ANALYSIS Rough ride for dairy reform

16 April 1999

ANALYSIS — Rough ride for dairy reform

By Philip Clarke, Europe Editor

HEATED discussions are expected in Brussels next week, when top civil servants meet to discuss the finer details of reforming the European dairy sector.

The Special Committee on Agriculture (SCA), which serves the Council of Ministers, will meet on Monday and Tuesday (19-20 April) to trawl through the draft legal texts.

These attempt to translate the broad political agreement reached by European leaders in Berlin last month into detailed regulations for member states to abide by.

But already it is clear there is much discontent at the draft documents prepared by the commission executive in recent days.

The so-called London club, (of the UK, Italy, Denmark and Sweden), believes the proposals are too much of a departure from what farm ministers have already agreed.

The biggest bone of contention is the mid-term review, supposed to take place in 2003, “with the aim of allowing the present quota arrangements to run out after 2006”.

Vague on dairying

The Berlin summit between European heads of government was vague on what was actually intended for dairy.

The leaders simply agreed that reform should come into force from 2005/06, rather than 2003/04 as suggested by farm ministers.

The legal texts interpret this as meaning everything is delayed by two years, including the mid-term review, which is now pencilled in for 2005.

But the London club believes delaying the review that long would be folly.

Already butter and skimmed milk powder are flowing into intervention stores because of a lack of world demand.

And with quota being increased for five member states next year, and with GATT limits set to tighten export subsidies, market pressures are likely to rapidly worsen.

The draft legal texts also extend the quota regime until 2008.

“Again the Berlin summit was silent on this point, whereas farm ministers agreed to extend them only to 2006,” said one UK official in Brussels.

It was the clear understanding of the London club that quotas could start to be dismantled from that date, and this too will be hotly debated next week.

No budget after 2006

The legal texts also provide for compensation to dairy farmers for the price cuts until 2008, whereas the budget agreed by heads of state only lasts until 2006.

But while this may appear anomalous, in practice it should not present a legal barrier.

Faced with these problems, the SCA is unlikely to agree the legal texts, which would have to be reviewed by the full council of farm ministers meeting on 17-18 May.

Despite this, most of the details are expected to remain in tact.

Support prices to fall

Support prices for butter and skimmed milk powder will fall 15% over three years, starting in 2005.

Milk quota will increase by 1.5% over the same time period.

And farmers will receive compensation up to a maximum Euro41.7/t (2.88ppl) in 2007/08, made up from an EU element and a national payment.

But while this is how it may appear on paper, the truth is the EU will be hard-pressed to stick to this deal, given the rapidly-mounting market pressures.

An earlier opportunity to change the dairy regime will come in 2002.

That is when the commission is due to submit a report on the development of farm expenditure, with “appropriate proposals” if the costs are getting out of line.

The annual round of price fixing may also provide some scope for tinkering with the regime before the intended 2005/06 reform start date.

And if the London club is successful in getting the mid-term review brought back to 2003, then that too could hasten the changes.

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