EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

The milk and milk products sector is experiencing a prolonged period of severe market imbalance. Global demand for milk and milk products has deteriorated in the course of 2015, notably due to the introduction and prolongation of the Russian import ban and the weakening of imports in China, the main world importer of dairy products. At the same time milk supply has generally increased in the main exporting regions.

Milk production is particularly increasing in the Union as investments in milk production capacity were made in view of milk quota expiry and positive medium term prospects on the world market. Milk deliveries in the Union increased by 2.5% in 2015, representing more than 3.5 million tonnes of raw milk in addition. Milk volumes produced in excess have to be processed into long term storable products such as butter and skimmed milk powder (SMP). Indeed, production increased by 8.1% for SMP and by 4.7% for butter in 2015. DG AGRI estimates point to a further increase by 1.4% of EU milk deliveries in 2016.

Prices of SMP in the Union have consequently declined in years 2014 and 2015, when they hit the public intervention price. Downward pressure is also observed on butter prices but they are still above the public intervention price.

Article 3 of Council Regulation (EU) No 1370/2013 sets quantitative limitations for buying-in butter and skimmed milk powder at the fixed price referred to in Article 2 of the same Regulation (50 000 tonnes for butter and 109 000 tonnes for SMP). Once those limits are reached, buying-in is to be carried out by way of a tendering procedure to determine the maximum buying-in price.

In order to help the milk and milk products sector find a new balance under the prevailing severe market situation, and preserve confidence in the effectiveness of intervention mechanisms, the Council decided to increase the quantitative limitations for buying-in butter and skimmed milk powder at fixed price in the year 2016.

The 109 000 t initial quantitative limitation for skimmed milk powder was reached on 31 March 2016. A tender procedure took place pending the above mentioned Council decision and some 27 000 t skimmed milk powder were bought-in through that procedure.

Since the resumption of buying-in at fixed price under the doubled ceiling, quantities of skimmed milk powder purchased each week have been considerably higher than at the beginning of the year. In all likelihood, the new ceiling will be quickly reached.

For the same reason as the initial Council decision, it is therefore appropriate to further increase the quantitative limitation for the buying-in of skimmed milk powder at fixed price. An increase of the quantitative limitation for butter is not necessary, as no offer has been received so far for butter.

As it is possible that, by the time this Regulation enters into force, a tendering procedure for buying-in might have been automatically triggered, it is necessary not to take into account the volumes bought-in under that procedure so that they are not deducted from the new available ceiling.

In order to ensure that the measure provided for in this Regulation has an immediate impact on the market and contributes to stabilise prices, this Regulation should enter into force on the day following that of its publication.