Winding down of quotas will begin in 2008
The 2003 CAP mid-term review set out to make agricultural production more market oriented, by replacing market supports with direct income supports for farmers, not linked to production.
That process is on the way, with export supports, refunds and production aids removed or reduced. Intervention, private storage and consumption aids have all-but disappeared.
The final stage of the reform process aims to remove the remaining production ceilings, such as milk quotas.
Then, dairy production in the EU can be expected to react to market demand, rather than to subsidies or quota limits. It is the European Commission’s stated intention to end the milk quota system by 2015.
But the “beginning of the end” of quotas will be upon dairy farmers much sooner, probably within two or three years.
In late 2008, the mid-term review health check is due for publication. It will set out EU farm policies from 2009 to 2015, but it will be mid-to-late 2009 before these policies are implemented, predicts the Irish Dairy Industries Association (IDIA). Representing milk processors, they hope that farmers and milk processors will know enough by then about how EU milk supply and demand will be managed, to enable them to make necessary ongoing investment decisions.
The IDIA says a gradual transition to abolition of quotas is required, to give farmers and milk processors sufficient time to react. The Association’s preferred mechanism is an annual increase in milk quotas, because that would enable dairy farmers to increase production without additional quota costs, would reduce quota rental or purchase prices, and provide a soft landing for farmers getting out of milk.
So this could be the third last year for dairy farmers counting every gallon and litre for fear of going over quota.
Right now, the country is only about 0.18% under quota, and farmers are putting on the brakes this month to avoid a superlevy fine of 29.39 cent per litre (€1.3361 per gallon) for exceeding their quotas.
If the EU makes extra quota available from 2009 or 2010, to ease the shock of eventually scrapping the system, counting the litres to avoid the superlevy could be finished.
However, negotiations involving 27 countries and the European Commission may well result in a different quota phase-out method being chosen, rather than bigger quotas.
Some member states want to go the way of reducing the superlevy fine. The weakness of that strategy, according to the IDIA, is that even a reduced levy would penalise expanding dairy farmers, the last thing they want in an already uncertain market environment.
Nor do the Irish milk processors represented by the IDIA want to see an open-quota transfer policy getting off the ground. Demand for quota is high in some regions and member states, while quota remains unused in other areas. But introducing quota transfers or trade between member states would be too complicated and expensive, and achieving agreement among member states on the rules would be difficult. Nor does it provide the clarity the industry needs, says the IDIA.
Some member states are likely to vote for the status quo, to leave milk quotas as they are until 2015. That would only continue European farmers’ cost disadvantage relative to international competitors, says the Dairy Industries Association. The European Commission would agree, being of the view that milk quotas constrain development of an efficient industry.
