Swift end to Milk Quotas would benefit Irish Dairy Sector

A large expansion of the EU milk quota would benefit the Irish dairy sector in advance of milk quota abolition, but it may not suit all dairy farmers, according to a new economic report on the sector published today, Tuesday, 9 October 2007.

The report by the FAPRI-Ireland Partnership revealed that Ireland is well placed to increase its milk production and that an early end to the quota constraint would see Ireland benefit at the expense of competitors in the EU.

Ireland has traditionally been a supporter of the milk quota system, which has managed the supply of milk and supported the price paid to farmers, since it was introduced at EU level in 1984. However, the recent improvement in international dairy markets has caused many in the dairy industry to question the continued usefulness of the quota system.

Teagasc economist Trevor Donnellan said that if a large quota increase was agreed as part of the upcoming CAP Health Check, few other EU Member States would have the potential to increase production significantly.

He said that if milk quotas were increased considerably, it would allow Ireland to increase its milk production by 20 percent by 2015, when the milk quota is expected to be abolished. Dr Thia Hennessy of the Teagasc Rural Economy Research Centre said that an aggressive reform of milk quota policy would see farm milk price decline, but an increase in quota of 20 percent would be sufficient to leave many farmers better off.

By contrast she said that Irish farmers will be worse off if the EU chooses to increase milk quotas by only a small amount in advance of their abolition. A 3 percent increase in Irish milk quota would not offset the decline in milk price paid to Irish dairy farmers, leaving them worse off.

The results of the analysis show that significant expansion capacity exists at farm level and that the majority of this increase in production can be achieved using existing farm resources.

There are winners and losers under this quota expansion scenario. The extent to which individual farmers would benefit from a large milk quota expansion depends on the availability and cost of milk quota on the existing milk quota exchange scheme.

Farmers operating in regions with lower than average milk quota exchange clearing prices would be better off under a continuation of current polices. They can access additional quota at relatively low prices and still benefit from the higher prices that prevail when the national quota remains unchanged.

Farmers that can only access small amounts of quota from the milk quota exchange at relatively high prices at present would be better off if the milk quota was expanded significantly over the next 6 years.