Economic Impact of the Abolition of the Milk Quota Regime – Regional Analysis of the Milk Production in the EU

The dairy sector makes a substantial contribution to the agricultural turn-over in many EU Member States (MS) as well as in the EU in aggregate. Nevertheless, within the EU-27, the size and agricultural importance of the dairy sector varies considerably between MS and across regions, basically reflecting climatic and other agricultural factors in the region concerned. The EU dairy market is regulated by the Common Market Organisation (CMO) for milk and milk products, of which the milk quota regime is one of the most noticeable elements.

The EU milk quota system was originally introduced in 1984, in order to limit public expenditure on the sector, to control milk production, and to stabilise milk prices and the agricultural income of milk producers. Since the milk quota regime was introduced, it has become a scarce production factor that limits production on the one hand, but on the other hand stabilises the producer prices of raw milk and keeps milk production in less competitive regions. However, in the course of time EU's dairy policy has been continuously updated and is increasingly targeted at encouraging producers to be more market-oriented.

The policy developments, including specific quota increases of various amounts to MS, together with market developments induced that quota is no more binding in some MS and regions of the EU. With the Luxembourg Agreement on the Mid-Term-Review (MTR) the spotlight shifted again on the EU's milk quota regime, because the MTR stipulated that the milk quota system will come to an end in 2015. Within the 'Health Check' of the Common Agricultural Policy (CAP) the European Commission endorsed the proposal of milk quota abolition and proposed an increase of quota by 1% annually from 2009 to 2013 to allow a 'soft landing' of the milk sector until the end of quotas. In this context it is especially important to clarify, which effects can be expected of an abolition of the milk quota regime.

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