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close this bookThe political economy of the common market in milk and dairy products in the European Union. (FAO Economic and Social Development Paper - 142) (1997)
View the document(introduction...)
View the documentPreface
View the documentAcknowledgements
View the documentI. INTRODUCTION
View the documentII. THE THEORY OF ECONOMIC POLICY ANALYSIS
View the documentIII. THE DECISION-MAKING MACHINERY OF THE EU
View the documentIV. THE AIMS OF POLICY FOR AGRICULTURE AND THE MILK SECTOR
View the documentV. AN OUTLINE OF THE EU SUPPORT SYSTEM FOR MILK
View the documentVI. OTHER ASPECTS OF THE POLICY FOR THE MILK SECTOR
View the documentVII. THE IMPLEMENTATION FRAMEWORK OF THE EU MILK SUPPORT SYSTEM
Open this folder and view contentsVIII. PRACTICAL IMPLEMENTATION AND CONDUCT OF POLICY
Open this folder and view contentsIX. PRACTICAL CONDUCT IN THREE MEMBER STATES
View the documentX. ECONOMIC ANALYSIS OF POLICY
View the documentXI. WTO/GATT AND THE FUTURE OF MILK POLICY
Open this folder and view contentsREFERENCES
Open this folder and view contentsANNEX I. MANY A SLIP: STUDYING POLICY DELIVERY SYSTEMS¹
View the documentAPPENDIX to ANNEX I

VI. OTHER ASPECTS OF THE POLICY FOR THE MILK SECTOR

There are several other aspects of milk sector policy that have played a key role in the attempt to fulfil the overall aims that need to be outlined briefly before turning to implementation. These are the policy for the liquid market, Regulation (EEC) 1411/71, which establishes “additional rules on the common market organisation in milk and milk products for drinking milk” and the policies for so-called “co-responsibility” (Regulation (EEC) 1079/77), which establishes a levy on producers to be used for measures to expand the market for milk and milk products, and the various “outgoer schemes” for assisting farmers by means of compensation to leave milk production.

Issues relating to the drinking-milk market were politically very sensitive from the beginning. Products in this area “form a substantial source of income for farmers”, whilst at the same time products in this category “also have great importance as basic foodstuffs for the whole population (and)... are subject to special quality requirements”. (Preamble to 1411/71.) The most basic aim of the policy was expressed in Article 2.1 of the Regulation:

“The common policy applicable to the products specified.... shall be so implemented that the greatest possible quantity of milk is consumed in the form of these products”.

The situation in the early 1970s was that most of the drinking milk sold was standardised at some level in each of the original six member states and there was no commonality. The butterfat levels in milk and the range of fat in drinking milks varied in every state. The Regulation therefore established four types of milk:

raw milk

milk which has not been heated or subjected to treatment having the same effect;

whole milk

milk which has been subjected to at least one heat treatment or an authorised treatment of equivalent effect by a milk processor and has a fat content of at least 3.5 percent;

semi-skimmed milk

milk which has been subjected to at least one heat milk treatment or authorised treatment of equivalent effect by a milk processor and whose fat content has been brought to at least 1.5 percent and at most 1.8 percent;

skimmed milk

milk which has been subjected to at least one heat treatment or authorised treatment of equivalent effect by a milk processor and whose fat content has been brought to not more than 0.3 percent.

The original Six were in the process of implementing this legislation at the time of the accession of the United Kingdom, Denmark and Ireland in 1973. The fat levels in whole milk were gradually being established at 3.5 percent, and semi-skimmed in the range of 1.5-1.8 percent fat. The policy of the UK and Ireland prior to accession had always been that milk (other than skimmed milk) had to be sold “as from the cow” with no alteration of compositional quality whatsoever. As a safeguard, milk with a fat level of less than 3.0 percent could not be sold as liquid milk. Following accession, therefore, the Community added a fifth category of whole milk of “non-standardised whole milk” which was defined as:

milk with a fat content that has not been altered since the milking stage either by the addition or separation of milk fats or by mixing with milk the notional fat content of which has been altered. However, the fat content may not be less than 3.0 percent.

As the Commission saw it, the introduction of this additional type of whole milk gave rise to problems. Member states were first given the option of choice of definition of whole milk as either standardised or non-standardised. This led to the need to standardise whole-milk exports from a ‘standardising’ country to a non-standardising country up to the level of fat in the national milk supply in the non-standardising country. This level had to be defined and was easily policeable. It was, however, regarded as a barrier to the operation of a single European whole-milk market so the choice was removed and all member states have to allow standardised and non-standardised milk to be sold. Non-standardised milk can be and no doubt still is sold to consumers in the UK and Ireland, but large dairy companies are now selling standardised whole milk in the UK. The definition of non-standardised milk has effectively been made unpoliceable, and the quality of non-standardised milk sold by a dairy is effectively left to the judgement of the consumer. With much whole milk now sold in the UK as standardised milk, consumers are now paying for milk at 3.5 percent what they previously paid for milk nearing 4.0 percent, the level of fat in the national milk supply. There is just no test that can be applied at market level to detect whether fat has been added or subtracted, and with half the market in the UK consisting of semi-skimmed sales it would no longer be possible to enforce the “as from the cow” system for whole milk by scrutinising the fat level of milk coming into and going out of a dairy.

The most serious problem with the price support policy has been that of controlling supplies, and the remaining policies to be described are concerned with this issue. Soon after UK membership, UK farmers’ representatives urged their continental counterparts and Commission staff that a successful advertising and merchandising policy for milk and dairy products could go a long way to solving the problem of surplus. However, it was essential to success that there should and could be no “free riders” in such a policy - all had to contribute in all parts of the Community. This general stance was always greeted in some parts with scepticism. A common policy of selling effort did not seem practicable for the Community market as a whole, let alone for those member states that were also substantial exporters. Moreover, for the smallest producers in difficult regions, contributing to a selling/merchandising effort that appeared to have greatest benefit for expanding dairy farmers in more prosperous areas at the top end of the scale never seemed an attractive or even reasonable policy. In May 1977 the Community did adopt Regulation (EEC) 1079/77 to establish “a co-responsibility levy and measures for expanding the markets in milk and milk products” and a levy was subsequently placed on deliveries to dairies (with exemptions for very small producers and those in difficult areas) of 0.5-1.5 percent to create a fund for market expansion measures. The policy was finally abandoned in March 1993. The levy created a substantial fund over the 16 years of its life (up to 700 million ECU per year at peak in 1984), but only a small part of the fund was used for the purposes of promotion and advertising on commercial markets. The Commission treated the fund as part of their “own resources” and the bulk of funds were spent on school milk and topping up schemes for disposal on which the Commission were in any case engaged. The initial ideas, therefore, have never been tried on the scale necessary to have the required impact.

The other policy attack on surplus (avoiding, of course, the reduction of the support prices) is the adoption of schemes to persuade milk producers to move into alternative farming activities or out of farming altogether. Such policies might be thought of as the Community buying out the “contracted rights” that farmers believe themselves to have to a fair standard of living expressed in the aims of the Treaty. By targeting such schemes at the poorest and smallest groups it can be said that they have been aimed at correcting to a limited extent the deficiencies of a price support system in addition to relieving the surplus problem.

The earliest “non-marketing” and “herd conversion” schemes were introduced in 1969 and the initiative was introduced again in 1973 and 1977. The latter scheme ran between 1977 and 1981 and paid producers to withdraw from milk production for five years after which they were free to re-enter. Some farmers who had taken the premium under this scheme found themselves with no quota when they wished to come back into production after the contracted five years out. This led to a famous court case in which a Dutch producer (Mr J Mulder) sued the Dutch government in the European Court for disallowing him a quota. The producer won his case thereby allowing many hundreds of producers who had previously withdrawn to claim quota. In quota jargon this became known as SLOM quota (a Dutch acronym relating to this case). These schemes were not particularly successful in relieving the surplus problems. Even though they took out substantial numbers of dairy cows (especially in Germany -over 100 000 in the EU as a whole with 70 000 in Germany) they were the lowest-yielding cows and therefore the proportionate decline in deliveries of milk to dairies was much less than the reduction in cow numbers. As for the poverty problem, no detailed study has been made, but it can be said that the herds leaving were in most cases less than the average size in each member state, and in Germany the number of cows per successful applicant was less than half the average herd size in the country as a whole. It is a reasonable inference that the schemes went some way to removing from milk production some of the poorest milk producers and brought about a slightly improved structure in Germany.