A review of the European Union’s dairy strategy will take in place in 2008, with intervention prices, storage subsidies and milk quotas all up for discussion.
Agriculture commissioner Mariann Fischer Boel told a European Dairy Farmers' conference the review would coincide with the mid-term check up of Common Agricultural Policy (CAP) reform.
She said the sector would have to think seriously about whether to abolish EU milk quotas, currently set to end in 2014/15. And, whether the intervention, or guaranteed minimum, prices for commodities had been set at the right levels.
Debate over these issues, already contentious, is likely to hot up over the next two years in the build up the Commission's review.
There is a view held by some in the UK dairy industry that milk quotas have little relevance to today's dairy sector, Jim Begg, director general of industry association Dairy UK, told recently.
A government-sponsored report has predicted Britain is likely to be one billion litres below its 14bn-litre EU quota by 2008.
Boel said the Commission still had an “open mind” on the quota issue, but she outlined the key questions that both it and dairy firms would have to answer.
These included, whether quotas are still relevant to farmers, whether they fit with the Commission's drive to move the CAP towards decoupled payments instead of price support, and how seriously quotas hamper competitive producers by preventing them from expanding.
On the EU intervention price system, Boel hinted that the butter market could figure prominently on the review agenda for 2008.
Demand for butter across the EU is expected to fall to 3.9kg per person in 2012, compared to 4.2kg in 2004, according to Commission predictions.
Britain's Milk Development Council (MDC) warned recently that a butter glut had appeared in the EU because Europeans were buying less and non-EU producers were able to sell butter to the rest of the world more cheaply.
Boel confirmed the surplus problem, saying the EU intervention system for butter was already full, while it remained empty for skimmed milk powder.
The Commission's current CAP reform aimed to slash EU butterfat prices by 25 per cent over four years from 2004, yet, when finished, this would still leave producers with a big gap to close to be competitive outside the bloc. EU butterfat was twice as expensive as that made outside the bloc in March this year, although another price cut is expected on 1 July.
To reflect this, the European Dairy Association has called for butter export subsidies, designed to make EU firms more competitive by bridging the gap between EU and world prices, to be phased out later than export aid for other commodities.
All EU export aid is due to be abolished by 2013, under a Word Trade Organisation deal signed last December.
The Commission said recently it expected EU butter production to fall by two million tonnes up to 2012, reflecting pressure to compete with world prices and falling demand in Europe.
