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Home arrow Economics arrow Disaggregated impacts of CAP reforms : proceedings of an OECD workshop.

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Conclusions

The European common market regime for dairy products has entered an important stage. Having been in operation since 1984, milk quota will be abolished in 2015. The 2003 CAP reform implied a substantial lowering of institutional prices (SMP -15%;

butter -25%) and announced the final abandonment of the quota system in 2015. As part of the 2009 Health Check, the EU Ministers of Agriculture decided to gradually phase out milk quotas by a per annum quota increase of 1%, apportioned over member states up to 2015. Despite quota enlargement, total milk product in the European Union has hardly changed in the period 2006-09, implying that most member states then underutilised their quotas.

Relating the observed outcomes at market and farm level to the policy objectives leads to the conclusion that the European Union’s dairy policy until recently has been rather successful in achieving its goals. As became clear from the recent dairy market disruptions, however, the European Union’s current dairy policy mechanism fails to contribute to price stabilisation. Rather, the lowered intervention prices now provide a safety net, protecting farmers from extreme downside price risks. Alongside the current intervention mechanism providing a “last resort” safety net provision, the single farm payment also contributes to stabilising farm incomes.

According to our best estimate, the long-run EU milk price (in 2019) will be about EUR 0.29/kg without a new WTO agreement, or EUR 0.27/kg with a new WTO agreement. Both estimates are significantly lower than the average critical milk price level observed for the nine European Union member states considered in this analysis (but substantially higher than the European Union's equivalent intervention price for raw milk). However, if structural adjustment (increasing farm scale) can do its work, a significant proportion of dairy farms will be able to supply their milk at this price (for example, already about one third of Dutch dairy farms currently have a critical milk price less than or equal to EUR 0.30/kg). As such, using policies that facilitate rather than hinder structural adjustment is important.

The dairy policy reforms imply an increasing withdrawal of the public sector and thus will involve a rebalancing of roles and responsibilities between the private and the public sectors (for example, development of private-public risk management schemes, ensuring independent high-quality and timely market information) as well as between private stakeholders (for example, contracting, bargaining procedures).

 
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