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AGRICULTURE : ANALYSTS PREFER SOFT LANDING' TO ABRUPT ABOLITION OF MILK QUOTAS.

The impact of the abolition of EU milk quotas on the European dairy sector is the subject of a study carried out by the French Institut d'Economie Industrielle (IDEI) at the request of the European Commission. The study forms part of the reflection process launched in connection with the Common Agricultural Policy health check' under the impetus of Agriculture Commissioner Mariann Fischer Boel. It shows that a soft landing' is preferable to an abrupt abolition of quotas, which would create too great a shock in many member states. The scenarios studied - gradual and abrupt expiry of quotas - lead to a similar situation at the end of the analysis period (2015 or 2016), note the experts. "In the absence of quotas, collected production is 5.1% higher than in the reference scenario (2005-2006) and the price of milk is 10.3% lower."

When quotas are abolished in 2015, the experts continue, the increase in consumption in the European Union will be limited because demand for milk products is not very price-elastic and the drop in prices will remain limited, ranging from 4% to 10% depending on the product. This milk surplus will be absorbed by exports, leading to a decline in world prices.

Two soft landing scenarios were studied up to total abolition in 2015-2016. They consist in increases in quotas of 1% and 2%, respectively, per year between 2008-2009 and 2014-2015. The results of the two scenarios are quite similar, although production prices would evolve more regularly, decreasing annually by 2%. During the period under review, milk production would rise by an average of 0.7% or 0.8% depending on the scenario selected.

In the case of an abrupt abolition of quotas, the IDEI states that there would be a significant increase in production during the first two years following the measure. The overall increase in production is estimated at around 5%, with most occurring the first year. The experts point out that an overnight abolition of quotas would not only cause a major shock, but would also have different implications depending on the member state. Producers with the lowest production costs would benefit. The price evolution profile with gradual abolition is more regular than with abrupt abolition, which would enable producers and processors to adapt gradually, concludes the IDEI. With the disappearance of quotas, "producers lose and consumers win," explain the experts.

The study is available at ec.europa.eu/agriculture/analysis/external/milk/index_en.htm

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Publication:European Report
Date:Apr 10, 2008
Words:409
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