By Shelley Wright

QUOTA trading in the UK costs dairy farmers at least 2.5p for every litre of milk produced – a crazy situation when margins are so tight, says Neil Davidson, chief executive of Express Dairies.

At the Semex conference in Glasgow this week, Mr Davidson said: “It is difficult to see how dairy farmers can afford it.”

The figures were calculated recently in a MAFF-funded study at Manchester University.

With quotas likely to remain in the EU until at least 2008, the situation had to be addressed, said Mr Davidson.

And he suggested that government should intervene and re-allocate quota based on a years actual milk production.

“This would, overnight, reduce the cost-base for thousands of dairy farmers. The losers would be those quota holders who no longer milk cows. But why should they get a living from the industry when they are no longer part of it?”

The capital value of quota would fall, because no-one would know when the next re-basing would take place.

“Is that such a bad thing? Only the dairy farming community can answer that. But, equally, processors, retailers and consumers cannot be expected to fund this unnecessary cost in the system,” Mr Davidson warned.

“Clean quota today is trading at 35p/litre and the leasing market closed at 9p/litre. When milk prices are on the floor, this cannot make sense.”

His ideas are likely to be discussed at the highest level of government because Lord Haskins, chairman of Express Dairies and Northern Foods, is one of the Prime Ministers closest advisers.

There was, however, little enthusiasm for Mr Davidsons suggestion among farmers at the conference.

Ian Kerr, a milk producer from Ayrshire and chairman of the Scottish NFU milk committee, said the quota system was the only control farmers had left in the market.

Another said: “We want to keep milk supply as tight as possible. We need more money and the only way is to have the processors chasing every tanker of milk in the country.”

But Jim Begg, director general of the Dairy Industry Federation, said quotas inhibited any expansion in the processing sector.

“With quotas, we have no ability to participate in the international market of the future. We are absolutely stagnant,” he said.

Quota broker Ian Potter, however, countered: “We are not competitive on the world market and we will never be.

“We produce the best milk in the world here and we have a market in the UK and the rest of Europe. So why does everyone always focus on the rest of the world? That will not solve any of our problems.”