The EU Commission is to increase milk quotas by 2% from 1 April, raising potential European production by 2.84m tonnes.

At a farm council meeting on Monday, EU farm commissioner Mariann Fischer Boel said milk prices had increased over the past year, as had calls for higher quotas. “CAP reform freed farmers to produce for the market and restrictive milk quotas are inconsistent with that aim,” she said. “Leaving quotas unchanged would prevent the EU from exploiting rising demand and healthy price levels.”

According to commission calculations, the EU will need to produce an extra 8m tonnes of milk between 2007 and 2014 to meet growing internal demand, on top of rising demand for value-added dairy products around the world. “We need to equip our farmers to meet that increased demand.”

Pressure on prices

However, Germany and Austria both voted against the quota increase, saying it would put pressure on milk prices and could disadvantage farmers in mountainous and remote regions.

Milk industry body Dairy UK claimed the 2% rise, which will boost UK quota to 15m tonnes, was “excessively large”, and offered no gain for British dairy farmers. “It may indeed harm them if, in a market with tight stocks, a small increase in supplies has a disproportionate downward effect on milk prices,” said a spokesman. “We want a smooth landing for the abolition of the quota regime, but this will get us off to a bumpy start.”

But Tom Hind, chief dairy adviser at the NFU, disagreed that raising quota levels would knock milk prices. “Just because you add 2.84m tonnes of quota doesn’t mean that it’s going to be filled.”

Removal in 2015

He reckoned the increase would not have a great impact on UK producers as they were already well below existing quota levels. “But there is growing demand on the world market and it’s right that EU producers should be able to benefit from that.”

It would also help in the removal of quota in 2015, he added. “Our preferred approach of doing that is by phased increases in quota. It makes sense for quota to go up now while the market is strong.”

Although commodity markets had dropped by 20-30% since their peak in October 2007, the outlook for UK milk prices was positive, said Mr Hind. “Commodity prices have stabilised and the underlying strength in the market will kick in again. Production in the UK is still falling and processors are still desperate for milk.”