To recall, one of the most controversial issues of the so called CAP “health check” was the phasing out of milk quotas before they are totally scrapped in 2015. The Council has agreed an increase of 1 % for the milk quotas per year in 2009, 2010, 2011, 2012, and for the marketing year 2013/2014, to prepare for their expired in 2015.
The situation on the milk market has deteriorated during the past year. There has been a substantial drop in world market prices for milk since mid 2008 which has affected the EU dairy producers' income.
Last January, the European Commission has introduced market intervention measures to support the dairy sector. Brussels has agreed to gradually increase milk production quota, and, at the same time has increased market intervention to remove supply from the market. The Commission has started buying up stocks of dairy products on 1 March and was supposed to continue to do so until the end of August. The Commission has bought, so far, 81,900 tonnes of butter and 231,000 tonnes of skimmed milk powder. It has already spent over €260 million of taxpayer’s money in butter and milk.
Export refunds were reintroduced for butter, skimmed milk powder, whole milk powder and cheese.
Moreover, last November, the Commission reintroduced private storage aid (PSA) for butter with effect from 1 January 2009.
Nevertheless, France, Germany and Austria have been demanding further EU aid to the dairy sector. It is important to mention that France and Germany have recently created a working group to prepare the reform of CAP after 2013. According to French Agriculture Minister Bruno Le Maire "It is absolutely necessary to regulate production.” Accordingly, he said that “more regulation” is “the common theme that must steer the negotiations on the future of the CAP beyond 2013.” Bruno Le Maire and Germany’s Agriculture Minister sent a joint letter to EU Agriculture Commissioner Mariann Fischer Boel calling for urgent measures to help the dairy sector. According to the ministers, the Commission should not “shut the door on a possible freeze on the increase in milk quotas set for 2010.” Moreover, they said that “New forms of regulation at European level will be needed to ensure that the milk sector does not rely on market rules alone.”
The European Commission has yielded to France and Germany’ requests and agreed to extend private storage aid and public intervention beyond the end of August. Under Council Regulation 1234/2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products public intervention for butter and skimmed milk powder is limited to a period from 1 March to the end of August. However, on 7 July, the Commission has proposed to extend public intervention for butter and skimmed milk powder through a tendering procedure beyond the normal period until 28 February 2010. Furthermore, given the uncertainty as regards the recovery of the dairy market, the Commission has suggested keeping the intervention open until the end of the 2010-2011 period, if the market situation so requires. The Commission is therefore asking to be authorized to extend public intervention for butter and skimmed milk powder beyond 31 August 2010, until 28 February 2011.
The Commission has estimated that 50.000 tonnes of skimmed milk powder and 31.000 tonnes of butter will be bought into intervention during the extended period. According to the Commission “(…) this supplementary quantity will be stocked during 2 years and hereafter sold at the market at the intervention price level.” Moreover, the Commission has estimated butter’s expenditure around €12.5 million and €14.4 million for skimmed milk powder.
On 13 July, the majority of the EU agriculture ministers supported the Commission’s proposal. The UK and Denmark are against such plans. The UK has been demanding the end of all market instruments however it was not successful during the CAP “health check” in its demands. Nevertheless, the proposal is likely to be adopted in October.
In the meantime, until the formal adoption of the text, the Commission is allowed to put in place a temporary measure avoiding an interruption in public intervention during the next months. In fact, the management committee has already backed the Commission's proposals. Hence, the Commission will temporarily extend the period for intervention purchases of butter and skimmed milk powder until the end of November 2009.
At request of several Member States, on 22 July, the European Commission adopted a report analyzing the EU dairy market and provided a list of measures to stabilize the market. The Commission has stressed in its report that it will continue to use instruments such as intervention, private storage aid and export refunds. According to the Commission such measures have already cost around €350 million but they are estimated to cost over €600 million. The Commission has said that the possibility of funding new measures in the dairy sector in the budget year 2010 is very limited.
The Commission is also planning to promote dairy consumption by implementing more dairy product promotion programmes. In fact, on 23 July, the European Commission approved the co-financing of programmes presented by 12 member states, including the UK, on the amount of €27.8 million to provide information on and to promote agricultural products in the EU. Such programmes which will last three years have a total budget of €62.1 million.
The Commission has made clear that it has no intention of reviewing the dairy policy, particularly the quotas, as a result of the CAP ‘health check.’ It has therefore rejected France, Germany and farmers demands to cut or to freeze the already agreed milk quota increases. According to the Commission, production is, presently, 4.2 percent below quota.
The European Commission is willing to accept that money raised from charging a super levy on producers who exceed their individual quota is used to finance voluntary retirement from milk production or redistributed to priority groups.
The Commission has pointed out that reducing the number of cows is the most direct way to reduce supply however it has recognized that “an immediate effect can only be reached by slaughtering cows with an EU subsidy.” The Commission is not likely to introduce such scheme as “it will be difficult to justify spending taxpayers money” on it.
The Commission recalls that Member States may establish specific aids for vulnerable areas or vulnerable types of farming in the dairy sector within the limit of 10% of the national envelope for direct aid.
Moreover, the Commission is planning to extend state aid to dairy farmers with liquidity problems. It is envisaging modifying the Temporary Crisis Framework for state aid measures in order to allow Member States to pay up to €15,000 per farmer until the end of 2010.
The report also stressed that there are under the CAP several instruments available to Member States to help restructuring in the dairy sector. The Commission pointed out that Member States have several options under the Rural Development Policy “to support dairy farmers to become more competitive and to keep milk production in traditional dairy regions where it contributes to maintain the countryside.”
The Commission has recalled that the rural development funds could be used for investment support, payments for dairy farmers in Less Favoured Areas, support for environmentally friendly forms of dairy production, support for specific livestock-keeping practices improving animal welfare, support for dairy farmers who would like to leave the sector.
According to the Irish Times, Richard Kennedy, chairman of the Irish Farmers Association said that “(…) the use of State funds was a retrograde step which would discriminate between dairy farmers in different member states (…). Moreover, Richard Ashworth, conservative agriculture spokesman has stressed that "We cannot return the EU to butter mountains and milk lakes and the current situation shows just how misguided past policies on milk have been.”
The Agriculture Council will debate the Commission’s report on 7 September.
There is no agreement yet over how to help dairy farmers. The EU agriculture ministers discussed, on 7 September, the various measures to respond to the crisis in the dairy sector, proposed by the Commission on its Communication presented last July.
Although, the majority of the Member States have agreed with the Commission’s analysis of the situation there is no agreement yet on which measures would be better to solve the current crisis. Several Member States believe that the existing measures are insufficient. In fact, 16 Member States, Belgium, Bulgaria, Germany, Estonia, Ireland, France, Latvia, Lithuanian, Luxembourg, Hungary, Austria, Portugal, Romania, Slovenia, Slovakia and Finland, submitted a joint statement to the Agriculture Council where they stressed that the existing measures are not enough to improve the situation of the dairy farmers. Therefore, they called for “substantial measures” “accompanied with the necessary EU-budgetary means.”
They called for a new EU regulation to accompany the phasing-out of the current milk quota system. In fact, they are calling for further regulation so that “the milk sector does not depend only on the sole rules of the market.” They urged the European Commission to present a proposal for a temporary increase in the intervention price and to increase export refunds for butter, milk powder and cheese as well as to reactivate the temporary suspended aid for the usage of skim milk. Those Member States also suggested the introduction of contractual relations between producers and industry in the dairy sector.
The Commission has not agreed to such suggestions as she believes it might contradict the “Health Check” commitments. Mariann Fischer Boel has stressed that numerous measures had already been taken to help producers. She said “More than €600 million has already been spent on market support since the start of the year.” Nevertheless, she might consider other suggestions such as addressing labelling, quality or promotion issues.