CHAPTER 4
MILK QUOTAS AND THE OUTCOME OF THE AGENDA
2000 DISCUSSIONS
4.1 Milk quotas were introduced in the EC
in April 1984 to restrain rising milk production. They were introduced
initially for a five-year period, but were subsequently extended
twice to 31 March 2000. Following the adoption of the Agenda 2000
reform package by the Agriculture Council on 17 May, the legal
authority for milk quotas has now been extended for a further
eight years.
4.2 Quotas were allocated nationally on
the basis of milk production in 1991 (except for Italy and Ireland)
and national quotas were distributed to individual dairy farmers
on the basis of their 1983 production less nine per cent. Initially,
farmers who had voluntarily undertaken to cease milk production
for a specified period under the EC Non-Marketing of Milk and
Dairy Herd Conversion schemes were denied quota. However, the
European Court of Justice eventually ruled that these producers
(known as SLOM producers after the Dutch acronym for the EC non-marketing
scheme) had a legitimate right to return to milk production and,
therefore to receive the quota which they had been denied in 1984.
Since 1984 quotas have been cut several times throughout the Community.
Dairy farmers have been compensated for these cuts from the Community
Budget. There have also been some general increases in quota,
in 1989 and 1993 for SLOM producers and in 1991 to insulate small
producers from the quota cut that year.
4.3 There are two types of quota, wholesale
and direct sale. Wholesale quota covers milk which is delivered
by the producer to a dairy. Direct sales quota covers milk which
is sold by the producer direct to the consumer either as liquid
milk or in the form of milk products. Milk which is consumed on
the farm by the farmer, his family or his animals is not subject
to quota. All Member States have both wholesale and direct sales
quota, the former accounting for 98 per cent of the Community
total. For levy purposes the two types of quota are treated separately.
Conversions from one to the other, either temporarily or permanently,
are permitted during the quota year. But at the end of the year
a Member State may not offset over-quota production on one against
under-quota production on the other.
4.4 Systems of administration in all Member
States are designed to collect levy where it is due from over-quota
producers and to pay that levy to Brussels by 1 September deadline
as required by the EC legislation. Failure to have the necessary
administrative systems in place to collect the levy by the due
date exposes a Member State to financial penalties in the form
of disallowance. There is only limited flexibility under the EC
rules for calculating levy liability, so if the system is administered
properly there is little scope for variation between Member States
in the way they apply this aspect of the rules.
4.5 Until 31 March 1994, responsibility
for the administration of milk quotas in the UK lay with the Agriculture
Departments. Up to that point the Milk Marketing Boards (MMBs)
acted as agents for the Agriculture Departments. In anticipation
of the dissolution of the MMBs in England, Wales and Scotland
on 31 October 1994 and in Northern Ireland on 28 February 1995,
overall responsibility for the administration of the milk quota
system in the UK, including the maintenance of a quota register,
passed to the Intervention Board Executive Agency with effect
from 1 April 1994. Policy responsibility for milk quotas remains
with the Agriculture Departments.
4.6 The Government has, with the full support
of the dairy industry and within the constraints of EC legislation,
sought to provide the maximum flexibility for producers to buy,
sell or lease milk quota to meet individual needs. There is no
Government interference in the quota market, so prices for sale
or lease are determined by the market and reflect the amount that
producers are prepared to pay to acquire quota.
OUTCOME OF
THE AGENDA
2000 DISCUSSIONS
4.7 The proposals for dairy reform agreed
by Agriculture Ministers on 11 March were deferred by two years
on budgetary grounds by Heads of Government at the Berlin Summit
on 24-25 March 1999. Dairy reform will now commence in 2005-06.
However, for the longer term the UK, along with other like
minded Member States, secured, against strong opposition, the
maintenance of the review of the milk sector in 2003 with the
specific aim of phasing out quotas. This review is needed because,
in the Government's view, milk quotas are likely increasingly
to disadvantage our dairy industry. Because of WTO restrictions
on subsidised exports, the EU will lose out on world dairy markets.
We also face extra competition on our own market, as world trade
barriers are reduced.
4.8 Whilst it is disappointing that dairy
reform had to be postponed, given the balance of opinion in the
Council, however, with many Member States wanting no reform at
all, the outcome was a reasonable one. It was achieved only through
close co-operation amongst the Group of Four (UK, Sweden, Italy
and Denmark).
4.9 The legal texts of the milk and milk
products Regulations, implementing the agreement by EU Agriculture
Ministers on 11 March and Heads of Government at the Berlin Summit
on 24-25 March 1999, were formally adopted by the Agriculture
Council on 17 May 1999. The key elements are:
— extension of the legal authority
for milk quotas to 2008;
— mid-term review of the quota regime
in 2003, with the aim of allowing the present quota arrangements
to run out after 2006;
— specific quota increases allocated
to certain Member States (Italy 600,000 tonnes, Greece 70,000
tonnes, Spain 550,000 tonnes, Republic of Ireland 150,000 tonnes
and Northern Ireland 19,700 tonnes) to be allocated in 2000-01
and 2001-02;
— 1.5 per cent linear increase in milk
quotas for all other Member States including the UK, over three
years starting on 1 April 2005 (0.5 per cent a year);
— 15 per cent reduction in support
prices of butter and skimmed milk powder over three years, starting
on 1 July 2005 (5 per cent cut per year from 2005-06 to 2007-08);
— Community-funded compensation for
reductions in support prices expressed in Euros/tonne of milk
quota held by the producer on 31 March each year, phased in over
three years commencing in 2005 (building up to a basic dairy premium
of 17.24 Euros/tonne of quota in 2007);
— national envelope of funds for topping
up basic compensation payment phased in over three years, which
together with the basic premium increases to an average payment
of 25 Euros/tonne in 2007.
4.10 In addition, the legal text of the
amended quotas regulations gives Member States the discretion
to introduce the following quota management provisions:
— discretion to decide on a national
quota leasing deadline before 31 March (the end of the quota year)
rather than 31 December;
— discretion to introduce a siphon
on permanent quota transfers effected by lease of land (quota
to feed into the national reserve);
— discretion to provide for transfers
of quota independently of the land;
— discretion to introduce a provision
that if a producer does not make use of at least 70 per cent of
his quota within a 12-month period either through deliveries or
direct sales, all or part of the unused quantity shall revert
to the national reserve.
4.11 The Ministry has already commenced
the consultation process with the industry on the discretionary
provisions summarised above. No decisions have been taken at this
stage. A further consultation paper will be issued in the summer
setting out ideas for a Strategy for Agriculture and on implementing
the areas of Agenda 2000/CAP reform where national discretion
applies.
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