22 March 1996

Which way for quotas post- 2000?

By Chris Bourchier

ADAS head of agricultural development

EVERYONE has a view on the future of milk quotas but no one can be certain of the precise nature of the regime beyond the year 2000.

With UK quota valued at over £8bn, it is not surprising that the scene is set for a highly charged debate that could run and run.

The ultimate aim should be to build a competitive EU dairy supply chain able to capitalise on new market opportunities wherever they may arise. But legislative constraints relating to environmental practice, welfare and consumer protection will add costs that should be taken into account when formulating policy.

The forces driving the debate are numerous and complex (see box).

The views of our competitors who lobby for removal of what they believe to be trade distorting mechanisms are understandable. So is the clear stance of the dairy processors, keen to get increased supplies of quality milk at competitive prices. But at EU farm level views are far from clear. Many EU producers argue that the current cost of the milk regime (4.2bn ecu in 1996 against 6bn ecu in 1985, representing about 10% of the average milk price) is a good investment, delivering economic and social stability. They suggest EU milk prices could fall by up to 25-30% if quotas were removed. Others highlight the continuing fall in EU milk producer numbers (now about half the 1984 level when quotas came in) to illustrate that quotas have failed to maintain dairy farm structure.

The more market-orientated focus on the expansion projections of our competitors when calling for change. For example, Australia and New Zealand at an extra 8% a year, the US +7%. There is substance in many of the arguments but the real-ity is the EU Farm Commissioner must develop a single milk policy acceptable to all 15 member states and our trading partners.

His responsibilities for agricultural and rural development suggest further integration between market, rural development and environmental policies and changes based on compromise.

So the most likely outcome is for the continuation of quotas into the next century but modified to allow export without subsidy and the development of a more competitive EU dairy industry. (This will not necessarily be along the lines of the two-tier model proposed by the Danes and the French.)

The introduction of decoupled income support could prepare the way for the eventual removal of quotas before 2010. But deriving acceptable mechanisms that do not discriminate between producers or member states will be hard.

The way forward for the committed UK dairy business is through competitive growth. But current expansion costs emphasise the critical nature of the timing. Quota value will fluctuate over the next few years until the market is able to reflect the nature of the new regime and profit potential. &#42


&#8226 The continuing supply: demand imbalance, with over 20% of EU output sold with subsidy (inside and outside the EU) due to our current lack of competitiveness on world markets.

&#8226 GATT and anticipated future WTO trade commitments.

&#8226 The prospect of EU enlargement to the east.

&#8226 Wider rural, economic, social and environmental considerations within the EU.


DEBATE DRIVERS

Chris Bourchier… Highly charged quota debate could run and run.