Memorandum submitted by the Dairy Industry
1. The DIF is the trade association which
represents the milk processing industry in England and Wales.
DIF members account for 90 per cent of the milk processed in England
2. The dairy processing industry is a major
economic sector. The industry employs 40,000 people. The annual
value of industry sales is estimated at £6 billion.
3. The industry's main concern with respect
to the future of UK agriculture is securing a continued supply
of a sufficient quantity of milk, of the right quality, at a competitive
4. The industry would welcome a reform of
the CAP that, through the abolition of quotas and the provision
of adequate compensation to producers, allows the industry to
realise its productive potential and to continue to access the
growth in the world market.
5. The industry needs certainty. In order
for the processing industry to determine its future investment
plans it needs a clear appreciation of the future strategic direction
of EU policy towards the CAP. The industry needs to know whether
the CAP will develop to allow access to world markets or whether
it will adopt a defensive stance that focusing on protecting the
EU internal market to the exclusion of all else.
The prospects for production subsidies and quotas
against the backdrop of world trade liberalisation and the mid-term
review of the Agenda 2000 reform of the CAP
6. The dairy sector CAP uses market management
instruments to maintain milk prices at an artificially high level.
This is achieved through constraints on production (quotas), maintenance
of minimum prices (through intervention purchasing), protection
from imports (import levies) and maintenance of demand (consumption
subsidies and export subsidies).
7. The overall effect of the CAP is that
EU raw milk prices are higher than those prevailing in the world
market. EU exporters would not be competitive on the world market
without export refunds.
8. If the dairy sector CAP was discontinued
prices to producers would fall.
9. The dairy sector CAP is unreformed. Under
the Agenda 2000 package changes will only be implemented from
10. It is widely assumed that the WTO negotiations
and the enlargement of the EU will make the continuation of the
dairy sector CAP untenable in its current form.
11. The agreed objectives of the WTO negotiations
are for reductions in export subsidies, increases in market access
and reduction in domestic support. This is directly incompatible
with the elements of the dairy sector CAP set out above.
12. In particular further restrictions on
export subsidies would make it very difficult for EU exporters
to export to the world market.
13. To maintain the uniformity of the CAP
over the EU, new entrants will seek to obtain the full benefit
of the compensation payments scheduled under Agenda 2000 even
though they may not have been subject to the fall in prices envisaged
by the Agenda 2000 reform process. This may be incompatible with
agreed EU budgetary constraints.
14. Quotas are essential to maintaining
the balance of supply and demand within the EU. It may not be
feasible to introduce quotas in some enlargement states.
15. The DIF believes that the reform of
the CAP envisaged by Agenda 2000 is neither sufficient in scope
nor timely enough to cope with the effect of enlargement and the
prospective outcome of the WTO negotiations.
16. The DIF would support a reform of the
dairy sector CAP that:
Ultimately led to the abolition of
quotas. Quotas restrict the ability of the industry to grow and
realise its full potential.
Properly compensated producers for
the lower prices that will result from CAP reform. This is essential
if producers are to respond to the new environment created by
the reform process.
Ensured the industry would be able
to access the continued growth in the world market. The EU's international
obligations to reduce export refund expenditure means that dairy
exporters will not choose to invest in the EU as a base for exploiting
the world market.
How better stewardship of agricultural land can
17. However defined "better stewardship
of agricultural land" can only be achieved if the farming
sector is profitable.
18. Government objectives must explicitly
recognise the need to promote an internationally competitive and
profitable farming industry.
19. Achievement of this objective would
also require an internationally competitive and profitable processing
industry to process the raw material from the farming sector.
This objective must also be explicitly recognised by the government.
The opportunities and difficulties faced by agriculture
as a result of possible reductions in production subsidies
20. CAP reform presents an opportunity for
the creation of an economically more efficient industry through
the abolition of quotas. This will be of benefit to producers,
processors, employees, shareholders, consumers, the government
and other stakeholders.
21. The reduction in price support entailed
by CAP reform will primarily affect producers. The magnitude and
speed of adjustment will determine how challenging the environment
will be for producers.
22. Producers will respond to lower prices
through a restructuring process that will entail producers leaving
the industry with the remainder seeking to grow larger. The need
for this process must be recognised and supported by the government.
23. The compensation payments agreed under
Agenda 2000 will assist producers to restructure their business.
The UK must ensure that dairy producers benefit in full from the
compensation available. The DIF is opposed to any form of modulation,
degressivity or re-nationalisation of the CAP that reduces the
compensation payable to producers or results in them being discriminated
against compared to other EU producers.
24. The industry has addressed issues of
animal welfare and food safety through the National Dairy Farm
25. The reform of the CAP has resulted in
calls for the redirection of the CAP towards a range of objectives
such as environmental and social concerns.
26. A profitable and efficient dairy farming
sector is the best means of achieving these objectives. Dairy
producers must maintain their competitiveness. If the burden of
CAP legislation to achieve these non-commercial objectives goes
so far as to compromise the competitiveness of farmers, then they
should be compensated by the CAP.
Dairy Industry Federation
12 December 2001