20 February 1998

HOW AGENDA 2000 UNDERESTIMATES SCALE OF CHANGE

More radical reform of the EU dairy regime is needed than

Agenda 2000 proposals suggest. Suzie Horne finds out

whats facing the industry

AGENDA 2000, published by the EU Commission in July 1997, pointed the way for future CAP reform. Its contents have now been broadly agreed by the Council of Ministers, whose next step is to produce formal proposals early this year.

These are expected to closely resemble the Agenda 2000 options, with quotas continuing until at least 2006 at their present level. A dairy cow premium totalling around £150 a head is also likely, along with a cut in support prices of 10% over five years and some changes to the organisation of the common market for dairy products.

However, many observers are already saying that these reforms will not go far enough because they fail to take into account the requirement for change which the next round of the World Trade Organisation talks will bring.

These talks are due to start next year and run until 2003. "Agenda 2000 glosses over the likely impact of the WTO and the amount by which it will force us to change," says consultant Antony Oliphant of the Laurence Gould Partnership.

Radical reform

"There will have to be a more radical reform than Agenda 2000 suggests," he says. "It would make no sense to do a wholesale reform now only to have to do another one in three years time."

Mr Oliphant thinks that because of the inevitable increased access to our dairy market as a result of the next WTO agreement, quotas will be an ineffective mechanism for supporting milk prices and dairy farm incomes.

"Milk is a basic product with a mature market. The only way to maintain profit in the face of greater competition is to produce more product at a finer margin. Quotas will restrict this response."

While stopping short of predicting their removal, Mr Oliphant sees the likelihood of some "serious tinkering" with quotas. The shackles of quota may be removed from larger producers for at least part of their production in return for taking lower or no headage support.

"Smaller producers may become more extensive and have their quota reduced in return for increased headage payments." This may fit in with the aim of decoupling production from support, and help to keep more smaller producers on the land. While rural depopulation may not be viewed as a problem in the UK, it is taken very seriously in some regions of France.

Agenda 2000 does allow for some modulation, whereby there may be a cash or headage limit to overall support. Because of anticipated difficulties in agreeing how to implement it at farm level, this would be left to member states to decide; a form of repatriation of farm support.

This will not necessarily be a bad thing for UK dairy producers, "A lot of businesses can survive change provided that it is not too rapid. In many other countries they may not have had time or the ability to grow because quotas are not tradeable to the extent that they are in the UK.

"Larger UK dairy producers are very efficient and many are in a position to survive and expand in the post WTO era," maintains Mr Oliphant.

"If quota restrictions are relaxed, then expansion costs will come down proportionately. However, lower production controls would also increase the volatility of milk prices and profits."

Mr Oliphant sees expansion and/or intensification as the key to survival for most producers, provided this can be achieved by sourcing quota at a cost the business can realistically afford – this is too often a stumbling block.

He advises dairy producers to develop a long-term strategy so that they are looking further ahead than they have been used to doing.

For example, when planning new buildings or other facilities for the herd, do not just think about the next step of expansion, but look beyond it. If a new parlour, cow housing or silage clamp space is being planned, it should be designed so that it can be added to in future.

Increase yields

Cow numbers should be increased to the limits imposed by land and buildings. "The next step should be to increase milk yields by better feeding and breeding. This is the position of most herds.

"Clearly, producing quality forage and cutting overheads are an important part of improving margins."

For those who need to get hold of extra quota to cover a large proportion of production, they should take it when they know it is at a price they can afford, rather than risk losses by gambling on prices falling.

If decoupling or modulation with an element of repatriation are adopted as part of the Agenda 2000 proposals, this will bring a fundamental change in direction for dairy farm support.

Some observers believe that these may be the first moves towards getting rid of quotas altogether and moving dairy production onto a headage based support system.

"One might say that the overall impact of Agenda 2000 will be to allow the better positioned producers to gain more from a freer market and to direct limited support to help smaller farmers and the rural economy generally," says Mr Oliphant.

Agenda 2000 reforms will also have to take account of the expansion of the EU and the increasing requirement from the public for environmental improvements.

EU enlargement brings budget implications and the environmental issues may mean some aspects of support being linked to improvements in this area. The growing costs of the present regime will in any case force a review of dairy and other support, says Mr Oliphant.

A further influence on the profitability and structure of dairy farming will be the introduction of European Monetary Union and the Euro in three stages between Jan 1, 1999 and July 1, 2002. &#42

Dairy reform could see the introduction of a headagepayment for dairy cows totalling £150 a head a year to compensate for price support cuts.

Antony Oliphant… Agenda 2000 proposals must go further still.

DAIRY RECOMMENDATIONS

&#8226 Extension of quota regime to 2006 at current levels.

&#8226 10% reduction in support prices over five years.

&#8226 Headage payments for dairy cows totalling around £150 a head a year

&#8226 Changes to simplify common market organisation for dairy products.