As the EU moves to pay dairy farmers to produce less, Irish CAP expert Alan Matthews said the measure could raise EU dairy farm incomes in the last quarter of the year by as much as €289m.

He said the measure leverages an EU budget transfer to farmers (in this case €150m) by also requiring consumers and the dairy industry beyond the farm gate to make a contribution, in the form of higher milk prices.

It is thus primarily an income transfer measure, justified on the basis that current milk prices are about 20% below the past five years’ average.

In fact, it is likely to lead to some income transfer from low-income families with children to larger dairy farmers who account for the bulk of milk production.

It is hoped to attract producers to reduce production by 1.1m tonnes, but Mr Matthews warned that some producers who might otherwise have reduced or exited production will now hold on, while others will expand production even more, because of the higher milk price due to the scheme.

Based on US experience with voluntary supply management schemes, slippage from the 1.1m tonnes milk reduction target is likely to be as high as 50%.

Mr Matthews said the measure is a second-best compared to other ways of helping dairy farmers to manage price and income volatility.

If the experiment is deemed successful, there will be demands to make it a permanent feature of the dairy regime in the next round of CAP reform discussions, said Mr Matthews.

Some member states have favoured mandatory capping of individual milk producers, many of whom rely on the additional income to pay off bank debt, but this would be very unlikely to be accepted by the EU Council of ministers, said Mr Matthews.

Meanwhile, Romuald Schaber, president of the European Milk Board, a long-time supporter of milk production cuts, said the €150m is not nearly enough, the three-month period is too short, and there is no simultaneous volume capping for farmers who do not take part.

It is expected to have the necessary legislation in place by mid-September, allowing dairy farmers to submit applications on September 19.


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