk that they wish to sell.

In the UK, however, milk production has dropped below the national ceiling. This means that competition is already reduced and prices have dropped.

Distorted trade

The reform also adjusts the butterfat co-efficient, which is the mechanism used to measure a country’s milk production per year according to its butterfat content.

This change, said Begg, could also create differential quota increases, which is something the UK dairy industry wanted to avoid.

“We’re worried that these distorted increases in quota could distort trade and could make the commercial environment for UK dairy companies much tougher. There could be more product competing for the same market​,” a Dairy UK spokesperson explained to DairyReporter.com.

The UK’s environment secretary Hilary Benn said yesterday’s agreement is a step in the right direction for further reform, but is also a missed opportunity to speed up the process of change.

“We have also seen how the CAP creates vested interests which distort things and slow the progress of reform.”

“I share the disappointment of the UK dairy sector at the competitive distortions resulting from today’s deal, and given the large amount of money already being spent on farm payments, I could not support the use of unspent funds which should come back to Member States,” she said in a statement yesterday.

“This is a mixed result. On the big items of reform this is a step forward, but I regret what has been conceded in order to secure a deal which will lead to some new distortions in the short term.”

Other measures agreed upon as part of the CAP Health Check include the abolition of arable set-aside to allow farmers to maximise their production potential, as well as extending the decoupling of support linked to the production of specific products.

Related topics: Markets, Fresh Milk

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