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 turnover in many Member States (MS) of the European Union (EU) as well as in the EU as a whole. 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. 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 stabilize milk prices and the agricultural income of milk producers. Since the milk quota regime was introduced, milk quota has become a scarce production factor: on the one hand limiting milk production and, on the other hand, stabilising milk producer prices and maintaining dairy activities in less competitive regions. However, in the course of time European dairy policy has been continuously changing and has increasingly encouraged producers to be more market-oriented. Policy developments, including reductions of intervention prices and specific quota increases of various amounts to MS, together with most recent market developments, have provoked that quota is no more binding in some MS and regions of the EU. With the Luxembourg Agreement on the Mid-Term-Review (MTR) on 26 June 2003, 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 suggested an increase of quota by 1% annually from 2009 to 2013 to allow a "soft landing" of the milk sector to the end of quotas. In this context it is especially important to clarify, which economic effects can be expected of an abolition of the milk quota regime.