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End of EU milk quotas raises cheers

Apr 01 2015 17:15

London - European Union (EU) milk quotas were lifted on Wednesday after more than 30 years, creating expansion opportunities for some dairy farmers while potentially threatening the livelihood of others.

Farming groups in top producer Germany and exporter Ireland welcomed the lifting of the quotas which were first introduced in 1984 to cope with infamous "milk lakes" and "butter mountains" when 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 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 threat of levy, 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 €15bn 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."

Export boost

A study by the Irish Farmers Association (IFA) estimated the ending of quotas would create 9 500 extra jobs in Ireland, and upwards of €1.3bn 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 chairperson 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.

The potential for milk prices in the EU to become more volatile following the lifting of quotas could create an opportunity for greater use of futures markets.

Euronext announced on Tuesday it will launch a new dairy derivatives complex on April 13.

The offering includes futures for butter, skimmed milk powder and whey powder, and replaces former skimmed milk powder derivatives that failed to take off.

Germany's Eurex exchange already quotes butter, skimmed milk powder and whey powder derivatives, but traded volumes are thin.

eu  |  economy  |  milk
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