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BY BERNARD F. STANTON
Cornell University
The ten countries of the EC,
excluding Spain and Portugal who
have just joined, constitute the
world’s largest producing and
consuming block for milk and
dairy products. With 280 million
consumers and 25 million cows, the
EC is the dominant force in world
markets for dairy products.
The size and importance of the
dairy sector in the EC is hard for
most Americans to appreciate. It
accounts for 20 percent of the value
of agricultural production in the
Community and affects more
farmers, 1.6 million, than any
other product. Because milk
production consistently outpaced
consumption between 1975 and
1984, the EC adopted a mandatory
quota program in 1984 to curtail
what had become the largest dairy
surplus in the world.
Conditions Leading to
the EC Quota Program
The adoption of a mandatory
quota system for milk production
in EC-10 on April 2,1984, occurred
because earlier, less stringent
efforts to bring supply into balance
with demand had failed. Between
1973 and 75, supply was roughly in
balance with domestic con
sumption plus exports at 80 to 83
million metric tons.
By 1983, production had climbed
to nearly 104 million metric tons,
about 213 billion pounds, while
consumption and exports together
remained relatively constant at 82
million metric tons.
A surplus approaching 20 per
cent of production resulted.
The EC Commission’s first new
initiatives to balance supply with
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The European Community’s Milk Quota System
demand began in 1977 with
enactment of a producer co
responsibility levy. A flat rate
deduction of 2.5 percent of the
target price from all producers’
milk deliveries to dairies was used
to help pay for disposal and
promotional programs.
In 1979, 1980, and 1981, the
Commission proposed a super-levy
to be applied to milk delivered in
excess of defined base quantities,
but none of these proposals were
accepted by the Council of
Ministers. Meanwhile, the size of
the surplus continued to grow and
the costs of the program to the
Community escalated even with a
3 percent cut in guaranteed prices
to producers in 1982.
The Commission in September
1983 estimated that in order to
offset just the added cost likely to
arise if existing guaranteed prices
continued, the milk price for 1984
and 85 would have to be decreased
by 12 percent. Based on much
discussion, the current quota
program was adopted six months
later.
One reason why it was so dif
ficult to get political support to use
reductions in producers’ prices to
try to balance supply with demand
is the structure of the dairy in
dustry in the 10 countries of the
EC, and the requirement that any
change in legislation requires a
unanimous vote in the Council of
Ministers.
In the EC, 73 percent of all dairy
farms had less than 20 cows in 1983
and accounted for nearly one-third
of total production.
In the U.S., 42 percent of the
farms had less than 20 cows but
accounted for only 5 percent of
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production in 1982. Politically,
small dairy producers of the EC
are much more powerful; their net
incomes are low and many are
located in dis-advantaged areas. It
is this large group of more than one
million farmers with low incomes
who provided the final impetus for
the acceptance of a quota system.
Components of the
EC Program
The Community in 1984 consisted
of 10 sovereign nations, each with
its own Ministry of Agriculture and
its own set of government in
stitutions.
This necessitated that
guaranteed Community total
quantities or base marketings be
first divided among the 10 nations.
Each nation was then given the
responsibility to divide up the
national base either directly to
individual farms or to dairies
receiving milk from farmers.
According to the Com
mission of the EC, the basic
concept was an “annual
guaranteed total quantity of
milk for the Community as a
whole, corresponding in
principle to the quantity of
cows’ milk delivered to dairies
and other undertakings
treating or processing milk in
1981 plus 1 percent.”
Exceptions to this basic rule
were made for Ireland and
Italy, who were allowed to use
1983 marketings as their
guaranteed bases. Most
member states chose to base
the determination of reference
quantities for producers
(production bases) on the 1983
calendar year adjusted
downward by the appropriate
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percentage.
The quota system is ap
plicable to all deliveries of
cows’ milk for 3 consecutive
years beginning April 1,1984.
The flat-rate co
responsibility levy was con
tinued and increased to 3
percent for the 1984 and 85
marketing year.
A “Community reserve”
was established to allow
member states some latitude
in solving local problems in
assigning quotas and
facilitating the change-over
during the first two years.
Separate quota
arrangements were
established for producers who
sold directly to consumers
based on their 1981 sales plus 1
percent.
After reference quantities
(quotas) were fixed for in
dividual producers for a 12-
month period, individual
producers were liable for a
super-levy of 75 percent of the
target price for all production
in excess of their respective
reference quantities. When
the reference quantities were
fixed for dairies receiving
milk, this levy was set at 100
percent of the target price for
any excess marketings. Each
individual country was
required to enforce collection
of the super-levy.
Provision was made for
individual countries to
establish a national reserve to
provide some flexibility for
special circumstances when
initially allocating individual
quotas.
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Reference quantities
granted to purchasers or
producers delivering to
purchasers or selling direct to
consumers are not freely
transferable or saleable. The
only exceptions are when a
farm is sold, leased or tran
sferred by inheritance.
Member states may provide
that a part of the quota so
transferred be added to the
national reserve. Essentially,
quotas go with the farm or
agricultural holding and
become a part of the property
rights associated with it.
Individual countries have
the right to allocate reference
quota to producers out of their
national reserves to handle
special situations or to permit
structural change.
Several countries offer
additional voluntary
programs to encourage
smaller and older dairymen to
cease production. While such
programs differ by country,
they essentially offer one or
more annual payments to
qualifying producers to stop
milk production.
All milk delivered by producers
whether as whole milk, cream or
manufactured on the farm into
dairy products is subject to the
quota program. State farms, ex
perimental programs, and all
types of production units come
under the jurisdiction of the
program. If cream is separated
and sold, the milk equivalent
comes under the mandate of the
EC program.
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