Milk moves to the top of the Union’s menu

Date: 09/01/1997

By Michael Mann

THE future of EU milk production will be the next major area of controversy to give farm ministers sleepless nights.

With the current system of quotas set to expire early in 2000, Agriculture Commissioner Franz Fischler's officials are already considering a number of options to reform a system no one has ever been terribly happy with.

Finding an approach by which the European Commission can secure a consensus will not be easy. Its room for manoeuvre has been limited by ceilings on export subsidies brought in by the Uruguay Round world trade deal.

Support has already been slashed for cheese exports and pressure is certain to intensify when large dairy producers such as Australia and New Zealand begin to export to the EU market at full tariff.

With negotiations on the next round of trade liberalisation due to get under way after 1999, and with the US already reducing support to farmers, officials in the Directorate-General for agriculture (DGVI) acknowledge that the ultimate goal is to export milk products without subsidies.

The problem they face is that Union dairy prices are currently some 40&percent; above world market levels and 25&percent; above US levels. Prices have to be brought down while finding an acceptable way to compensate farmers.

Early discussions have merely highlighted how far apart the member states are on this issue. The UK, Denmark and Sweden appear happy to begin negotiating the removal of milk quotas, while the French simply want to delay the discussions. Germany believes the best approach is a small reduction in quotas, while Italy and Spain have once again called for an increase in their national quotas.

One popular idea is the creation of a new 'B' quota for unsupported production for export to third countries at world market prices.

But experts doubt that this would survive a World Trade Organisation (WTO) round and further EU enlargement. “Apart from the administrative problems associated with 'A' and 'B' milk, you have to ask whether people could survive selling 'B' milk,” added one dairy industry expert.

In a recent speech, Fischler talked about “regional production rights with decoupled area-related premiums”.

This idea of paying aid on a per hectare basis to compensate farmers would, Fischler believes, be in keeping with WTO rules and strengthen the Union's hands when the next talks begin.

But question marks remain over how to pay compensation to protect farmers from the effects of lower prices. Estimates suggest that full compensation for a cut in EU prices to US levels would cost 10 billion ecu. The current milk budget totals just 4 billion.

Although they are in keeping with the approach adopted in the 1992 Common Agricultural Policy reform, Fischler's ideas will be overtaken, say market analysts, by the need for “quick solutions”.

The Commission is working on a Green Paper on the future of milk production, and ministers are due to discuss the issue at an informal meeting in the Dutch region of Zeeland in May.

But if past experience is anything to go by, discussions will be lengthy and are unlikely to reach maturity before the UK takes over the EU presidency in January 1998.