European dairy industry starts transition to non-quota system

MILK quotas will start disappearing from the EU dairying picture in 2013, farmers were told at last week’s Teagasc National Dairy Conferences.

Leading economist Professor Alison Burrell from Wageningen University in Holland said the EU dairy sector is entering the pre-quota abolition period.

“The task for the European dairy industry is to promote the kind of structures that, 10 years from now, could make it ready for a painless transition into a world without quotas,” she said.

But in the meantime, quotas remain an expensive obstacle to expansion.

Quota will be available, if Teagasc’s prediction of 8,500 dairy farmers dropping out in the next nine years is accurate.

If the current milk quota restructuring scheme continues, according to Teagasc economist Thia Hennessy, the price of milk quota will drop substantially after decoupled payments are introduced in 2005.

“With the quota system due to last until 2015, the key question for those farmers who remain in dairying is what price can they afford to pay for the additional quota necessary to maintain viability,” said Thia Hennessy. “Our analysis shows that in order to make a margin of just 3c/litre on the additional quota, the average farmer should pay no more than 30c/litre (1.35/gallon) in 2005, falling to 15c/litre (62c/gallon) in 2008,” she said.

Referring to the recent calls for the introduction of an auction system for milk quota, Thia Hennessy said there is the fear that this could lead to unaffordable prices for dairy farmers who need additional quota to ensure long-term viability.

“Our analysis shows that if an auction system existed some farmers, particularly those with the capacity to expand production on their existing land base, could afford to pay substantially more than the current price for quota,” she added.

She said farmers intending to quit milk production have two options.

They can sell their quota in 2004, get a higher price but forfeit their CAP reform compensation.

Or they can wait until 2005, get a lower quota price but establish their entitlement to the decoupled compensation.

“With quota prices currently at 31c/litre (1.40/gallon) the price in 2005 would have to fall substantially in order to make sale before the decoupling date more profitable,” she advised.