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Saying Goodbye to Milk Quotas and the Brutality of the Market Mechanism: Is this a CAP Reform Too Far?

Ian Barnes

When milk quotas were introduced in 1984 they were designed to regulate the oversupply of milk in a way which would ensure an equitable settlement for dairy farmers and consumers. Whilst they were at the very heart of the CAP for thirty years, they were criticised for causing prices to be higher than they needed to be, distorting markets and being costly to administer. The CAP reform agreement of September 2003 extended the milk quota system until 31 March 2015. The process of dismantling the quota system was heralded in the 2009 'Health Check' which saw national quotas being increased by 1% every year, which meant that their value was to be slowly eroded. This was in preparation for dairy farmers having a so called "soft landing" when the quota system ended on 31 March 2015. The hope was that farmers would have time to adjust to liberalisation, but this was predicated upon the market itself being buoyant. However this looks to be unlikely because demand the global market for milk products slowed in 2014 due to the Russian trade embargo on dairy products and the slowing of demand from China. Very good production of milk products in the EU and the USA led to prices dropping by 40% in 2014. Some member states such as Ireland that have a comparative advantage in milk production, are looking to increase their production. This paper suggests that market conditions for reform market will not deliver a soft landing in the dairy industry may not be what the reforms will deliver and that the result will be pressure for the EU to return to a strategy of managing the market.



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