Carter Jonas
Carter Jonas

Milk quota ends but uncertainty continues

Just a day short of 31 years from when it was introduced on April 2, 1984, milk quota has been abolished within the EEC. It was introduced as a mechanism to control milk production because of the “milk lakes” and “butter mountains” building up in intervention stores.

This in itself is a reflection of how times have changed in that back in 1984, under the Common Agricultural Policy (CAP), farmers received support not through direct payments but via the support of commodity markets. Thus when a commodity fell in price, it was purchased in to intervention stores thereby supporting the market price which, not surprisingly, encouraged overproduction.

Since 1984 intervention support has all but disappeared and farmers now receive support through direct area-related payments not linked to production in any way and they then have to sell their produce at whatever price they can achieve. Accordingly, farmers are now exposed to world commodity prices which tend to be volatile and unfortunately dairy farmers are currently facing very low milk prices due to an oversupply of milk on the world markets.

But back in 1984, when quotas were introduced, it was not the price that was the problem but the fact that without warning farmers were forced to cut their production to stay within the level of milk quota they were allocated. Failure to do so would result in fines being imposed at the end of the year. As a result, milk quota became very valuable because farmers could not expand without securing extra milk quota.

At that time, milk quota rather than milk price was the limiting factor. Indeed I cut my teeth as a young surveyor back in the 1980s dealing in milk quota and I can remember trading quota at over 80p per litre for sale and 22p/litre for lease. These were crippling prices for some but in more recent years the UK has remained under quota and as a result the value of milk quota plummeted to a fraction of a penny and today it has finally been scrapped altogether.

However, other countries in Europe such as Germany, the Netherlands, and Ireland have all been going over quota on a regular basis and in those countries it is assumed that, without the constraint of milk quota, production will rise. It is estimated that across the EU the additional milk production following the lifting of quota is likely to be similar to the total production of Ireland and there are fears that this will hinder the recovery of milk prices, particularly here in Europe.

So, although the passing of milk quota will not be mourned by many it does represent the end of an era of EU agricultural policy which encouraged production without heed as to whether or not there was a market for the produce. That era has now well and truly passed and dairy farmers currently find themselves all too exposed to the reality of “the market”.

James Stephen

James Stephen

Partner

James is a partner who heads up Carter Jonas’ South West rural operation, managing the teams in the four offices of Marlborough, Bath, Taunton and Truro.  He primarily works out of the Taun...

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