Countdown to E.U. quota expiration creates decision time

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In the European Union, every country is allocated a milk quota which trickles down to a quota for individual dairy farmers. The quota, established through the Common Agricultural Policy (CAP), is set to expire March 31, 2015, less than 9 months away.

Originally launched in 1962, the EU calls the CAP a “partnership between agriculture and society.” In 1992, it shifted from market support to producer support, and became more based on income in 2003. Since 1992 the payments have been tied to environmental requirements and provide extra incentives for younger farmers.

For dairy farmers, the quota was introduced in 1984, with those above quota charged back 115% of the value of extra milk quality. At the time, they weren’t very restrictive, so were cut in the late 1980s and in the early 1990s.

With high prices in 2007 and 2008, the EU moved to eliminate the quotas. They offered a 1 percent increase in quota for years 2009 for 2013. The fee for overproduction (called a “superlevy” in Europe) increased to 150% for those topping 6% of their quota.

However, before 2008 the E.U. as a whole stayed far below the quota, about 2.6 million tonnes short, or 1.9%. Because of this, they raised quota by 2% in 2008, and 1% each April until the 2015 expiration. Only 5 nations were above their quota in 2009, and only 2 of those, Austria and Italy, were above 2 percent of their quota. In 2012, an EU report showed that milk production grew 1.4%, 2%, and 1.5% in 2010, 2011, and the first seven months of 2012, respectively.

Country-by-country decisions

Therefore, quota isn’t holding back the E.U. as a whole. But Italy, staged for rampant growth in 2009, decided to take an immediate 5% increase immediately and no increase in allowed quota before 2015. Ireland could see a similar jump when the quota rules fall. Before quota, Ireland’s milk production was growing at a pace of 5.99% from 1975 to 1984. The country plans to increase production 50% by 2020.

This year’s April through June Irish production was up 10%. With a low enough milk price, the 150% superlevy may not be enough to hold back farmers ready for opportunity post-quota. Agriland reported that future prices are currently 33% higher than the superlevy fine. For the year, milk production is just 0.65% above quota, Agriland said.

Meanwhile, just across the Irish Sea in Great Britain, no such gains are being made. That country stayed 1.6 billion liters under quota for 2013-2014.

It will be up to individual farms to decide whether or not they will break their quota in the next nine months, making for a unique jockeying position for growth in coming years. The next several months could be buying time for producers ready to grow. Will they jump ahead now, acquiring cows and land and paying a fee before the repeal? Or, will they wait to make any decisions until April 2015?

Sources: FAPRI, EU Commission, Ask about Ireland, Agriland (August 6, 2014), and Agriland (August 5, 2014).



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