16 April 1999

Milk quotas set till 2008-plus

By Philip Clarke

MILK quotas are to be extended at least until 2008, according to draft legal texts now circulating in Brussels.

The documents are designed to implement the agreement reached by EU heads of state in Berlin last month for reforming the common agricultural policy.

The Berlin deal simply said that dairy reform should be delayed until 2005/06. But it was not clear whether the price cuts (15%), quota increases (1.5%), and compensation already agreed by farm ministers would then be implemented in one year, or spread over three.

The problem is that the EU budget has only been fixed until 2006, begging the question where the funds will come from for compensation in 2007 and 2008. Furthermore, the so-called London club, (of the UK, Italy, Sweden and Denmark), believed quotas were only guaranteed until 2006.

"The Berlin summit conclusions were vague, leaving it up to the commission to work out how to implement it," says Brussels consultant, Trevor Smith.

Civil servants from all 15 member states meet to study the texts next Monday (Apr 19), where discussions could be heated. Another bone of contention is likely to be the mid-term review of quotas, which was originally planned for 2003, but which is now being delayed until 2005.

But any changes are likely to be minimal. The final texts are expected to confirm that butter and powder intervention prices will drop by 5% a year from 2005/06 to 2007/08.

Milk quota will increase by 0.5% a year over the same period, while producers will also get compensation worth k5.75/t (0.4p/litre) in year one, k11.49/t (0.79p/litre) in year two and k17.24/t (1.19p/litre) in year three.

This compensation may be topped up from a national envelope, with payments targeted at specific groups.

But analysts believe the EU will be hard-pressed to stick to this deal. Dairy products are already flowing into intervention, and with an additional 1.2% of quota going to selected member states (notably Ireland and Italy) as early as next year, the situation could get worse.

Britain props up milk price league

BRITAIN has slumped to bottom of the EU milk price league, following three years of declining returns.

Latest figures from German statistics agency ZMP put the average value throughout Europe in 1998 at k2.99/kg (20.82p/litre) – a slight increase on the previous years returns. But UK producer prices are quoted at k2.68/kg (18.64p/litre) – a drop of 10% year on year.

A combination of declining market prices, the strong £ and weaker farmer selling are blamed for the demise in the UK, which has reached the bottom of the Euro-league for the first time in 10 years.

But dairy farmers in other member states are now suffering too, says Erhardt Richarts of ZMP. "Prices are down in almost all countries so far this year. Butter and skimmed milk powder are now selling into intervention in France, Germany and the Netherlands, and cheese and UHT milk prices are also lower."

The loss of export sales to Russia is seen as the main reason for the depressed markets. "As usual, it is the minority part of the dairy market that sets the tone for the whole," says Mr Richarts.

"What used to go to Russia is now going into intervention. It seems clear that milk prices will be 5% down in Germany this year."

* US dairy farmers have started to apply this week to a new "dairy income loss assistance programme", designed to compensate them for lower milk prices. Washington estimates that all milk producers should be entitled to aid worth about $0.2/cwt (0.24p/litre), up to a maximum $5000 (£3105) a holding.

AMCcuts rates

BORROWING costs have fallen again following the Agricultural Mortgage Corporations decision to cut its variable rate by 0.25% to 7.15% in response to last weeks base rate cut by the Bank of England. However, the AMC has no plans to change the rate on its High Interest Cheque Account, which will remain at 5.25%.