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DDA AGRI

VIEWS: 12 PAGES: 19

									Dairy quotas in the framework of the Health Check
discussion

Maciej Krzysztofowicz
Agricultural Policy Analysis and Perspectives
DG for Agriculture and Rural Development
European Commission
               Health Check communication

 The HC orientation for the expiry of the dairy quotas
  should be to:

     – propose the necessary quota increases to prepare the
       "soft landing" for the expiry of quotas by 2014/15;
     – identify any required changes in other dairy policy
       instruments that would facilitate this transition;
     – propose measures that would mitigate the expected
       negative impact in specific regions.


AGRI G1                 Dairy forum                           2
                     Quota regime in the dairy CMO
   Introduction of quotas in 1984
      – Re-establishing the balance in the milk sector
      – Alternative to lowering price support
      – Reference quantities distributed amongst individual producers

   Reforms of the CMO
      – Asymmetric support price cuts for butter and SMP
      – Increased quotas (lower than proposed)
      – Prolongation of the quota system to 2014/15

   Market situation
      – Significant increase in EU demand (especially cheese)
      – Limited supply leads to high value-added production (cheese, fresh
        products)
      – Favourable demand trend on the world markets

    AGRI G1                      Dairy forum                                 3
                               Quota regime issue
   Quotas hold back the sector from achieving CAP objectives
      – No longer reponse to overproduction.
      – Limit the production response to favourable market conditions
      – Interfere with market orientation and reduce competitiveness

   Longer policy perspective required
      – No decision before 2015 would create an uncertain situation
      – Long time frame required for investment decisions in the sector

   Objectives
      – Removing the constraints of quota regime to the efficient producers
      – Maintaining vitality of rural areas, especially in less competitive regions




    AGRI G1                        Dairy forum                                        4
                  Objectives of the study

 Assess the medium and long-term impacts of several quota
  ending scenarios for the present milk quota system and the
  CMO for milk and milk products on:

     – Milk producers

     – EU dairy commodity markets

     – World dairy commodity markets


AGRI G1                 Dairy forum                            5
                        Analytical approach
   Study carried out by Institut d’economie industrielle using the EDIM
    model (same model used for the 2003 CAP reform impact
    assessment)
   Country coverage:
     – EU15 MSs, HU, CZ, PL, EU7 aggregate, BG and RO
     – Oceania and 4 net importing regions: CIS+RoEurope, Asia,
       Africa+Middle East and America
   Product coverage:
     – Butter, SMP, WMP, Casein
     – Condensed milk, cream, liquid milk, fresh products
     – Cheese (fresh, soft, semi-hard, hard, blue and processed)
   Trade policy environment based on Uruguay round agreement
   Recent EU policy developments not covered: mini-milk package,
    2008 quota increase proposal

AGRI G1                     Dairy forum                                6
                 Overview of scenarios

 ‘Reference’ scenario
   – Current policy setting maintained
 2 ‘soft landing’ scenarios (quota increase from 2009, quota
  abolition in 2015; other policy measures are unchanged)
   – Annual increase in quotas by 1% (‘+1%’ scenario)
   – Annual increase in quotas by 2% (‘+2%’ scenario)
 2 ‘hard landing’ scenarios
   – Quota abolition in 2009 (‘H09’ scenario)
   – Quota abolition in 2015 (‘H15’ scenario)
   – In both cases other policy measures are unchanged

AGRI G1                Dairy forum                              7
                 Reference scenario 1 / 4

 Determinant factors:

     – Growing EU demand for fat and protein (+0.1% and +0.5%
       p.a.)
     – Slightly declining EU demand for butter
     – Growing world demand for dairy commodities (+2-3%
       world imports)
     – Binding quotas limit production growth



AGRI G1                Dairy forum                        8
                     Reference scenario 2 / 4
          EU milk production, milk price and quota rent (2008 = 100)
 140
                 Milk price                 Milk production                     Quota rent
                                                                                                        135,9
 135


 130
                                                                 127,9


 125


 120


 115


 110                                                                                                   108,8
                                                                107,2


 105

                                                                 100,7                                 100,8

 100
       2008   2009   2010     2011   2012    2013    2014     2015       2016    2017   2018   2019   2020

AGRI G1                                Dairy forum                                                              9
                                                          Reference scenario 3 / 4
                           EU bulk commodity markets in 2015 (versus 2008)

                               Butter                                                                   SMP

                                CONSUMPTION
                                                   -2,8                                             CONSUMPTION           -5,2


                               PRODUCTION
                                            -4,3                                          PRODUCTION     -14,8



                EXPORT
      -20,4                                                              -37,6   EXPORT



                                EU PRICE
                                             -3,9                                                                                         EU PRICE        12,0



                                       WORLD PRICE             2,5                                               WORLD PRICE                              11,6




-25           -20        -15     -10          -5           0         5   -40     -35   -30    -25      -20   -15    -10          -5   0      5       10     15




  AGRI G1                                                  Dairy forum                                                                                     10
                   Reference scenario 4 / 4
          EU value added markets in 2015 (versus 2008)


 EU demand growth                                        Cheese
  exceeds production
  growth                                                                 5,8
                                                                                 CONSUMPTION




   – Increasing EU price                                               5,5
                                                                                 PRODUCTION




   – Lower EU exports                  0,4       EXPORT



 World demand growth                                                 EU PRICE
                                                                                     7,3


  leads to increasing world                                           WORLD PRICE              8,3


  prices
                                   0         1      2     3   4   5      6       7         8         9    10




AGRI G1              Dairy forum                                                                     11
                                    The impact of quota removal in 2015
                                         (all quota removal scenarios vs. reference scenario in %)




                                                                                               CHEESE
                                                                                                               CONSUMPTION                       0.6
MILK



                           PRODUCTION                      3.8                                                PRODUCTION
                                                                                                                                                      1.4


                                                                                                                                                                     EXPORT                  12.0

               -8.2                                PRICE
                                                                                                                 -6.4                                     EU PRICE


                                                                                                                      -6.0                                    WORLD PRICE


           -10        -8    -6     -4    -2    0   2       4         6       8    10     12

                                                                                                        -10      -8      -6   -4       -2    0            2      4        6   8        10   12




               EXPORT:                                                                                        EXPORT:
               106,9                                                                                          78,6
                                  CONSUMPTION                  1.4
                                                                                                                                                 3.8          CONSUMPTION
BUTTER




                                                                                                SMP
                                  PRODUCTION                                           8.5
                                                                                                          PRODUCTION                                                                              19.8


                                        -4.5               EU PRICE                                                                                   c
                                                                                                          -7.5                              EU PRICE


               -11.9                                                                                          -6.1                          WORLD PRICE
                                                           WORLD PRICE




         -15                -10           -5           0                 5              10              -10              -5        0              5                  10           15             20




  AGRI G1                                                                        Dairy forum                                                                                                      12
                                   Impact on milk production

       25,0%

       20,0%

       15,0%

       10,0%

           5,0%

           0,0%

           -5,0%                                                     PT
                                                                          FI




                                                                                                               BU
                                                 IE
                                            FR


                                                      IT




                                                                                         CZ
                                                                AT




                                                                                                   PL
                        DK


                                  GR
                   BL




                                                                               SE
                             DE




                                                                                    UK


                                                                                              HU
                                       ES




                                                                                                        EU-7


                                                                                                                    RO
                                                           NL




EU-27: increase in production +5.6%
 AGRI G1                                          Dairy forum                                                            13
             ‘Soft landing’ – main results for +1% and +2%
                                                         ‘+1%’           ‘+2%’
              Annual increase prior to quota              +0.7%           +0.8%
Milk          removal (ie. 2009-2014)
production    Total increase following quota              +1.3%           +0.6%
              removal (ie. 2015/2014)
Milk price    Trend prior to quota removal                stable      decrease, stable

              Impact of quota removal                     -2.7%           -0.9%
SMP           SMP price prior to quota removal:        Increase (at lower rates than
              demand growth for protein >              status quo), remains above
              production growth                        intervention price
Butter        Butter price: production growth of fat   Decrease, reaching the
              > demand for fat                         intervention price in:
                                                         3rd year        1st year
    AGRI G1                        Dairy forum                                      14
Comparison of quota removal scenarios – milk production
                                                 (2008=100)
                  Baseline                        1% gradual increase              2% gradual increase
                  Expiry15                        Expiry09

    107



    106



    105



    104



    103



    102



    101



    100
          2008   2009   2010   2011   2012    2013   2014     2015   2016   2017   2018   2019   2020


   AGRI G1                                   Dairy forum                                                 15
Comparison of quota removal scenarios – milk price
                  (2008=100)
                        Baseline                       1% gradual increase             2% gradual increase
                        Expiry15                       Expiry09


           110




           105




           100




            95




            90
                 2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019   2020




 AGRI G1                                        Dairy forum                                                  16
                          Some study conclusions

 Though caution is necessary (normalized conditions, rapid adjustment,
  stylized producer behaviour/expectations) … some key findings can be
  highlighted

   – ‘Hard landing’ approach => big shock & uneven development over
     member states (benefiting low cost producers)
   – ‘soft landing’ offers a smoother transition
   – Impact on trade
   – Bulk dairy products more affected than higher value products
   – Support mechanism for butter still plays a role

         AGRI G1                Dairy forum                          17
                   Additional measures

 Should be judged against the objectives …

     – Competitiveness, market-orientation

     – Vitality of rural areas

                                         … and timing


AGRI G1                Dairy forum                18
           For further information on Health Check

 CAP Health Check
    http://ec.europa.eu/agriculture/healthcheck/index_en.htm


 EU agriculture and CAP reform
    http://ec.europa.eu/agriculture/index_en.htm


 Economic Analysis and Evaluation
    http://ec.europa.eu/agriculture/analysis/index_en.htm


 Agricultural Policy Analysis and Perspectives
    http://ec.europa.eu/agriculture/analysis/perspec/index_en.htm

AGRI G1                       Dairy forum                           19

								
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