EU puts end to 30 years of milk quotas

Phil Hogan [European Commission]

European Union milk quotas were lifted yesterday (31 March), after more than 30 years, creating expansion opportunities for some dairy farmers, while potentially threatening the livelihood of others.

Phil Hogan, the Commissioner for Agriculture, told a press conference that European dairy farmers will be better poised to benefit from demand for their products, particularly in Asia.

But Hogan added he will “remain vigilant” in case of a threat to Europe’s milk producers as he acknowledged the risk of price volatility.

The quotas on cow’s milk, which ended on Tuesday, were introduced in 1984 to prevent over-production that led to “milk lakes” and “butter mountains” when farmers dumped surplus products, spurred by high prices (see background).

Regardless of demand, EU dairy farmers have been guaranteed a price for their milk that has been much higher than on world markets, though this has been reduced in recent years.

“We’re going to take advantage of the opportunities that the abolition of milk quotas gives towards enhancing the potential of value-added processing which will create a lot of jobs and growth in rural areas,” Hogan said.

“We have new market opportunities … particularly in the Far East,” he added.

He said Europe failed to seize these opportunities in the last 30 years while other countries like New Zealand did.

Farming groups in top producer Germany and key exporter Ireland welcomed the lifting of the quotas which were first introduced in 1984 to cope with infamous milk lakes and butter mountains as EU supplies far outstripped demand.

But a vigil was held by some other dairy farmers outside the European Parliament in Brussels on Tuesday, lighting a “warning fire” and holding a funeral march.

The EU regime included individual and national production quotas. If any producer exceeded their quota, then they had to pay a levy, although this was only applied if the national quota was also exceeded. The system of quotas, and the levy threat, helped to cap the expansion of EU production.

The European Milk Board, a federation of dairy farmers with member organisations from 13 countries, said it was likely that the market would not be able to cope with significantly expanded production in a reasonable way.

“Chronic price collapses are inevitable, the next crisis is on its way,” EMB president Romuald Schaber said.

Germany’s national farmers’ association DBV, however, welcomed the end of quotas.

“Milk producers will be freed from the costs of the quota,” the DBV said in a statement. “In the period of the quota, German farmers had to shoulder an estimated 15 billion euros in costs for levies, purchasing of quotas and quota fees,” the DBV said.

“The end of quotas brings more freedom for commercial decision-making about how much milk to produce, gives more responsibility for developing your own farming company, but also more fluctuations in milk prices.”

A study by the Irish Farmers Association (IFA) estimated the ending of quotas would create 9,500 extra jobs in Ireland, and upwards of 1.3 billion euros annual additional export revenue.

“Facts would suggest that Irish dairy farmers are well placed to capitalise on the end of quotas, and in so doing help develop the dairy and agribusiness sector with major increases in direct and indirect employment,” IFA National Dairy Committee chairman Sean O’Leary said.

The European Dairy Association, which represents milk processors, also backed the change.

“It goes without saying that the end of the quota will lower the administrative burden on all levels. This will naturally further enhance the competitiveness of the whole sector,” EDA Secretary General Alexander Anton said. 

First introduced in 1984, at a time when EU production far outstripped demand, the quota regime was one of the tools introduced for overcoming structural surpluses.

Successive reforms of the EU's Common Agriculture Policy have provided a range of other, more targeted instruments to help support producers in vulnerable areas, such as mountain areas, where the costs of production are higher.

The final date to end quotas was first decided in 2003. It was reconfirmed in 2008, with a range of measures aimed at achieving a "soft landing". Even with quotas, EU dairy exports have increased by 45% in volume and 95% in value in the last 5 years.

Market projections indicate that the prospects for further growth remain strong – in particular for added-value products, such as cheese, but also for ingredients used in nutritional, sports and dietary products.

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