Special Report no 6/2001 on milk quotas, together with the Commission's replies
Date: 2001-07-12
Institutions: European Court of Auditors
Subjects: European Court of Auditors, milk, production quota, report

30.10.2001

EN

Official Journal of the European Communities

C 305/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 6/2001

on milk quotas, together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 305/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE MILK QUOTA REGIME WAS INTRODUCED TO REDUCE THE IMBALANCE BETWEEN
SUPPLY AND DEMAND IN THE MILK MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COURT’S AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IMPACT OF THE QUOTA REGIME ON THE DEVELOPMENT OF THE MILK MARKET . . . . . . .

Over time the level of quotas has changed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Milk production is close to national quota levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quota level leads however to a structural surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Budget expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Production prices and dairy farmers’ income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost for the consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The restructuring of milk production has continued under the quota system . . . . . . . . . . . .

Quota is a valuable asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MEMBER STATES HAVE THE MAIN RESPONSIBILITY FOR IMPLEMENTATION OF THE
QUOTA REGIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quota regime causes inefficencies in milk production . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit specific to Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quota allocation and management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The offsetting mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Approval of purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Observations relating to direct sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Controls on purchasers and direct sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Calculation and payment of the levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Declaration of the levy and accounting by the Commission . . . . . . . . . . . . . . . . . . . . . .

Interest on late payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-5

6-8

9-27

9-11

12-13

14-15

16-18

19-21

22

23-24

25-27

28-60

29-31

32-37

38-60

38-39

40-42

43-44

45

46-51

52-53

54-59

60

3

4

5

5

5

5

6

7

9

9

9

11

11

11

13

13

13

13

14

14

14

15

15

16

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Paragraph

Page

MANAGEMENT OF THE QUOTA LEVELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AGENDA 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quota regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Milk prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61-63

64-66

67-72

67-69

70-71

72

73

ANNEX 1 — The Commission’s 1998 proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— Impact of the Council’s Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— Enlargement of the Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 2 — Milk quota (available quotas taking into account the use of EU reserve and

SLOMs and suspended quantities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 3 — Production and delivery of cow’s milk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 4 — Deliveries of cow’s milk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 5 — Dairy sector balance sheet in milk equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 6 — Cost of the CMO of milk, breakdown by category and production . . . . . . . . . . . . . . . . . . . . . .

ANNEX 7 — Budgetary cost of the CMO for milk and milk products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

16

16

16

17

17

17

19

19

20

21

22

23

24

25

26

27

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SUMMARY

I. The milk quota regime was introduced in 1984 into the common market organisation (CMO) for milk and
milk products with the aim of reducing the imbalance between supply and demand in the milk and milk-
products market. The regime sought to cap production by the introduction of ‘reference quantities’ (individual
quotas) for milk producers, with a dissuasive levy on milk produced in excess of individual quotas (see para-
graph 1).

II. Measures to cut production by around 8 % over a nine-year period were adopted. Milk production in the
15 Member States has stabilised at 120 Mio t. The EU share of the world export market has declined, but the
exported surplus has remained stable at around 15 Mio t since 1995. Despite this subsidised surplus, deci-
sions reforming the CMO for milk and milk products provide for a 2,5 % increase in the national reference
quantities between April 2000 and April 2005 (see paragraph 3).

In previous reports the Court examined the measures adopted up until 1991. This report reviews the Com-

III.
mission management in relation to the measures finally adopted from that date onwards.

IV. The audit sought to assess the effectiveness of the quota regime, as implemented, in reaching the goal of
controlling production of milk in the EU and achieving market equilibrium (see paragraph 6).

V. The quota regime can be generally regarded as achieving the objective of restricting production to the target
level, surplus production above the national reference quantities being reported as less than 1 % (see para-
graphs 9 to 13).

VI. The setting of the overall level of quota has stabilised production. It has not brought milk production into
line with unsubsidised internal consumption and unsubsidised export (see paragraphs 14 and 15).

VII. At the same time it has not, to any great extent, hindered the restructuring of the dairy sector within each
Member State. The trend towards larger and fewer dairy farms in the EU has continued. The rationalisation of
the sector has seen great numbers of small farms disappear. Most remaining farmers earn less than half of their
income from farming activities. This is as true of milk production as of other sectors. Moreover, the previ-
ously increasing trend of budgetary cost of the CMO for milk and milk products has been reversed (see para-
graphs 16 to 24).

VIII. The Commission and Council have allowed the regime to become more and more flexible. This should
have implied a decrease of overall quota. Member States may pursue widely differing policies in relation to farm
structure within the same milk quota framework. As a result some of the financial and economic advantages
that were intended to accrue from the regime have been lost (see paragraphs 40 to 42).

IX. Disposal of the structural surplus of milk will continue to require substantial EU budget support, which
might well increase in the future because of the enlargement of the EU, the current trends in consumption and
pressure through World Trade Organisation to reduce export refunds. Against this background, the Commis-
sion still needs to propose a fundamental reform of the dairy sector which will reduce the overall level of milk
production and bring it into line with potential unsubsidised market sales (see paragraphs 61 to 66 and
Annex 1).

X. Successive decisions by the Council to increase national reference quantities without substantially reduc-
ing intervention prices have left no room for a liberalisation of the milk and milk-products sector comparable
to that in the area of arable crops. The expenditure on the milk and milk-products sector has decreased from
4 285, 3 million euro in 1983 (27 % of EAGGF-Guarantee expenditure) to 2 601,3 million euro in 1999 (6,5 %
of EAGGF-Guarantee expenditure). However, expenditure of almost 3 billion euro a year is still required to
finance an ongoing surplus which results inevitably from decisions of the Council. This level of support from
the European taxpayer is in addition to the higher cost borne by consumers in the EU for milk and milk prod-
ucts (see paragraph 72).

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XI. Problems with implementation of the scheme continue. In Italy, the essential problem of enforcing the
collection of the levy highlighted in previous reports continues. In Spain and Greece, improvements have been
made although problems of outstanding levy debt remain. When individual milk producers do not actually
pay the levy, its dissuasive effect is lost and overproduction is encouraged. Moreover, the Commission recovery
of the levy debt from the Member State then creates, in effect, a national subsidy for certain milk producers
which distorts competition (see paragraphs 32 to 37).

XII. Some 17 years after its introduction, the quota regime is still not fully implemented, as demonstrated by
the continued need for reductions in advances and for clearance-of-accounts decisions in respect of some
Member States. This illustrates the consequences of perpetuating market distortions through a system which
the Member States do not always manage rigorously (see paragraph 70).

XIII. The Commission’s role in enforcing the levy and in accounting for the receipt of levy should be reviewed
to ensure strict and timely application of regulatory dispositions. The Commission should examine the pos-
sibility of improving checks and sanctions under the regime and promote best practice amongst Member States
by detailing the checks to be carried out. The Community regulatory framework should provide for a range of
sanctions enabling Member States to penalise less serious breaches of regulations by purchasers and direct sell-
ers. In the short term the Commission should examine the possibility of allowing transfer of quota between
producers operating in different Member States and reduce subsequently overall quota. In the medium term,
the Commission should make proposals for a fundamental reform of the dairy sector aiming at achieving
equilibrium between overall milk production and unsubsidised internal consumption plus potential unsubsid-
ised exports while ensuring a fair standard of living for dairy farmers and allowing the quota regime to expire
(see paragraph 73).

THE MILK QUOTA REGIME WAS INTRODUCED TO REDUCE
THE IMBALANCE BETWEEN SUPPLY AND DEMAND IN THE
MILK MARKET

must be charged to producers by milk purchasers (3) or to direct
sellers (4) of milk by the competent national administration. The
proceeds of the levy are declared by the EAGGF paying agencies
as ‘negative expenditure’.

1. The milk quota regime was introduced in 1984 (1). It sought
to reduce the imbalance between supply and demand in the milk
market by capping production at a certain level by the introduc-
tion of ‘reference quantities’ of milk (individual quotas) for milk
producers. These individual quotas result from the distribution, at
national level, of a national reference quantity fixed by the Coun-
cil for each Member State (national milk quota). A dissuasive levy
applies to milk quantities produced in excess of individual quo-
tas (2). This ‘additional levy’, commonly known as ‘superlevy’,

2. The milk balance presented by the Commission to the Coun-
cil showed that the 1984 supply amounted to 120 % of the inter-
nal demand and despite exports estimated at 12,7 Mio t equiva-
lent, the surplus within the EU for that year was of 6,7 Mio t (5).
The total of national milk quotas for the 10 Member States within
the European Community was initially established at 103,7 Mio t
(99,9 Mio t for deliveries to dairies), about the same level as the
average of deliveries for the years 1981 to 1983. It was, in the
opinion of the Court, too high a level, given that internal use of
milk and milk products was estimated at 85 Mio t (6).

(1) Council Regulation (EEC) No 856/84 of 31 March 1984 (OJ L 90,
1.4.1984) introduced the system for five 12-month periods running
from 1 April 1984 to 31 March 1989. The system was initially
extended until 31 March 1992 by Regulation (EEC) No 1109/88 of
25 April 1988 (OJ L 110, 29.4.1988) and then by Regulation (EEC)
No 816/92 of 31 March 1992 (OJ L 86, 1.4.1992). On 28 December
1992, the Council adopted Regulation (EEC) No 3950/92 (OJ L 405,
31.12.1992), which extended the additional levy system for seven new
periods of 12 months commencing on 1 April 1993, with the said
Regulation cancelling and replacing all prior provisions.

(2) The levy was 75 % or 100 % of the target price for milk during the
first three periods, and was increased to 100 % in 1987/88 and to
115 % in 1990. See ECA Special Report No 4/93, paragraph 3.24
(OJ C 12, 15.1.1994).

(3) Council Regulation (EEC) No 3950/92 of 28 December 1992,

Article 2(2) (OJ L 405, 31.12.1992).

(4) Council Regulation (EEC) No 3950/92 of 28 December 1992,

Article 2(3) (OJ L 405, 31.12.1992).

(5) ECA Special Report No 2/87, Table 3 (OJ C 266, 5.10.1987).
(6) ECA Special Report No 2/87, paragraphs 3.10 to 3.13 (OJ C 266,

5.10.1987).

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3. A series of measures aimed at cutting milk production were
subsequently adopted (1) resulting in an 8 % overall reduction in
quotas over a nine-year period (1984/85 to 1993/94 milk market-
ing years). Milk production actually fell by around 10 % over the
same period. No further adjustments have been made to national
reference quantities since then, and levels of milk production
within the 15 Member States have stabilised at 120 Mio t. Deci-
sions effective from 2000 laying down the reform of the organisa-
tion of the market for milk and milk products, provide for a 1,18 %
increase in the national reference quantities between April 2000
and April 2001 and a subsequent 1,28 % increase as from April
2005 (see Annex 1 paragraph 4).

4. Transfers of quota are not allowed between Member States.
They are permitted between producers within a Member State but
the detailed application of the transfer rules is left to the Member
State itself. Member States may allow an almost free market in
trading of milk quota. This approach promotes the concentration
of quota in the most efficient holdings. Alternatively Member
States may centrally control all transfers of quota, transfers being
allowed according to administrative criteria laid down by the
Member State. This approach pursues regional objectives linked
to rural, social or economic development.

5. The results of previous audits, by the Court, relating to the
milk quota regime have been published in two special reports (2)
and three annual reports (3).

THE COURT’S AUDIT

individual quota assignment, approval of all purchasers, annual
checks on purchasers and direct sellers, collection and account-
ing of the levy in favour of the European Union.

8. The Court examined the Commission’s role and audited the
implementation of the regime in nine Member States (Germany,
Greece, Spain, France, Ireland, Italy, the Netherlands, Portugal, the
United Kingdom) covering over 80 % of allocated quota.

IMPACT OF THE QUOTA REGIME ON THE DEVELOPMENT OF
THE MILK MARKET

Over time the level of quotas has changed

9. The level of overall quotas in the EU has evolved since 1984
as shown in Annex 2. National reference quantities were cut by an
average 8 % between 1984 and 1993.

10. Since the 1993/94 (4) milk marketing year, total national ref-
erence quantities for the 12 Member States have remained at 109
Mio t. This amount includes a 2,2 Mio t increase over the 1992/93
amount, the bulk of which consisted of the additional national
reference quantities of 1,5 Mio t allocated to Italy, Spain and
Greece. From the 1995/96 milk year onwards, national reference
quantities for the three new Member States, namely Austria, Swe-
den and Finland, were set at 8,4 Mio t in total. Since that time,
total national reference quantities for the 15 Member States have
been set at 117,5 Mio t, including 1,6 Mio t for direct sales by milk
producers.

6. The audit sought to assess the effectiveness of the quota
regime, as implemented, in reaching the goal of controlling pro-
duction of milk in the EU and achieving market equilibrium.

11. The adjustment of the national reference quantities for Italy,
Spain and Greece and the establishing of national reference quan-
tities for the three new Member States together resulted in an
overall 10,6 Mio t increase in the national reference quantities.

7.

In particular the audit sought to assess the extent to which:

Milk production is close to national quota levels

(a) the Commission correctly monitors the implementation of
the regime, has introduced adequate control procedures and
takes the necessary steps to reinforce the regime in the case
of infringements or evidence of control weaknesses;

(b) the implementation of the regime by Member States complies
with the regulatory framework, particularly in respect of the
existence of an adequate national legislative and administra-
tive structure, controls on declarations of milk produced,

(1) ECA Special Report No 4/93, paragraphs 4.2 to 4.5 (OJ C 12,

15.1.1994).

(2) Special Report No 2/87 (OJ C 266, 5.10.1987) and Special Report

No 4/93 (OJ C 12, 15.1.1994).

(3) Annual Report 1988 (paragraphs 5.33-5.38), Annual Report 1992
(paragraphs 2.17-2.19) and Annual Report 1993 (paragraphs 2.10-
2.59).

12. Since 1993, milk production has stabilised at around 120
Mio t (see Annex 3). Most of the Member States have decreased
their production by over 10 % in relation to 1984, the year in
which milk quotas were introduced. Milk production has increased
in Portugal (+ 10 % between 1992 (5) and 1998) and Greece (+ 9
% between 1984 and 1998).

(4) Council Regulation (EEC) No 1560/93 of 14 June 19963 (OJ L 154,
25.6.1993) amending Council Regulation (EEC) No 3950/92 of
28 December 1992 (OJ L 405, 31.12.1992), established guaranteed
quantities for the period 1993/94 based on the following principles:
the temporary suspension of the quotas applied in the previous peri-
ods became definitive, the Community reserve was definitively inte-
grated into the Member States’ quotas, and the quotas for Greece,
Spain and Italy were increased.
In Portugal, the milk quota regime became applicable from 1991/92
onwards.

(5)

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13. Since the 1995/96 milk marketing year, reference quantities
for deliveries to dairies have been systematically exceeded by a
small margin (less than one per cent overall) in most Member
States despite the reduction in the gap between milk production
and national reference quantities. This has been essentially due to
the increase in the fat content of the milk. Quantities of milk

delivered to dairies are adjusted on the basis of the actual fat con-
tent of the milk in relation to a reference fat content that existed
at the time the milk quotas were introduced. These corrections
cause national reference quantities to be exceeded and the addi-
tional levy to be applied (see Illustration 1).

Gross deliveries of milk to dairies, correction of quantities of milk delivered on the basis of fat content, imports of milk products and
domestic consumption of milk products

Illustration 1

120

100

80

t
o
i
M

60

40

20

0

Gross quantities
of milk delivered
to dairies

Correction of
quantities of milk
delivered on the
basis of fat content

Imports of milk
products

Domestic
consumption
of milk products

1985/
1986

1986/
1987

1987/
1988

1988/
1989

1989/
1990

1990/
1991

1991/
1992

1992/
1993

1993/
1994

1994/
1995

1995/
1996

1996/
1997

1997/
1998

1998/
1999

Source: ZMP milk balance sheet — Summary tables of the replies to the questionnaires provided for in Article 8 of Regulation (EEC) No 536/93 (DG AGRI).

The quota level leads however to a structural surplus

14. The increase in the quota level occurred despite the fact that
the Community market showed a structural surplus (see Illustra-
tion 1).

15. This subsidised export of dairy products has been stable in
the last decade at about 15 million tonnes (see Annexe 5 ‘dairy
sector supply balance sheet in milk equivalents’ and Illustration 2).

In addition, subsidised internal consumption of butter and
skimmed-milk powder (SMP) is estimated by the Court at 10 mil-
lion tonnes milk equivalent. In fact, from 1991 to 1994, the sub-
sidised butter share of internal consumption rose from 26,8 % to
32 %. Since 1995, Community aid representing on average 30 %
of the market price (1) has been granted on around 500 000 t of
butter or 28 % of the amount consumed on the internal market.
Over the same period, the quantity of subsidised skimmed milk
used on the internal market (2) has fallen. Aid for the use of SMP
has been paid on over 50 % of the quantities consumed on the
internal market. This aid has been fixed at some 35 % of the mar-
ket price (3) (see Illustration 3).

(1) ECA Special Report No 8/2000, paragraph 22 (OJ C 132, 12.5.2000).
(2) Skimmed-milk powder for animal feed, and liquid skimmed milk for

feedingstuffs and transformation into casein.

(3) Special Report No 1/1999, paragraph 21 and Table 2 ‘Skimmed-milk

powder balance sheet’.

 
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Milk sector balance sheet (mio t): excess supply over domestic demand, exports and changes in stock

Illustration 2

25

20

15

10

5

0

t
n
e
l
a
v
i
u
q
e
k
l
i

m

t
o
i
M

– 5

– 10

1986

1987

1988

1989

1990

1991

1992*

1993

1994

1995

1995

1996

1997

1998

Changes in stock

Exports

Excess supply
over domestic
demand

N. B.: For 1986 to 1990 EU-12 (new Länder excluded) — For 1991 to 1994 EU-12 (new Länder included) — As from 1995 EU-15, 1998 estimates. For 1992: provisional
data published in ZMP milk balance sheet 92 (the updates differ considerably from these data). For the other years: latest data available. Consumption of own produce
on the farm and direct sales are not taken into account.

Source: ZMP milk balance sheet.

Illustration 3

Disposal of milk products (1998)

Exports
13,79 mio t

Variations of stocks
1,41 mio t

ary cost of 2 601 million euro. The breakdown of the cost of the
different measures is given in Annex 6 (see Illustrations 4 and 5).
Total payments of the additional levy to the Community budget
cover 16 % of the expenditure of the CMO for the milk and milk
products sector.

Subsidised
internal
consumption

10,1 mio t

Source: ZMP milk balance sheet.

Budget expenditure

17. Budgetary expenditure on subsidies to the milk and milk-
products sector has greatly decreased, in relative terms, since the
introduction of the quota system. It shrank from 27 % of EAGGF-
Guarantee expenditure in 1983 to 6,5 % in 1999 (see Annex 7).
The overall figure of the order of 2,5 billion euro a year is still
relatively high to finance what is in effect a surplus implicitly
authorised by the Member States. It should be borne in mind that
this level of support, by the European taxpayer, is in addition to
the higher prices paid by consumers in the EU for milk and milk
products (see paragraphs 22 and 63). OECD estimates the addi-
tional costs borne by EU consumers of these products at more
than 20 billion euro a year (2).

Unsubsidised
internal
consumption
92,28 mio t

16. The equilibrium of the market in milk and milk products is
maintained by means of Community financing for the disposal of
25 Mio t (1) in milk equivalent in 1999, financed at a net budget-

(1)

In a document entitled ‘Situation and outlook dairy sector’ (CAP 2000
series of working documents), the Commission calculates the surplus
as the difference between production and total consumption, includ-
ing on-farm consumption and the consumption of farm produce
(direct sales). The surplus was therefore estimated to be 8,8 Mio t in

1998. On the basis of information from ZMP (Zentrale Markt- und
Preisberichtsstelle), the surplus of deliveries over internal consump-
tion (excluding imports) was 10,8 Mio t. On-farm consumption and
farm produce are not covered by the balance sheet published by ZMP,
as these products do not, by their nature, give rise to any surplus and
there are no statistics available. Table 6 (source ZMP) shows the sur-
plus in relation to the total supply of manufactured products (includ-
ing imports).

(2) OECD: Agricultural policies in OECD countries, monitoring and

evaluation 2000.

 
 
 
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30.10.2001

Illustration 4

Common organisation of the market in the milk and milk products’ sector
Expenditure broken down by category

R
U
E
o
i
M

7 000

6 000

5 000

4 000

3 000

 2 000

1 000

0

– 1 000

Other
measures

Disposal
measures

Export refunds

Storage cost

Financial
contributions

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999

Source: figures 1988-96: Commission, DGVI, CAP 2000 working document: Situation and outlook dairy sector, Table 14, April 1997 figures 1997-99: drawn up by the
Court of Auditors on the basis of documents illustrating the development of EAGGF-Gurantee expenditure, Commission, DGVI. G.2. For 1998 gross expenditure
includes expenditure in Chapter B1-20 (ECU 2810,8 Mio) and School milk scheme (ECU 105 Mio) in B1-312 and Social assistance butter (ECU 4 Mio) in B1-313. For
1999 gross expenditure includes expenditure in Chapter B1-20 (ECU 3007,8 Mio) and School milk Scheme (ECU 87,6 Mio) in B1-312 and Social assistance butter
(ECU 3,6 Mio) in B1-313.

Illustration 5

Common organisation of the market in the milk and milk products’ sector
Expenditure broken down by product or measure

Other measures

Other products

School milk

Cheese

SMP

Butter

R
U
E
o
i
M

7 000

6 000

5 000

4 000

3 000

2 000

1 000

0

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999

Note: Other measures are production abandonment premiums, production temporary-abandonment premiums, etc.

Other products are whole milk powder, condensed milk, etc.

Source: see Illustration 4.

 
 
30.10.2001

EN

Official Journal of the European Communities

C 305/9

18. The Court has reported on various aspects of the milk mar-
ket, in particular the measures used to dispose of the 25 mio t
milk equivalent resulting from the level of milk quota currently
in force and criticised the lack of a rigorous assessment of the
alternatives available. The Commission informed the Court that
such a study would be carried out (1).

Production prices and dairy farmers’ incomes

19. Dairy farm incomes, calculated by taking the net added value
per family work unit (FNAV/FWU) (2), increased by more than
farm incomes as a whole between 1984 and 1996 (+ 66 % against
+ 61 %). Throughout this period, dairy farm incomes were sig-
nificantly higher than average farm incomes.

20. There are three reasons for this increase: support for produc-
tion prices, increased dairy farm productivity (see paragraph 23)
and direct Community aid from other sectors. Although this type
of aid is less substantial for milk than for other agricultural sec-
tors, the contribution it makes to milk producers’ incomes has
steadily grown, increasing from 7 % in 1990 to 24 % in 1996.

21. The prices paid to milk producers and the incomes (3) of
these producers still differ significantly from one Member State to
another. Despite a closer alignment of prices since 1984, the high-
est average price paid to producers in 1999 (in Greece, Italy, and
Sweden) was 25 % more than the lowest average price (paid in the
United Kingdom, Belgium and Ireland). This disparity is even
greater as regards income. The incomes for dairy farmers are low-
est in Portugal and Sweden. In 1996-1997, dairy incomes in Por-
tugal and Sweden were only 32 % and 36 % respectively of the
average income of milk producers in the European Union. Expla-
nations for discrepancies in price and income are to be sought in

the differences in the structure of holdings and purchasers, pro-
duction cost and level of demand not in the existence of the quota
regime.

Costs for the consumer

22. While budgetary costs have continued to decrease, the con-
sumer continues to pay high prices for dairy products, notably as
a result of price support measures. For the period 1997 to 1999,
the OECD assessed the producer subsidy equivalent (PSE) (4) as
being 54 % of the value of output for milk as opposed to 44 % for
agricultural products as a whole. In other words, EU consumers
pay for dairy products twice as much as they would in a free mar-
ket.

The restructuring of milk production has continued under the
quota regime

23. Between 1979 and 1985, prior to the introduction of the
quota system, there was a marked increase in dairy farm produc-
tivity. The number of dairy farms was falling by around 4 % each
year and numbers of dairy cattle were declining slightly. Average
herd size per farm was increasing by 4,5 % each year (see Illustra-
tion 6).

24. Dairy farm productivity has continued to increase since the
introduction of the milk quota system (see Illustration 7). Average
production levels for dairy farms rose by 119 % between 1985
and 1997. This increase can be explained by the increase in pro-
duction per dairy cow (+ 29 %) and by the growth in the average
size of dairy farms (+ 74 %). Milk production is becoming con-
centrated in ever larger and ever fewer farms (– 56 %). In 1997,
farms with over 50 cows accounted for 48 % of all dairy cattle
within the Community (as against 31,5 % in 1985).

(1) Commission reply to Special Report No 8/2000 (OJ C 132, 12.5.2000).
(2) Farm net added value (FNAV) is the total gross output (including own
on-farm consumption) minus the fixed and variable costs incurred in
carrying on farming activities. It does not include financing charges,
labour costs and farm rents. It is adjusted to take into account duties,
taxes, premiums and subsidies. It gives a positive weighting to family
labour and paid employment, own capital and borrowed capital and
farm management. The annual work unit represents the farm work
done by one full-time worker over the course of one year, whether
paid or unpaid. The family work unit represents the work done by the
farmer and the members of his family. Source RICA.

(3) Comparison on incomes is made by using current exchange rates.

(4) The PSE is an indicator of the value of the monetary transfers made
to farmers over the course of a given year resulting from the various
instruments of agricultural policy. It takes into account price support
measures, direct aid to producers, subsidies aimed at reducing pro-
duction costs and other measures concerning general agricultural ser-
vices. It is an attempt to quantify the direct transfers financed by the
taxpayer and the indirect transfers financed by the consumer that
contribute to maintaining farm incomes. Source OECD.

C 305/10

EN

Official Journal of the European Communities

30.10.2001

35

30

25

20

15

10

5

0

m

r
a
f
r
e
p
s

w
o
c
y
r
i
a
d
f
o
r
e
b
m
u
N

Illustration 6

Development of the structure of dairy farms

Number of dairy cows
in thousands

Number of
farms in
thousands

Number of
dairy cows
per farm

25 309

24 518

31

20 071

22

18 672

18

30 000

25 000

s

m

r
a
f
y
r
i
a
d
f
o
r
e
b
m
u
N

s

w
o
c
y
r
i
a
d

f
o
r
e
b
m
u
N

20 0 00

15 000

10 000

5 000

0

 14

1 810

1 379

913

1979 

1985 

1991 

600

1997

Source: EUROSTAT: Enquiries into the structure of farms, data recorded by DGVI: ‘Situation of Agriculture..’ and New Cronos.

Illustration 7

Development of milk production on dairy farms

Milk production
by farm in tonnes

Yield in kg per
dairy cow

Number of dairy
cows per farm

5 258 kg

5 551 kg

172,6 t

4 029 kg

4 423 kg

115,6 t

78,7 t

56,4 t

14

18

22

31

1979 

1985 

1991 

1997

s
e
n
n
o
t

n

i

m

r
a
f
y
b
n
o
i
t
c
u
d
o
r
p
k
l
i

M

m

r
a
f
r
e
p
s

w
o
c
y
r
i
a
d
f
o
r
e
b
m
u
N

200

180

160

140

120

100

80

60

40

20

0

6 000

5 000

 4 000

3 000

2 000

1 000

0

w
o
c
r
e
p
g
k
n

i
d
l
e
i
Y

Source: EUROSTAT: Enquiries into the structure of farms, data recorded by DGVI: ‘Situation of Agriculture..’ and New Cronos.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30.10.2001

EN

Official Journal of the European Communities

C 305/11

Quota is a valuable asset

The quota regime causes inefficiencies in milk production

25. The initial allocation of quota was made to producers hav-
ing previously produced milk, without charge. Purely as a result
of the existence of the quota regime that quota now has a mon-
etary value. Even in Member States where a market for quotas
does not exist, for example France, the land which has a quota
attached is worth more than land without. As a result entry into
the milk market or increases in the scale of individual holdings are
more difficult and more expensive. Abolition of quotas, may give
rise to demands for compensation to quota holders.

26. This asset, although a creation of the EU regulations was, at
least in one Member State, eligible for funding under the struc-
tural funds. In Ireland, a restructuring programme provided for a
75 % contribution from the EU budget toward the purchase cost
of quota for eligible farmers. Conversely in Spain, some farmers
had benefited from Structural Funds’ financing to develop milk
production but they could not afford to buy sufficient quota to
make an efficient dairy holding. No structural funding for buying
sufficient quota was forthcoming.

27. These cases show that such co-financing from the Commu-
nity budget, adds to the cost of the support for the dairy sector
and creates inconsistencies of treatment between Member States.

MEMBER STATES HAVE THE MAIN RESPONSIBILITY FOR
IMPLEMENTATION OF THE QUOTA REGIME

28. The Member States are mainly responsible for the imple-
mentation and management of the quota regime.

29. Following the last round of accessions, the Community mar-
ket could have been rebalanced by redistributing the national ref-
erence quantities previously allocated to the 12 Member States
among the 15. This would have resulted in a reduction in the sur-
pluses disposed of using the Community budget, but the oppor-
tunity was not taken. The existence of 15 national reference quan-
tities without provision to transfer quotas between producers
operating in different Member States means that the resources
used to produce milk cannot be optimised. This hampers the
rational development of production and limits production in
those EU regions best suited to it. The restriction on transfers and
on the offsetting mechanism (see paragraphs 40 to 42) between
producers operating in different Member States seems anachro-
nistic from the point of view of a single market and in the light of
rules on competition in force in the European Union. Any sup-
pression of these restrictions should imply a corresponding
decrease of the global quota.

30. Since 1999/2000 quotas restrict production in all Member
States (except the new German Länder). In four Member States
(Greece, Spain, Italy, the United Kingdom) milk production is
lower than consumption. In three Member States (Denmark, Ire-
land, the Netherlands) national production is above the level of
consumption. This situation has led some producers in the first
group to reject what they see as an unfair system. As a result some
national authorities, notably in Italy, have faced difficulties in
implementing the system against strong social opposition. Table1
shows estimates of self-sufficiency rates by Member State as no
figures on internal consumption in milk equivalent were made
available by the Commission.

C 305/12

EN

Official Journal of the European Communities

30.10.2001

Table 1

Milk equivalent balance sheet by Member State

(000) t

BELGIUM

Quota (1)
Production (1)
Self-sufficiency (2)

DENMARK

Quota (1)
Production (1)
Self-sufficiency

GERMANY

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

3 211,0
3 269,0

4 882,0
4 911,0

3 022,7
3 133,1
102 %

2 945,3
3 047,6
97 %

4 589,1
4 660,0
165 %

4 467,0
4 539,0
162 %

2 982,9
3 085,7
103 %

4 523,9
4 547,0
163 %

2 982,9
2 976,3
102 %

4 523,9
4 542,0
163 %

2 919,7
2 961,2
101 %

4 427,8
4 440,0
160 %

2 919,7
2 913,9
98 %

4 427,8
4 405,0
158 %

2 937,2
2 878,0
99 %

4 454,4
4 461,0
159 %

3 077,4
2 916,3
100 %

4 454,5
4 441,0
159 %

3 097,6
2 972,3
101 %

4 454,6
4 473,0
161 %

3 109,6
3 021,7
100 %

4 454,6
4 495,0
161 %

3 125,1
2 943,7
100 %

4 454,6
4 433,0
161 %

3 140,4
3 286,7
100 %

4 454,6
4 468,0
161 %

GREECE

FRANCE

Quota (1)
Production (1)
Self-sufficiency

23 423,0
24 196,0

22 050,6 21 465,0
22 181,0 21 647,0
104 %

100 %

21 834,3
21 931,0
102 %

21 834,3
21 474,0
104 %

27 549,5
26 412,0
102 %

27 549,5
25 612,0
102 %

27 764,8
26 012,5
103 %

27 764,8
26 047,1
101 %

27 764,8
26 980,1
102 %

27 764,8
27 179,9
102 %

27 767,5
27 170,6
102 %

27 767,0
26 939,6
102 %

Quota (1)
Production (1)
Self-sufficiency

537,0
465,7

504,8
485,6
73 %

491,4
506,1
72 %

536,7
543,7
76 %

536,7
560,5
74 %

526,0
533,0
77 %

526,0
549,1
74 %

626,0
602,3
76 %

626,0
638,9
77 %

626,1
643,6
76 %

629,8
607,8
77 %

629,8
616,7
76 %

629,8
647,9
74 %

Quota (1)
Production (1)
Self-sufficiency

25 634,0
25 941,0

24 196,0 23 555,1
24 861,0 24 070,0
115 %

113 %

23 865,1
23 714,0
111 %

23 865,1
24 127,0
111 %

23 362,8
23 332,0
107 %

23 362,8
23 045,0
105 %

23 503,0
22 854,0
105 %

23 693,9
23 278,0
104 %

23 720,9
23 348,0
104 %

23 749,7
23 109,0
103 %

23 772,8
23 045,0
101 %

23 793,9
23 032,0
101 %

IRELAND

ITALY

Quota (1)
Production (1)
Self-sufficiency

Quota (1)
Production (1)
Self-sufficiency

5 583,0
5 478,4

8 798,0
8 547,5

5 266,2
5 390,4
206 %

5 134,2
5 196,7
203 %

8 600,5
8 659,9
72 %

8 373,0
8 554,1
69 %

5 285,9
5 248,1
205 %

8 300,0
8 436,5
67 %

5 285,9
5 269,1
206 %

8 488,2
10 025,7
67 %

5 199,4
5 211,6
205 %

8 312,2
9 894,3
68 %

LUXEMBOURG

Quota (1)
Production (1)
Self-sufficiency (2)

NETHERLANDS

290,0
255,5

274,1
255,5

267,5
255,5

270,8
255,5

270,8
255,5

266,5
255,5

5 199,4
5 257,2
203 %

8 312,2
9 746,0
75 %

266,5
255,5
n.a.

5 230,6
5 201,8
200 %

9 212,2
9 500,6
73 %

268,1
255,5
n.a.

5 234,5
5 280,1
201 %

9 632,5
9 539,5
71 %

268,1
255,5
n.a.

5 235,0
5 288,2
200 %

5 235,7
5 297,1
199 %

5 235,9
5 256,3
197 %

5 236,6
5 091,3
195 %

9 632,5
9 911,2
72 %

9 698,4
10 132,7
73 %

9 698,4
10 019,0
72 %

9 698,4
10 320,0
71 %

268,1
255,5
n.a.

268,1
255,5
n.a.

268,1
255,1
n.a.

268,1
255,2
n.a.

Quota (1)
Production (1)
Self-sufficiency

11 979,0
12 331,0

11 260,3 10 960,8
11 297,0 11 024,0
192 %

188 %

11 120,7
10 869,0
187 %

11 120,7
10 778,0
186 %

10 876,9
10 536,0
184 %

10 876,9
10 431,0
181 %

10 972,1
10 500,0
180 %

10 982,3
10 496,0
178 %

10 985,8
10 825,0
176 %

10 988,0
10 535,0
175 %

10 988,6
10 458,0
175 %

10 991,9
10 541,0
n.a.

UNITED KINGDOM

SPAIN

Quota (1)
Production (1)
Self-sufficiency

Quota (1)
Production (1)
Self-sufficiency

PORTUGAL

Quota (1)
Production (1)
Self-sufficiency

AUSTRIA

Quota (1)
Production (1)
Self-sufficiency

FINLAND

Quota (1)
Production (1)
Self-sufficiency

Quota (1)
Production (1)
Self-sufficiency

SWEDEN

Total

15 394,6
15 796,0

14 474,8 14 091,6
14 951,0 14 584,0

87 %

84 %

14 405,1
14 645,0
95 %

14 405,1
14 650,0
94 %

14 112,5
14 131,0
94 %

14 112,5
14 028,0
88 %

14 197,2
14 072,0
88 %

14 270,4
14 322,0
89 %

14 308,7
14 075,0
86 %

14 338,4
14 058,2
84 %

14 354,3
14 259,8
84 %

14 374,0
14 053,0
84 %

4 650,0
4 637,1

4 522,0
4 547,7
97 %

4 354,7
4 377,3
99 %

4 551,2
4 485,7
100 %

4 551,2
4 501,7
99 %

1 147,0

1 253,0
98 %

1 316,0
100 %

1 420,0
103 %

1 530,0
105 %

4 458,3
5 829,0
97 %

1 743,4
1 551,0
109 %

4 458,3
5 438,0
96 %

1 743,4
1 531,0
100 %

5 200,0
5 352,0
94 %

1 804,9
1 448,0
97 %

5 222,4
4 925,5
92 %

1 835,5
1 497,2
100 %

5 426,0
5 602,0
94 %

1 835,5
1 600,2
102 %

2 369,8
2 292,0
n.a.

2 355,7
2 365,4
n.a.

3 300,0
3 243,0
n.a.

5 438,1
5 547,4
93 %

1 835,5
1 631,7
102 %

2 382,4
2 392,0
n.a.

2 384,3
2 328,8
n.a.

3 300,0
3 258,3
n.a.

5 452,1
5 428,4
92 %

1 835,5
1 661,9
101 %

2 383,2
2 419,0
n.a.

2 388,2
2 370,1
n.a.

3 300,0
3 276,4
n.a.

5 457,6
5 482,0
92 %

1 835,5
1 695,7
101 %

2 394,0
2 448,0
n.a.

2 394,5
2 362,6
n.a.

3 300,0
3 277,5
n.a.

Quota (1) 104 381,6

98 761,1 96 105,6
Production (1) 106 975,2 101 675,2 99 117,3
92 510,0 90 100,0
Consumption 88 300,0
110 %
Self-sufficiency

110 %

121 %

97 676,6
99 181,2
87 200,0
114 %

97 864,8 103 754,9 103 754,9 106 170,3 107 062,4 115 381,1 115 577,4 115 654,0 115 736,3
100 689,8 105 086,6 103 211,7 103 137,7 103 637,1 113 874,5 113 850,1 113 613,0 113 900,5
93 360,0 101 910,0 101 970,0 102 570,0 102 380,0
85 630,0
112 %
111 %
118 %

90 000,0
117 %

91 700,0
113 %

92 140,0
112 %

112 %

111 %

111 %

(1) Quotas for deliveries to dairies and deliveries declared, corrected on the basis of their fat content.
(2) Self-sufficiency estimated for the Belgo-Luxembourg Economic Union (BLEU).
Source: For the quotas and quantities produced: Summary tables of the questionnaire replies (Regulation (EEC) No 5361/93, Article 8, DG VI, updated 9-14/9/1999 – For self-

sufficiency: ‘Zentrale Markt- und Preisberichtsstelle ZMP-Marktbilanz Milch’.

30.10.2001

EN

Official Journal of the European Communities

C 305/13

In Member States where distribution to and transfer of quota
31.
between producers is based on administrative criteria smaller
farmers generally receive most of the reallocated quotas.

36. Table 2 shows the proportion of levy due that had been col-
lected from producers in the three Member States provided by the
Commission in June 2001.

Implementation of the system

32. The Court’s previous Special Report No 4/93 criticised three
Member States (Greece, Spain, Italy) in particular for their frag-
mentary application of the quota regime.

In Italy, the milk quota regime was still not fully imple-
33.
mented. For the 1995/96 to 1998/99 milk marketing years addi-
tional levy amounting to 202,7 million euro 203,4 million euro,
224,8 million euro and 239,5 million euro in each year respec-
tively was due as a result of production exceeding the national
reference quantity. The Commission has collected it from the Ital-
ian authorities by reducing the monthly EAGGF advance pay-
ments. The purchasers of milk, who should collect the levy from
milk producers exceeding their quota, have not done so, nor have
they paid any significant part of it to the Italian authorities since
1995/96 (1) (see Table 2).

34.
In Spain, the milk quota regime has only been fully imple-
mented since the 1998/99 milk marketing year. Until then the
national authorities had not properly notified the purchasers of
the correct amount of levies to be collected nor were all milk pro-
ducers notified of levies due. Levies were payable for the follow-
ing milk marketing years 1993/94 (11,4 million euro), 1995/96
(42,1 million euro) and 1996/97 (23,2 million euro). However,
the levy bills sent out by the national authorities to the purchas-
ers of milk were challenged legally and the levies were suspended.
At the time of the audit, only a small percentage of the levies due
had been collected by the purchasers of milk and paid by the milk
producers. The Commission has collected the balance, as in the
case of Italy, by reducing the monthly EAGGF advances to Spain.

35.
In Greece, the situation has improved. The purchasers of
milk and the milk producers have been notified of the levies due
and significant payments are being made. The levies due in Greece
for 1995/96, 1997/98 and 1998/99 were 2,7 million euro, 1,7
million euro and 8,8 million euro respectively.

Table 2

Percentage of levy due collected from producers

GREECE

SPAIN

ITALY

1995/96

1996/97

1997/98

1998/99

97,5

3,9

17,3

No levy
due

10,0

0,2

95,2

66,9

No levy
due

0,0

67,9

0,0

37. The persistence of implemention problems in Italy, Spain
and Greece is explained by legal processes which hinder effective
collection of the levy from milk producers. Levy demands are
being immediately appealed and subsequent legal proceedings
take many years. In practice, this has led to indefinite delays in
paying the levy.

Audit specific to Member States

Quota allocation and management

38. Milk quotas are defined by the quantity of milk and the fat
content of the milk. The initially fixed fat content is used as a ref-
erence for adjusting the current year’s milk production for each
producer. The adjusted quantity of milk produced is compared to
quota. The data underlying the initial fixing of the reference fat
content have to be kept for three years. The three years’ period is
insufficent to enable an audit in subsequent years. There should
be no time limit for such critical data.

39.
In Portugal, production only reached the quota in 2000. The
Court asked the national authorities for the production data of
the reference period used to fix the initial quota. These data could
not be reconciled with the actual quota allocation laid down in
the EU Regulation and the Commission could not give any expla-
nation for this.

(1) On 16 January 2001, the Italian Consiglio di Stato, acting as appeal
judge against decisions taken by Tribunali amministrativi regionali
(TAR — Regional administrative tribunals), overturned a decision
taken by the administrative tribunal in the region of Lazio which had
suspended the collection of the additional levy from a milk producer
exceeding the individual quota. Following that, the Italian administra-
tion (AGEA — Agenzia per le erogazioni in agricoltura) has renotified
the amount of levy due to the milk producer concerned and must
now collect the levy. It is expected the Consiglio di Stato will also
overturn the other numerous similar decisions taken by the TAR.

The offsetting mechanism

40. Shortfalls of individual quotas or unused quotas (e.g. national
reserve) may be used to offset overruns at producer or dairy
level (2).

(2) Council Regulation (EEC) No 3950/92 of 28 December 1992,

Article 2(1) (OJ L 405, 31.12.1992).

C 305/14

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Official Journal of the European Communities

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41. The detailed choice on how to apply offsetting mechanisms
is left to the Member States and, again, wide differences appear
between the choices made by Member States. In France, offset-
ting is kept to a minimum and even in years where no national
overrun occurs farmers who overproduce may have to pay a levy,
the proceeds of which go to national restructuring measures. In
the United Kingdom, offsetting arrangements at both the national
and the purchaser levels allow farmers to trade their quota, fine-
tuning their individual quota according to the latest estimates of
national overrun. At the extreme, cases were seen where farmers,
believing that no levy would be payable in a particular year, trans-
ferred out 100 % of their available quota (for financial gain) only
to find that they were liable to a levy on their entire production
when in fact a national overrun of quota did occur.

42. The evolution of the regime to allow various flexible
approaches to offsetting erodes the quota regime as an instru-
ment to reduce surplus in the milk market and should be offset
by a corresponding decrease of the global milk quota.

Approval of purchasers

43. The regulations foresee that all purchasers of milk must be
approved by the authorities in their respective Member States.
The withdrawal of approval from a purchaser is the only real
sanction available to a Member State in the case of non-respect of
the quota regulations.

44. The fact that the withdrawal of purchaser approval is such a
drastic step means that it is reserved for the most flagrant abuses
of the system. In the two cases the Court examined, approval was
withdrawn only after very careful consideration by the Member
States (Spain, the United Kingdom). In the case of larger purchas-
ers withdrawal of approval is not a realistic penalty, because of its
impact on milk producers.

Observations relating to direct sellers

45. Despite the relatively small quantities involved the Court
audited a number of direct sellers who purchased additional
milk (1). In such cases, direct sellers need an approval as pur-
chaser. This gives rise to the requirement for a more sophisticated
bookkeeping system than that required for other direct sellers (2).
Some of the direct sellers audited purchased additional milk with-
out having been granted an approval as purchaser. In general, the
direct sellers audited demonstrated considerable weaknesses in
their bookkeeping (3) (see paragraph 53).

Controls on purchasers and direct sellers

46. The Member States must, according to the EU regulations,
carry out specific checks on the declaration of milk purchasers
and direct sellers (4). The audit carried out in the Member States
sought to examine whether these checks on totals of milk pro-
duced were carried out, their efficiency and the extent to which
they could be improved.

47. The regulations require the Member States to:

— annually check at least 40 % of purchasers and 5 % of direct

sellers,

— make such checks based on a formalised risk analysis,

— include checks on milk transport collecting milk from farms,

— verify declarations of milk purchased and milk produced at
the premises of purchasers and direct sellers, including checks
on the accounts and records required to be kept under the
regulations,

— take all the verification measures necessary to ensure payment

of the milk levy (5).

48.
In most Member States, a number of very large purchasers
dominate the market and checking the declaration of total milk
purchased by them takes substantial time and use of skilled
resources. The practice in Member States varied widely. In three
Member States (Germany, France, the Netherlands), there was a
detailed examination of the declaration and the stock accounts
and a subsequent reconciliation to other commercial documents
of the company. In other Member States (Greece, Spain, Portugal),
the checks were more limited in scope and sometimes relied on
records produced specifically for the inspection. No cross-checking
to published accounts or other records was carried out (Spain,
Portugal). The results of the checks on purchasers (and direct sell-
ers) were found to be poorly documented in three Member States
(Greece, Ireland, France, only for direct sellers).

49. Despite the relatively small quantities involved, the inspec-
tion of the direct sellers is important, especially given that the
majority of direct sellers (including all those visited during the
audit) hold quota for both direct sales and normal dairy deliver-
ies. The controls should provide for the cross-checking of delivery
and direct sales information. In one Member State (France) this is
not facilitated because responsibility for the checks for direct sales
and deliveries is given to completely different organisations. Con-

Instances noted in Germany, Ireland, the United Kingdom.

(1)
(2) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 7(1)(e) versus 7(1)(f) (OJ L 57, 10.3.1993).

(3) Observations made in Spain, France, Germany and the United King-

dom.

(4) Commission Regulation (EEC) 536/93 of 9 March 1993, Article. 7

(OJ L 57, 10.3.1993).

(5) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 7(1) (OJ L 57, 10.3.1993).

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trols on direct sellers were generally poor. The audit revealed cases
where manipulation of different quotas (direct sales and delivery)
had been used to cover misdeclarations or to avoid levy liabil-
ity (1).

In Portugal to date, the total production declared to the
53.
Commission could not be fully reconciled to the records held by
the paying agency. Since declared production is approaching or
overrunning the national reference quantity, this question is
becoming more important and should be addressed quickly.

In only three of the Member States visited (Germany, the
50.
Netherlands, the United Kingdom) have transport checks been
made during collection from the farm. The application of this
requirement (2)had sometimes proved complicated (e.g. deciding
on which bodies have the legal right to stop and inspect tankers
etc.).

In one Member State (3), the producers of milk reduced their
51.
declared production by amounts that were considered as con-
sumption on the farm and therefore not required to be declared
for levy purposes. These amounts of milk did in fact leave the
farm for transformation into cheese etc. at the local cooperative.
The producers then took cheese and other products, including
non-dairy products, from the cooperative for a value equal to the
milk supplied. This practice known as retrocession is contrary to
the milk quota regulations, causing the total milk production to
be underdeclared. Retrocession was apparently widespread in the
area visited and was the subject of an ongoing fraud investigation
by the national customs authorities.

Declaration of the levy and accounting by the
Commission

54. According to Community legislation (4) the Commission, in
the case of a Member State not declaring within the time limit
(September declarations of expenditure) the amount of levy due
to the Community, shall reduce advances in proportion to the
amount due or an estimate thereof. The expenditure taken into
account in the preliminary clearance decisions shall be reduced
accordingly. This provision has been applied to four Member
States (Greece, Spain, Italy, the United Kingdom) for recent milk
marketing years (5).

55. The timely implementation by the Commission of reduc-
tions of advance payments to Member States depends on the
timely communication to the Commission (6) of the levy debt
estimated by the Member States. Even though figures may not be
reliable, the Commission uses the data communicated by the
Member States when advance payments are reduced.

Calculation and payment of the levy

56. Reductions of advance payments to Spain, Greece and Italy
for the 1995/96 and 1997/98 milk marketing years were delayed
for more than six months because of late communication of data.

52. The calculation of the levy due takes into account the quan-
tity produced, adjusted for the producer’s milk butterfat content.
In three Member States (France, Ireland, the United Kingdom)
cases were audited where the butterfat recording, and therefore
the declarations, had been manipulated and caused errors in the
calculation of the final quantity produced and subsequent levy
due. Fraud and administrative investigations were ongoing in
these Member States. The cases seen, the type of manipulations
and the complexity of the calculation of the butterfat adjusted
quantity, indicate that the Commission could play a more impor-
tant role in sharing information on the type of manipulation and
the methods of detecting such cases.

57. The clearance-of-accounts procedure allows the Commission
to decide on the correct amount of levy due. However, leaving the
final calculation until then means that the final figures are only
available to the Commission with a delay of up to several years.
Accounts relating to periods prior to 1994/95 were cleared at the
time of the Court’s audit, while the Commission was still work-
ing on the clearance of accounts relating to 1995/96 and 1996/
97. The levy debt estimated by Italy for the 1995/96 and 1996/97
milk marketing years was lower than the figures audited by the
Commission. The clearance-of-accounts decision taken in 2000
in relation to these two years was appealed by Italy, to the concili-
ation body, in November 2000.

(1) Manipulation between quotas was seen in France, and a further case
was examined in the UK whereby a direct seller sold small quantities
of cream and all the remaining milk was delivered to a dairy. How-
ever, this milk was, in accordance with Commission guidance, treated
as a by-product and did not attract the levy applicable to deliveries
but the lower levy relating to direct sales.

(2) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 7(3) (OJ L 57, 10.3.1993).

(3) France (Jura).

(4) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 5(2) (OJ L 57, 10.3.1993).

(5) Greece (1994/95, 1995/96, 1997/98 and 1998/99), Italy (1995/96,
1996/97, 1997/98 and 1998/99), Spain (1995/96, 1996/97 and 1998/
99), the United Kingdom (1994/95, 1996/97, 1997/98 and 1998/99).
(6) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 8 (OJ L 57, 10.3.1993).

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58. Penalties are to be applied when the declarations of milk
produced from the Member States are late or when the amount
of levy due is underestimated by more than 10 % (1). However,
despite a number of such cases the penalties have never been
applied by the Commission. The normal practice has been to
issue a warning letter.

59. According to the Commission, available penalties are not
substantial enough, in the case of incorrect or incomplete declara-
tions from Member States which result in an underestimate of the
levy due. For the 1996/97 and 1998/99 milk marketing years ini-
tial underdeclarations by Italy amounted respectively to 116,2
million euro and to 63,9 million euro.

62. The further 3 % cut was never made. The only subsequent
changes to national references have been increases in quota for
Spain, Greece and Italy (1993). There has been no change in the
national reference quantities since that time despite the fact that
the fat content has continued to rise, increasing the problems of
disposal of excess production. A price reduction of 5 % in the
intervention price for butter was implemented in two stages from
July 1993, while the intervention price for SMP was reduced by
1,2 % in July 1994. These price cuts proved insufficient to have
any effect on supply.

63. As a result, excess production still needs to be disposed of
through export refunds and internal consumption subsidies. Con-
sumer prices for dairy products remain twice world market levels,
at an annual cost to consumers of around 20 billion euro.

Interest on late payments

AGENDA 2000

60. The end-of-year declarations of agricultural expenditure by
the Member States to the Commission include payments of the
levy after the due date. Member States should charge interest on
these late payments and pay the amounts in question to the Com-
mission (2). They have to decide, within certain guidelines, on the
interest rate to apply. The audit of the accounts shows that three
Member States (Germany, Greece, the United Kingdom) have not
charged interest on late payment of the levy due for the 1997/98
milk marketing year. Reductions of advance payments to Member
States do not cover late payment interest. The Commission can
only verify late payment interest when some years after the event
a clearance-of-accounts audit adresses the point. At the time of
audit the Italian authorities were working on the calculation and
billing of the 1995/96 and 1996/97 quota years. The late payment
interest foreseen is therefore outstanding in these cases as the only
‘payment’ has been made by reductions in advances.

MANAGEMENT OF THE QUOTA LEVELS

In 1997, Agenda 2000 (5) set the following objectives for the
64.
common agricultural policy for the period 2000 to 2006: increase
competitiveness in order to take advantage of the expected posi-
tive developments in the world market for food products, ensure
a fair standard of living for the agricultural community, integrate
environmental goals into the CAP and create alternative sources
of income and employment for farmers. Details of the revised
Commission proposals are given in Annex 1.

65. The Commission issued a proposal for the reform of the
CMO for the milk and milk products sector with a view to attain-
ing these objectives. The main features of this proposal were: an
extension of the quota system until 2006, without reducing quota
levels; a gradual 10 % (6) reduction in the support price over the
period as a whole; a dairy cow premium of 215 euro per cow.

66. The expected results of this reform were: a 2 Mio t reduc-
tion in milk production by the end of 2005, a 0,5 Mio t increase
in the surplus of milk over internal consumption between 2000
and 2005 and a consequent increase in stocks of SMP.

61.
In March 1991 (3), given the deterioration in the equilibrium
of the markets in milk and milk products (notably as concerns the
replacement of intervention stocks, see Annex 5), the Commission
proposed a 5 % reduction in national reference quantities. This
reduction was to be spread over several milk marketing years,
with an initial 2 % reduction envisaged for the year 1991/92. The
Council (4) adopted this initial 2 % reduction in national reference
quantities.

CONCLUSION

The quota regime

(1) Commission Decision 93/673/EC of 10 December 1993, Articles 1,

2 and 3 (OJ L 310, 14.12.1993).

(2) Commission Regulation (EEC) No 536/93 of 9 March 1993,

Article 3(4) (OJ L 57, 10.3.1993).
(3) COM(91) 72 final of 8 March 1991.
(4) Council Regulation (EEC) No 1630/91 of 13 June 1991 (OJ L 150,

15.6.1991).

67. The milk quota system, coupled with payment of the addi-
tional levy in the event of individual reference quantities being
exceeded, has resulted in an average reduction in production of
10 % (for EU-10). The quota regime can be generally regarded as

(5) COM(97) 2000 final of 15 July 1997.
(6) The Commission proposed in 1998 to increase the reduction to 15 %

(see Annex 1, paragraph 1).

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achieving the objective of restricting production to the target level,
surplus production above the national reference quantities being
reported as less than 1 % (see paragraphs 9 to 13). At the same
time it has not, to any great extent, prevented the restructuring of
the dairy sector within each Member State. The rationalisation of
the sector has seen great numbers of small farms disappear). Many
small farms are now providing a second income to part-time
dairy farmers (see paragraphs 23 and 24). Moreover, the previ-
ously increasing budgetary cost of the common market organisa-
tion in milk and milk products has been reversed since 1993 (see
paragraphs 16 to 18).

68. However, the setting of the overall level of quota would
appear to be more in line with the political goal of maintaining
the status quo rather than the economic goal of bringing milk
production into line with unsubsidised internal consumption and
unsubsidised export (see paragraphs 14-15). The Commission and
the Council have allowed the regime to become more and more
flexible. This has to be offset by a subsequent decrease of the glo-
bal milk quota (see paragraphs 40 to 42). Community Regula-
tions (1) have been amended to introduce several measures that
limit the financial impact on milk producers of exceeding indi-
vidual reference quantities and lessen the deterrent effect of the
additional levy.

59). Whilst this partially protects the financial interests of the
European Union the fundamental objective of holding each indi-
vidual producer accountable for his overproduction is not met.
The continued need for both reductions in advances and clear-
ance of accounts decisions in respect of milk quotas shows that
the quota regime cannot be said to be fully implemented in all
Member States some 17 years after its introduction

71. The deferral, waiver or suspension of the payment of the
levy due by the milk producers has multiple effects:

(a) the Italian and Spanish taxpayers have effectively paid the levy
via a reduction by the Commission in the amount of EAGGF
aid; in the absence of corrective action this is equivalent to a
national subsidy to the milk producers which is in clear breach
of Community policy, and which gives an unfair advantage to
Italian and Spanish producers;

(b) when milk producers do not pay the levy due, its dissuasive

effect is lost and overproduction is encouraged.

69. The structural surplus (see paragraphs 14-15) requiring sub-
stantial financial support from the EU budget to aid disposal is
likely to continue. It might well increase in the future because of
enlargement of the European Union, and current trends in con-
sumption. World Trade Organisation discussions on the future of
export refunds are likely to further complicate matters (see
Annex 1). The reforms approved to date do not create the precon-
ditions for liberalisation of the market in milk and milk products.
Against this background overall milk production ought to be into
line with unsubsidised internal consumption and unsubsidised
export.

Milk prices

72. Successive decisions by the Council to increase national ref-
erence quantities without substantially reducing intervention
prices have prevented a liberalisation of the milk and milk-
products sector to mirror that in other agricultural sectors. EU
consumers are paying substantially more for milk and milk prod-
ucts than they would in a free market. In addition, 3 000 million
euro a year is required from the EU budget to subsidise exports
and specific internal uses of butter and skimmed-milk powder.

Implementation of the scheme

70.
In Italy the fundamental problem of non-payment of levy by
the producers highlighted in previous reports continue (see para-
graph 33). In Spain and Greece improvements have been made
although problems of outstanding levy debt remain. The Com-
mission has provisionally collected the levy from some Member
States by reducing the monthly advances on agricultural spend-
ing and in clearance decisions (see paragraphs 34 to 36 and 54 to

RECOMMENDATIONS

73. The Commission should:

(a)

in the short term:

— examine the possibility of allowing transfers of quota
between producers operating in different Member States
and reduce subsequently overall quota,

(1) ECA Special Report No 4/93, paragraphs 4.17 and 4.22 (OJ C 12,

15.1.1994).

— specify the checks to be made by paying agencies in more
detail, with a view to ensuring their consistent application
and reporting,

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— put forward draft legislation providing for the application
of graduated sanctions to dairies in breach of quota,

mation such as internal consumption in milk equivalent
or self-sufficiency rates by Member State;

— tighten the arrangements for enforcing and accounting for
the levy, and should ensure that interest on late payments
is consistently calculated and collected,

— ensure the availability of sufficient reliable data on dairy
products in order to provide market-management infor-

(b) make already in 2002 proposals for a fundamental reform of
the dairy sector. The objectives should be to achieve equilib-
rium between overall milk production and unsubsidised inter-
nal consumption plus potential unsubsidised exports. It should
provide for the ending of the quota regime while ensuring a
fair standard of living for dairy farmers.

This report was adopted by the Court of Auditors in Luxembourg at its meeting on 11 and 12 July 2001.

For the Court of Auditors

Jan O. KARLSSON

President

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The Commission’s 1998 proposal

ANNEX 1

1. The Commission’s revised proposal (1) of March 1998 envisaged a reduction in prices (– 15 % in four annual steps start-
ing from July 2000) and a dairy cow premium (EUR 330 as from 2003). The criteria for determining the amounts to be
received by farmers were to be established by the Member States. The proposal justified a 2 % increase in the national refer-
ence quantities, offset by the effect of a drop in prices on internal demand and the potential for additional exports. The cost
of this reform was estimated at 8 112 million euro for the period 2000 to 2006 as a whole.

In its opinion on Agenda 2000 (2), the Court warned that the increases in quotas proposed, and subsequently agreed,

2.
would lead to an even greater surplus in the milk market and a continued heavy financial burden on the EU budget.

3. All the options that the Council examined were aimed at reducing the price paid to the milk producer in order to close
the gap between the price of milk products on Community markets and their price on the international market, with a view
to facilitating the unsubsidised exportation of any surplus production. The following options were examined :

(a) a 10 % reduction in prices with a 2 % rise in quotas and partial compensation for loss of income;

(b) a 30 % reduction in prices with a 4 % increase in quotas and partial compensation for loss of income;

(c) a 2 % increase in national reference quantities without any reduction in price. This option was presented as the least
expensive in budgetary terms, as it provided for maintaining direct aid to milk producers at current levels, but had the
drawback of maintaining current levels of export aid, despite pressure from the World Trade Organisation (WTO) to
reduce or abolish such aid.

4. Finally, the Council decided to extend the quota system until April 2008. The national reference quantities allocated to
Greece, Spain, Italy, Ireland and the United Kingdom (Northern Ireland) are to be increased by 1,39 Mio t between 2000
and 2002 and the national reference quantities for the other Member States are to rise by 1,44 Mio t between 2005 and
2007 (3). The national reference quantities will then be 2,83 Mio t (+ 2,4 %) higher than those applicable to the 1999-2000
milk marketing year. Prices are to be reduced by 15 % over a three-year period starting in 2005. Compensatory direct aid
payments will only be made from 2005 onwards. The maximum budgetary cost payable, totalling 13,9 euro/t in 2005, will
swiftly rise to 41,7 euro/t in 2007 (4).

Impact of the Council’s Decision

5. According to the Commission’s medium-term forecasts, demand for butter will fall by 0,8 % per year and demand for
SMP by 2,2 % per year. Demand for cheese will increase by 1,1 % per year. In short, consumption will decrease by around
350 thousand t per year (5) in milk equivalent. In this case, the surplus estimated by the Court to be disposed of on the world
market would rise by 2,86 Mio t per year between 2000 and 2005, without taking into account enlargement, whose impact
on the surplus for export from 2005 has been assessed by the Commission at an additional 2 Mio t in milk equivalent (6).

In the absence of any significant fall in prices in the internal market (or rise in the world market), the disposal of this
6.
surplus on the world market will result in additional expenditure being incurred. The scale of these additional costs will
depend on the price paid to producers, which in turn determines the amount paid in export refunds and in aid for disposal
on the internal market.

(1) COM(1998) 158 final, 18 March 1998.
(2) Opinion No 10/98 of the Court of Auditors.
(3) Council Regulation (EC) No 1256/1999 of 17 May 1999 (OJ L 160, 26.6.1999).
(4) Council Regulation (EC) No 1255/1999 of 17 May 1999, Article 16(1). ‘Producers shall qualify for a dairy premium. It shall be granted
per calendar year, per holding and per tonne of individual reference quantity eligible for premium and available on the holding.’
Article 18(2) lays down the total amount which may be granted per individual reference quantity, i.e. 13,9 euro per tonne in 2005, 27,8
euro per tonne in 2006 and 41,7 euro per tonne in 2007. OJ L 160, 26.6.1999.
Projections made in the study by AGRA Europe (published 1997) and reproduced by the Commission in its review of the CAP, October
1998.

(5)

(6) Agenda 2000 Vol II, COM(97) 2000 final, 15 July 1997.

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7. The Commission’s scenarios implicitly call for discussion of the following issues.

(a) To what level should institutional prices be reduced in order to minimise the gap between prices on the internal market
and prices on the world market? On the internal market, wholesale prices for butter (1), SMP and Cheddar are generally
double those on the world market.

(b) What is the potential for increasing Community exports? World trade in milk products is limited. Only 13 % of inter-
national butter production and 8 % of international cheese production is traded on the world market. Between 1995
and 1998, the export restrictions imposed by the GATT Agreements only limited exports of cheese. The European Union
has consistently lost market share for all milk products. Of late, world trade has been dominated by New Zealand and
Australia, with the European Union only retaining the lead in exports of cheese (2). In 1985, exports of butter from the
European Union amounted to 46 % of all world exports. They currently represent no more than 25 %.

(c) How can one reconcile the many objectives of the CAP in the milk and milk products sector? In moving the CMO
towards a ‘market economy’, other Community measures must be developed, aimed notably at supporting milk produc-
ers in mountain areas or other areas in which there is no alternative to dairy farming.

Enlargement of the Union

8. Since the Court’s Opinion No 10/98 on Commission proposals for regulations within the Agenda 2000 framework, in
particular on the Commission’s hypothesis on the COMs for beef, veal and milk and milk products (3), the Commission
issued in December 1999 Prospects for Agricultural Markets 1999 to 2006. This publication outlines likely developments of
agricultural markets for the EU-15 and the CEEC-10 up to 2006. It takes fully into account the implementation of the CAP
reform from 2000 onwards, as adopted in the framework of Agenda 2000. No assumptions were made concerning dates
and conditions of entry into the EU by candidate countries, nor does the Commission provide detailed projections on the
implementation of the current milk quota scheme in the 10 CEEC applicant countries.

9. The Commission’s description of the eventual implementation of a milk quota scheme in the five applicant countries
the Czech Republic, Estonia, Hungary, Poland and Slovenia, call for the following comments. In the CEEC, the production of
beef and veal is mainly linked to the dairy herd, as there exist only limited numbers of herds with suckler cows. The linked
markets for milk and beef/veal therefore play an important role for their agriculture. Milk production has particular impor-
tance for Poland, the Czech Republic and Hungary. According to the forecasts, the likelihood of a milk market surplus for
the year 2006 is high, both in EU-15 and in the CEEC (4). There is an urgent need for the Commission to make a compre-
hensive and authoritative evaluation of the impact of the current quota system on the milk and beef meat markets after
enlargement and the cost to the EU budget (5).

Special Report No 8/2000, paragraph 13 (OJ C 132, 12.5.2000).

(1)
(2) Moreover, non-refund exports totalled 80 664 t.
(3) OJ C 401, 22. 12.1998, paragraph 45 ff.
(4)
(5) Court’s Opinion No 10/98, paragraph 48 (OJ C 401, 22.12.1998).

See Prospects 1999 to 2006, graph 1.15 and Table A3.

MILK QUOTA
(Available quotas taking into account the use of EU reserve and SLOMs and suspended quantities)

ANNEX 2

1984/85
3 163
480
3 643
4 932
1
4 933
23 487
305
23 792
23 792

472
116
588
25 585
1 183
26 768
5 583
16
5 599
8 798
1 116
9 914
293
1
294
12 052
145
12 197
15 552
398
15 950
103 678

1985/86
3 161
450
3 611
4 882
1
4 883
23 423
130
23 553
23 553

467
116
583
25 494
1 014
26 508
5 583
16
5 599
8 798
1 116
9 914
290
1
291
11 979
95
12 074
15 394,6
395,4

15 790
102 806

99,2

1986/87
3 211,0
400,0
3 611,0
4 882,0
1,0
4 883,0
23 423,0
130,0
23 553,0
23 553

537,0
46,0
583,0
25 634,0
874,0
26 508,0
5 583

16,0
5 599,0
8 798,0
1 116,0
9 914,0
290,0
1,0
291,0
11 979,0
95,0
12 074,0
15 394,6
395,4
15 790,0

102 806

99,2
4 650,0
750,0
5 400,0

1987/88
3 022,7
380,9
3 403,6
4 589,1
1,0
4 590,1
22 050,6
94,4
22 145,0
22 145

504,8
45,1
549,9
24 196,0
756,5
24 952,5
5 266,2
15,7
5 281,9
8 600,5
1 093,7
9 694,2
274,1
1,0
275,1
11 260,3
93,1
11 353,4
14 474,8
387,5
14 862,3
97 108

93,7
4 522,0
685,0
5 207,0

1988/89
2 945,3
380,9
3 326,2
4 467,0
1,0
4 468,0
21 465,0
93,1
21 558,1
21 558

491,4
44,6
536,0
23 555,1
747,8
24 302,9
5 134,2
15,5
5 149,7
8 373,0
1 082,5
9 455,5
267,5
1,0
268,5
10 960,8
92,1
11 052,9
14 091,6
383,6
14 475,2
94 593

91,2
4 354,7
677,5
5 032,2

1989/90
2 982,9
380,9
3 363,8
4 523,9
1,0
4 524,9
21 834,3
93,1
21 927,4
21 927

536,7
4,6
541,3
23 865,1
747,8
24 612,9
5 285,9
15,5
5 301,4
8 300,0
1 082,5
9 382,5
270,8
1,0
271,8
11 120,7
92,1
11 212,8
14 405,1
383,6
14 788,7
95 927

92,5
4 551,2
527,5
5 078,7

1990/91
2 982,9
380,9
3 363,8
4 523,9
1,0
4 524,9
21 834,3
93,1
21 927,4
21 927

536,7
4,6
541,3
23 865,1
747,8
24 612,9
5 285,9
15,5
5 301,4
8 488,2
732,5
9 220,7
270,8
1,0
271,8
11 120,7
92,1
11 212,8
14 405,1
383,6
14 788,7
95 766

92,4
4 551,2
527,5
5 078,7

1991/92
2 919,7
373,2
3 292,9
4 427,8
1,0
4 428,8
27 549,5
150,0
27 699,5
21 483,1
6 216,4
526,0
4,5
530,5
23 362,8
732,8
24 095,6
5 199,4
15,2
5 214,6
8 312,2
717,9
9 030,1
266,5
1,0
267,5
10 876,9
90,3
10 967,2
14 112,5
392,9
14 505,4
93 816

90,5
4 458,3
517,0
4 975,2
1 743,4
118,6
1 862,0

1992/93
2 919,7
373,2
3 292,9
4 427,8
1,0
4 428,8
27 549,5
150,0
27 699,5
21 483,1
6 216,4
526,0
4,5
530,5
23 362,8
732,8
24 095,6
5 199,4
15,2
5 214,6
8 312,2
717,9
9 030,1
266,5
1,0
267,5
10 876,9
102,3
10 979,2
14 112,5
392,9
14 505,4
93 828

90,5
4 458,3
517,0
4 975,2
1 743,4
116,7
1 860,1

1993/94
2 937,2
373,2
3 310,4
4 454,4
1,0
4 455,3
27 764,8
100,0
27 864,8
21 611,4
6 253,4
626,0
4,5
630,5
23 503,0
732,8
24 235,8
5 230,6
15,2
5 245,8
9 212,2
717,9
9 930,1
268,1
1,0
269,1
10 972,1
102,6
11 074,7
14 197,2
392,9
14 590,0
95 353

92,0
5 200,0
367,0
5 567,0
1 804,9
67,6
1 872,5

1994/95
3 077,4
233,1
3 310,4
4 454,5
0,9
4 455,3
27 764,8
100,0
27 864,8
21 611,4
6 253,4
626,0
4,5
630,5
23 693,9
541,9
24 235,8
5 234,5
11,6
5 246,1
9 632,5
297,5
9 930,1
268,1
1,0
269,1
10 982,3
92,3
11 074,7
14 270,4
319,6
14 590,0
95 353

5 222,4
344,5
5 567,0
1 835,5
37,0
1 872,5

1995/96
3 097,6
212,8
3 310,4
4 454,6
0,8
4 455,3
27 764,8
100,0
27 864,8
21 611,4
6 253,4
626,1
4,5
630,5
23 720,9
514,9
24 235,8
5 235,0
10,8
5 245,8
9 632,5
297,5
9 930,1
268,1
1,0
269,1
10 985,8
88,8
11 074,7
14 308,7
281,4
14 590,0
95 353

5 426,0
141,0
5 567,0
1 835,5
37,0
1 872,5
2 369,8
367,0
2 736,8
2 355,7
10,0
2 365,7
3 300,0
3,0
3 303,0

1996/97
3 109,6
200,8
3 310,4
4 454,6
0,7
4 455,3
27 764,8
100,0
27 864,8
21 611,4
6 253,4
629,8
0,7
630,5
23 749,7
486,1
24 235,8
5 235,7
10,0
5 245,8
9 698,4
231,7
9 930,1
268,1
1,0
269,1
10 988,0
86,7
11 074,7
14 338,4
251,7
14 590,0
95 353

5 438,1
128,8
5 567,0
1 835,5
37,0
1 872,5
2 382,4
367,0
2 749,4
2 384,3
10,0
2 394,3
3 300,0
3,0
3 303,0

1997/98
3 125,1
185,3
3 310,4
4 454,6
0,7
4 455,3
27 767,5
97,3
27 864,8
21 611,4
6 253,4
629,8
0,7
630,5
23 772,8
463,0
24 235,8
5 235,9
9,9
5 245,8
9 698,4
231,7
9 930,1
268,1
1,0
269,1
10 988,6
86,1
11 074,7
14 354,3
235,7
14 590,0
95 353

5 452,1
114,9
5 567,0
1 835,5
37,0
1 872,5
2 383,2
366,2
2 749,4
2 388,2
10,0
2 398,2
3 300,0
3,0
3 303,0

1998/99
3 140,7
169,7
3 310,4
4 454,6
0,7
4 455,3
27 767,0
97,8
27 864,8
21 611,4
6 253,4
629,8
0,7
630,5
23 793,9
441,9
24 235,8
5 236,6
9,2
5 245,8
9 698,4
231,7
9 930,1
268,1
1,0
269,1
10 991,9
82,8
11 074,7
14 374,0
216,1
14 590,1
95 353

5 457,6
109,4
5 567,0
1 835,5
37,0
1 872,5
2 394,0
355,4
2 749,4
2 394,5
10,0
2 404,5
3 300,0
3,0
3 303,0

EU-10

99 917
3 761
103 678

99 471,6
3 334,4

102 806

104 381,6
3 824,4
108 206,0

98 761,1
3 553,88

102 315,0

EU-11
96 105,6
3 519,57
99 625,2

97 676,6
3 329,57
101 006,2

97 864,8
2 979,57
100 844,4

103 754,9

3 114,301

106 869,2

103 754,92
3 124,401

106 879,3

106 170,38
2 875,6
109 046,0

107 062,3

1 983,976

109 046,3

115 381,0
2 070,5
117 451,5

115 577,4
1 915,2
117 492,7

115 654,0
1 842,5
117 496,5

115 736,6
1 766,4
117 502,9

EU-12

EU-15

8 405,5

8 446,7

8 450,6

8 456,9

(1 000 tonnes)
% of initial quota
99,3
35,4
90,9
90,3
70,0
90,3
118,2
32,1
117,1
90,8

133,4
0,6
107,2
93,0
37,4
90,5
93,8
57,5
93,7
110,2
20,8
100,2
91,5
100,0
91,5
91,2
57,1
90,8
92,4
54,3
91,5
92,0

117,4
14,6
103,1
105,3
31,2
100,6
101,0
96,8
100,5
101,6
100,0
101,6
100,0
100,0
100,0

115,8
47,0
113,3

Belgium

Denmark

Germany

(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)

Former Länder
New Länder
Greece

Italy

France

Ireland

(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
United Kingdom (a)
(b)
(c)

Luxembourg

Netherlands

EU-10 (-) Total quota (a+b)
% of initial quota
Spain

(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)
(a)
(b)
(c)

Portugal

Austria

Finland

Sweden

New Member States
Total quota (a+b)
Total
Total deliveries (a)
Total direct sales (b)
Total quota (a+b)

Source:
1984/85 to 1992/93: DGVI document: Summary of answers of Member States to the questionnaire, Article 8.
1993/94: Table in Article 1 of Council Regulation (EEC) 1560/93 of 14 June 1993, applicable from 1 April 1993.
1994/95: Table in Article 1 of Commission Regulation (EC) No 630/95 of 23 March 1995, applicable from 1 April 1994.
1995/96: Table in Article 1 of Commission Regulation (EC) No 1109/96 of 20 June 1996, applicable from 1 April 1995.
1996/97: Table in Article 1 of Commission Regulation (EC) No 614/97 of 8 April 1997, applicable from 1 April 1996.
1997/98: Table in Article 1 of Commission Regulation (EC) No 903/98 of 28 April 1998, applicable from 1 April 1997.
1998/99: Table in Article 1 of Commission Regulation (EC) No 751/1999 of 9 April 1999, applicable from 1 April 1998.
For the periods 87/88 to 92/93, the QGG is reduced by the suspended quantities and increased by the use of the Community reserve and SLOM.

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ANNEX 3

PRODUCTION AND DELIVERY OF COW’S MILK

Belgium

Denmark

Germany (-)
New Länder (1)
Germany (+)

Greece

France

Ireland

Italy

Luxembourg

Netherlands

1981

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

3 789,9

3 871,6

5 037

5 427

3 819

5 234

3 796

5 099

3 918

5 111

3 777

4 860

3 637

4 740

3 632

4 747

3 610

4 742

3 543

4 640

3 514

4 605

3 329

4 661

3 344

4 641

3 375

4 673

3 416

4 630

3 213

4 568

3 418

4 603

24 858,0

26 913,0

26 151,0

25 674,0

26 350,0

24 436,0

23 978,0

24 240,0

23 672,0

23 254

22 656,0

22 617,1

22 423,7

22 884,0

22 872,5

22 533,9

22 210,4

(000) tonnes

747,6

679,3

687,1

663,0

648,1

648,9

678,6

714,0

716,3

711,3

730,9

747,0

769,3

763,5

741,2

750,0

748,7

26 743,0

27 650,0

27 700,0

27 790,0

28 074,0

27 146,0

26 606,0

25 984,0

26 254,0

25 663,0

25 315,0

25 049,0

25 285,0

25 158,0

24 832,0

24 644,0

24 585,0

4 676,9

5 491,0

5 729,5

5 822,5

5 614,2

5 521,5

5 323,1

5 374,5

5 395,5

5 338,0

5 378,0

5 323,5

5 401,6

5 352,4

5 354,3

5 313,0

5 147,1

10 225,5

10 617,7

10 664,8

10 753,1

10 564,3

10 574,3

10 396,4

10 249,5

10 662,5

10 493,1

10 314,9

10 034,5

10 054,8

10 497,0

10 799,0

10 414,0

11 250,0

269,7

289,6

299,4

300,8

298,9

293,3

285,4

285,3

290,3

265,1

260,4

268,2

261,6

268,6

265,5

263,9

264,0

12 147,0

13 240,0

12 782,0

12 550,0

12 695,0

11 672,0

11 406,0

11 321,0

11 285,0

11 047,0

10 901,0

10 951,0

10 963,0

11 295,0

11 013,0

10 921,0

10 995,0

5 809,0

5 335,0

5 480,9

5 442,3

5 723,0

5 906,5

6 168,0

6 168,0

29 063,0

27 991,0

28 098,0

27 866,0

28 607,0

28 779,0

28 701,9

28 378,4

United Kingdom

15 831,0

17 226,0

16 191,0

16 117,0

16 338,0

15 486,0

15 128,0

14 913,0

15 251,0

14 762,0

14 277,0

14 804,0

15 013,0

14 683,4

14 680,7

14 851,5

14 628,1

EU-10 (-)

Spain

Portugal

EU-12

Austria

Finland

Sweden

Total 3 Member States

EU-15

104 325,6 111 405,2 109 257,8 108 565,4 109 611,5 104 415,0 102 178,5 101 460,3 101 878,6

99 716,5

97 952,2

97 784,3

98 157,0

98 949,9

98 604,2

97 472,3

97 849,3

6 108,0

1 182,0

5 941,0

1 292,0

5 738,1

1 349,0

5 746,5

1 459,0

5 752,5

1 548,0

6 619,0

1 527,0

6 143,0

1 513,0

6 030,0

1 428,0

5 655,7

1 474,0

6 149,6

1 575,0

6 084,2

1 606,0

5 997,4

1 633,0

6 104,0

1 665,0

116 901,5 111 648,0 109 265,6 108 665,8 109 179,1 113 671,5 110 943,2 110 723,2 110 729,0 112 397,5 112 200,9 111 270,7 111 786,3

3 148,0

2 467,7

3 304,0

8 919,7

3 033,6

2 370,6

3 316,0

8 720,2

3 089,8

2 405,4

3 334,0

8 829,2

3 255,5

2 394,8

3 331,0

8 981,3

9 079,0

9 206,0

119 802,2 119 935,0 121 317,2 120 921,1 120 099,9 120 767,6

Member States’ production subject to the scheme

EU-10

EU-11

EU-12

EU-15

109 257,8 108 565,4 115 719,5 110 356,0 107 916,6 107 206,8 107 631,1 113 671,5 110 943,2 110 723,2 110 729,0 121 317,2 120 921,1 120 099,9 120 767,6

(1) Source of data as from 1995, ZMP milk balance sheet 98 and 99.
NB: Germany (-): New Länder excluded, Germany (+): New Länder included.
Source: EUROSTAT New Cronos, last updated 21.2.2000.

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1981

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1993-1984

1998-1993

ANNEX 4

DELIVERIES OF COW’S MILK

Belgium
Denmark
Germany (-)
New Länder (1)
Germany (+)
Greece
France
Ireland
Italy
Luxembourg
Netherlands
United Kingdom
EU-10 (-)
Spain (2)
Portugal
EU-12

3 022
4 837
23 032,0

3 178,1
5 227
25 176,0

3 048,3
5 034
24 304,0

3 126,3
4 899
23 637,0

3 269
4 911
24 196,0

3 133,1
4 660
22 181,0

3 047,6
4 539
21 647,0

3 085,7
4 547
21 931,0

2 976,3
4 542
21 474,0

447,1
25 060,0
4 525,4
7 748,0
253,5
11 818,0
15 394,0
96 137,0

450,6
26 080,0
5 341,1
8 169,0
246,0
12 914,0
16 787,0
103 568,8

453,9
26 055,0
5 585,0
8 198,0
255,5
12 465,0
15 767,0
101 165,7

460,8
25 412,0
5 682,1
8 531,6
255,5
12 233,0
15 587,0
99 824,3

465,7
25 941,0
5 478,4
8 547,5
255,5
12 331,0
15 796,0
101 191,1
4 637,1
1 147,0
106 975,2

485,6
24 861,0
5 390,4
8 659,9
255,5
11 297,0
14 951,0
95 874,5
4 547,7
1 253,0
101 675,2

506,1
24 070,0
5 196,7
8 554,1
255,5
11 024,0
14 584,0
93 424,0
4 377,3
1 316,0
99 117,3

543,7
23 714,0
5 248,1
8 436,5
255,5
10 869,0
14 645,0
93 275,5
4 485,7
1 420,0
99 181,2

560,5
24 127,0
5 269,1
10 025,7
255,5
10 778,0
14 650,0
94 658,1
4 501,7
1 530,0
100 689,8

2 961,2
4 440
21 450
4 962,0
26 412,0
533,0
23 332,0
5 211,6
9 894,3
255,5
10 536,0
14 131,0
92 744,6
5 829,0
1 551,0
105 086,6

2 913,9
4 405
21 217,0
4 395,0
25 612,0
549,1
23 045,0
5 257,2
9 746,0
255,5
10 431,0
14 028,0
91 847,7
5 438,0
1 531,0
103 211,7

2 878
4 461
21 563,0
4 449,5
26 012,5
602,3
22 854,0
5 201,8
9 500,6
255,5
10 500,0
14 072,0
91 888,2
5 352,0
1 448,0
103 137,7

2 916,3
4 441
21 689,3
4 357,8
26 047,1
638,9
23 278,0
5 280,1
9 539,5
255,5
10 496,0
14 322,0
92 856,6
4 925,5
1 497,2
103 637,1

Austria
Finland
Sweden
Total 3 Member States
Member States’ deliveries subject to the scheme

EU-10

Delivery/production ratio
(1) Source of data as from 1995, ZMP milk balance sheet 98 and 99.
(2) For Spain the percentages in italics are calculated with reference to 1986.
NB: Germany (-): New Länder excluded, Germany (+): New Länder included.
Source: EUROSTAT New Cronos, last updated 21.2.2000.

101 165,7
92,6 %

99 824,3
91,9 %

105 828,2
91,5 %

100 422,2
91,0 %

EU-11
97 801,3
90,6 %

97 761,2
91,2 %

99 159,8
92,1 %

105 086,6
92,4 %

103 211,7
93,0 %

103 137,7
93,1 %

103 637,1
93,6 %

113 874,5
93,9 %

113 850,1
94,2 %

113 613,0
94,6 %

113 900,5
94,3 %

EU-12

2 972,3
4 473
22 145,3
4 834,8
26 980,1
643,6
23 348,0
5 288,2
9 911,2
255,5
10 825,0
14 075,0
93 937,1
5 602,0
1 600,2
105 974,1

2 292,0
2 365,4
3 243
7 900,4

3 021,7
4 495
22 138,2
5 041,7
27 179,9
607,8
23 109,0
5 297,1
10 132,7
255,5
10 535,0
14 058,2
93 650,2
5 547,4
1 631,7
105 871,0

2 943,7
4 433
21 912,0
5 258,6
27 170,6
616,7
23 045,0
5 256,3
10 019,0
255,1
10 458,0
14 259,8
93 198,6
5 428,4
1 661,9
105 547,5

2 392,0
2 328,8
3 258,3
7 979,1

2 419,0
2 370,1
3 276,4
8 065,5

EU-15

3 286,7
4 468
21 366,4
5 573,2
26 939,6
647,9

23 032
5 091,3
10 320,0
255,2
10 541,0
14 053,0
93 061,5
5 482,0
1 695,7
105 812,4

2 448,0
2 362,6
3 277,5
8 088,1

94,4 %
88,6 %
88,7 %

132,7 %
87,7 %
93,1 %
115,9 %
100,0 %
84,2 %
89,2 %
90,8 %
115,4 %

114,2 %
100,2 %
99,1 %
125,3 %
103,6 %
107,6 %
100,8 %
97,9 %
108,6 %
99,9 %
100,4 %
99,9 %
101,3 %
102,4 %
117,1 %

1998-1995
106,8 %
99,9 %
101,1 %
102,4 %

.

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(000) tonnes

1998-
1984
107,8 %
88,8 %
87,9 %

142,7 %
88,4 %
91,2 %
125,9 %
99,9 %
84,6 %
89,1 %
92,0 %
118,2 %

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
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i
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s

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DAIRY SECTOR BALANCE SHEET IN MILK EQUIVALENTS

ANNEX 5

1986

1987

1988

1989

1990

1991

1992 (1)

1993

1994

1995

1996

1997

1998

(Mio tonnes)

Deliveries
Imports
Supply
Consumption
Excess supply over domestic demand
Exports
Changes in stock
Subsidised consumption
Self-sufficiency

107,00
2,95
109,95
88,30
21,65
15,06
6,59

101,75
2,71
104,46
92,51
11,95
21,75
– 9,80

100,78
2,56
103,34
90,10
13,24
22,87
– 9,63

100,51
2,48
102,99
87,20
15,79
17,62
– 1,83

100,39
2,85
103,24
85,63
17,61
14,05
3,56

103,64
2,33
105,97
90,00
15,97
17,62
– 1,65

102,19
2,08
104,27
91,70
12,57
14,36
– 1,79

103,22
3,54
106,76
92,14
14,62
15,07
– 0,45

103,94
3,94
107,88
93,36
14,52
13,67
0,85

121 %

110 %

112 %

115 %

117 %

115 %

111 %

112 %

111 %

113,64
3,62
117,26
101,91
15,35
16,31
– 0,96
12,12
112 %

113,47
3,93
117,40
101,97
15,43
14,09
1,34
11,29
111 %

113,48
4,26
117,74
102,57
15,17
14,97
0,20
10,38
111 %

113,22
4,36
117,58
102,38
15,20
13,79
1,41
10,1
111 %

(1) For 1992: provisional data published in ZMP milk balance sheet 92. The figures published in subsequent year books differ considerably.

The figures for the other years are the latest available.
The balance sheet compares total supply from dairies with the consumption of milk products and exports from dairies.
Consumption of own produce on the farm and direct sales are not taken into account, in these cases supply being equal to utilisation.
NB: For 1986 to 1990 EU-12 (new Länder excluded). For 1991 to 1994 EU-12 (new Länder included) — As from 1995 EU-15, 1998 estimates.
Source: ZMP milk balance sheet.

DEVELOPMENT OF STOCKS OF BUTTER AND SKIMMED-MILK POWDER

(milliers tonnes)

Butter and butter oil
Skimmed-milk powder

1986

1 366
772

1987

958
473

1988

202
10

1989

124
5

1990

335
333

1991

302
414

1992

240
47

1993

208
37

1994

118
72

1995

70
14

1996

94
125

1997

51
135

1998

60
203

Source: DG VI Reports on the situation in agriculture.

C
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E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
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a
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C
o
m
m
u
n
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t
i
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s

.

3
0
1
0
2
0
0
1

.

.

3
0
1
0
2
0
0
1

.

COST OF THE CMO OF MILK, BREAKDOWN BY CATEGORY AND PRODUCT

ANNEX 6

Year

Gross
expenditure

Butter

SMP

Cheese

Others

Total

Butter

SMP

School
milk

Total

Butter

SMP

Cheese

Total

Export refunds

Disposal measures

Storage costs

1991
1992
1993
1994
1995
1996
1997
1998 (1)
1999 (1)
(1) For 1998, gross expenditure includes expenditure in Chapter B1-2 0 (ECU 2 810,8 Mio), and School milk scheme (ECU 105 Mio) in B1-3 1 2, and Social assistance butter (ECU 4 Mio) in B1-3 1 3.

1 908,8
1 827,7
1 762,4
1 603,2
1 531,3
1 508,6
1 388,6
1 347,1
1 355,7

2 249,0
2 056,2
2 287,5
1 926,8
2 267,1
1 605,3
1 753,3
1 426,7
1 439,3

5 988,9
4 374,8
5 510,3
4 250,9
4 118,1
3 775,8
3 648,0
2 919,8
3 099,0

669,6
1 086,5
684,9
669,4
628,5
635,5
606,5
588,0
523,8

981,4
942,1
1 041,4
1 009,9
1 007,8
761,2
785,1
775,2
788,0

1 052,7
508,5
857,0
779,2
791,3
749,5
674,5
654,1
744,4

270,5
– 432,9
– 44,6
69,4
– 89,0
154,7
21,6
89,8
107,8

661,4
88,3
161,6
67,6
– 40,5
54,4
29,7
– 22,5
108,1

123,9
239,2
192,9
73,2
198,5
138,0
170,5
133,1
196,5

610,6
308,5
430,1
251,3
477,3
236,9
525,2
337,3
297,8

533,1
566,3
623,1
592,3
583,5
469,2
272,4
181,1
157,0

186,5
232,7
220,5
154,6
111,5
123,6
107,6
105,0
87,5

For 1999, gross expenditure includes expenditure in Chapter B1-2 0 (EUR 3 007,8 Mio), and School milk scheme (EUR 87,6 Mio) in B1-3 1 2, and Social assistance butter (EUR 3,6 Mio) in B1-3 1 3.

Sources: Figures for 1988 to 1996: Commission, DGVI, CAP 2000 working document: Situation and outlook dairy sector, Table 14, April 1997.

Figures for 1997 to 1999: drawn up by the Court of Auditors on the basis of documents showing the changes in EAGGF-Guarantee expenditure, Commission, DGVI. G.2.

149,3
156,1
176,8
89,0
89,4
84,0
98,7
73,7
86,6

1 081,2
– 188,5
293,8
226,0
– 40,1
293,1
150,0
141,0
302,5

(Mio ECU)

Other costs

749,9
679,4
1 166,6
494,9
359,8
368,9
356,1
5,0
1,5

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t
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C 305/26

EN

Official Journal of the European Communities

30.10.2001

BUDGETARY COST OF THE CMO FOR MILK AND MILK PRODUCTS

ANNEX 7

Year

Gross
expenditure (1)

Financial
contribution by
milk producers

Financial
contribution/
milk expenditure

Net
expenditure (2)

EAGGF total
expenditure

in % of EAGGF
total

(Mio ECU)

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

3 662,9

3 735,4

4 812,7

5 973,9

6 397,2

5 950,0

6 508,6

6 710,4

5 877,2

5 304,2

5 988,9

4 374,8

5 510,3

4 250,9

4 118,1

3 775,8

– 478,5

– 537,3

– 527,4

– 749,2

– 637,3

– 717,1

– 672,1

– 567,2

– 890,2

– 348,3

– 352,4

– 368,0

– 299,1

– 2,0

– 89,4

– 193,7

13,1 %

14,4 %

11,0 %

12,5 %

10,0 %

12,1 %

10,3 %

8,5 %

15,1 %

6,6 %

5,9 %

8,4 %

5,4 %

0,0 %

2,2 %

5,1 %

3 184,4

3 198,1

4 285,3

5 224,7

5 759,9

5 232,9

5 836,6

6 143,2

4 987,0

4 955,9

5 636,5

4 006,8

5 211,2

4 248,9

4 028,7

3 582,1

10 034,1

12 371

15 786

18 331

19 728

22 119

27 482

27 427

24 407

25 069

30 961

31 117

34 590

32 970

34 503

39 108

31,7

25,9

27,1

28,5

29,2

23,7

21,2

22,4

20,4

19,8

18,2

12,9

15,1

12,9

11,7

9,2

– 546,9

3 648,0

2 919,8

1997
1998 (3)
1999 (3)
(1) Gross expenditure (i.e. before deduction of financial contribution of milk producers).
(2) Net expenditure (i.e.after deduction of financial contribution of milk producers).
(3) For 1998, gross expenditure includes expenditure in Chapter B1-2 0 (ECU 2 810,8 Mio) and School milk scheme (ECU 105 Mio) in

3 101,1

2 705,8

3 099,0

2 601,3

– 497,7

– 214,0

39 854

40 675

38 748

15,0 %

16,1 %

7,3 %

6,5

7,0

7,6

B1-3 1 2 and Social assistance butter (ECU 4 Mio) in B1-3 1 3.
For 1999, gross expenditure includes expenditure in Chapter B1-2 0 (EUR 3 007,8 Mio) and School milk scheme (EUR 87,6 Mio) in
B1-3 1 2 and Social Assistance butter (EUR 3,6 Mio) in B1-3 1 3.

Sources:
Figures 1988-96: Commission, DGVI, CAP 2000 working document: Situation and outlook dairy sector, Table 14, April 1997.
Figures 1997-99: drawn up by the Court of Auditors on the basis of documents showing the changes in EAGGF-Guarantee expenditure, Com-
mission, DGVI. G.2.

30.10.2001

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Official Journal of the European Communities

C 305/27

THE COMMISSION’S REPLIES

SUMMARY

The Court of Auditors notes in its special report that the system of quotas has achieved the objective of reduc-
ing milk production within the EU (point V), has considerably reduced budget costs (point X), and has stabi-
lised the dairy sector, and that structural development has been positive (point VII). The Court also notes an
increase in dairy producers’ incomes (point 19), coinciding in particular with a sharp fall in budget expenditure
on the dairy sector (point X).

The Court stresses, however, that the quotas are too high since, out of a total of 120 million tonnes produced,
roughly 15 million tonnes is disposed of on the world market under a system of refunds, and 10 million tonnes
is sold on the internal market with the help of subsidies (points II, X and 15). According to the Court, the Com-
mission should propose a fundamental reform of the sector in order to achieve a better balance between pro-
duction, unsubsidised consumption and unsubsidised exports. As the Commission sees it, this would mean a
reduction of about 20 % compared with current quota levels. The Court’s proposal is that the system of quotas
should then be discontinued (point XIII and Recommendations).

The Commission takes the view that, when setting the level of the quotas, far from a reduction in budgetary
expenditure being the only consideration, many other aspects should be taken into account, i.e. not only those
arising from Article 33 of the Treaty (rational development of production, fair standard of living for the farm-
ing population, stable markets, security of supply and reasonable prices to consumers), but also political, eco-
nomic and regional balance, the importance of the processing industry, rural development, the environment,
historical international position as an exporter, etc.

It is clear, from the Council’s decisions, that adapting milk production to the level of internal consumption
was neither a political nor an economic objective.

As the Commission sees it, reducing the quotas is not, from a budgetary point of view, consistent with their
abolition. The Court notes at point 25 that a reduction in the quotas might result in compensation payments
to producers. Compensation for a reduction of about 20 % on the amount granted in 1991, i.e. ECU 100/tonne
for five years, would already cost EUR 12,5 billion. If, after the regime has been abandoned, production returns
to the same level, there appears to be little logic in investing in a possible compensation scheme against a
background of a reduction in quotas.

A reduction in quotas will, in the short term, also lead to greater imbalance on the meat market since, if the
quota is 20 % lower, an equivalent percentage of dairy cows will have to be slaughtered.

A fundamental reform of the common organisation of the market in milk (point X) entailing liberalisation of
production on the model of the arable crops sector (cereals and oilseeds) would not resolve a possible budget-
ary problem. On the contrary, such a reform would be very costly in budgetary terms, because bringing prices
down to the world market level would have to be offset by direct aid to producers.

On the heavy cost European consumers must pay for milk and milk products because of the current level of
prices, the Commission does not feel that liberalisation of the milk market on the same basis as for cereals
would, generally speaking, mean lower costs to those consumers. Moreover, experience has shown that a
reduction in the price at producer level is not automatically reflected in consumer prices.

C 305/28

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Official Journal of the European Communities

30.10.2001

The Commission cannot, therefore, go along with the Court’s criticism of the cost of the current regime to
taxpayers and consumers (see also point 22).

The quota system had, for political, administrative and control reasons, to be based on a national quota for
each Member State. A possible transfer of quotas between Member States (point XIII) could well bring into
question the very basis of the rules governing quotas, as laid down in Council Regulation (EEC) No 3950/92,
and would be at odds with the current system since the latter, and with it the payment of the levy, is managed
at national level.

A consequence of the system of quotas per Member State is that production has been maintained in the less-
favoured regions of the Community, especially in mountain areas, where production costs are higher and dairy
farming is often the only agricultural activity available. The Commission feels, moreover, that concentrating
milk production could well give rise to major environmental problems. What is more, the wide variety of qual-
ity or typical products — such as registered-designation-of-origin cheeses and other local produce — produced
in the EU might be jeopardised. The wealth of the dairy sector rests in particular on the diversity of produc-
tion in the various Member States. To concentrate production in certain regions would lead to a standardisa-
tion of products and, therefore, to lower quality.

Moreover, such a major change in the administration of the quota would not appear to be in keeping with the
Court’s proposal to abandon the system altogether.

Although the future of the quota system merits close scrutiny, and the Council has undertaken to carry out a
mid-term evaluation in 2003 with a view to discontinuing the current quota system after 2006, the Commis-
sion takes the view that the Court’s report does not put forward sufficient grounds for abandoning the regime.

The decisions adopted by the Council in the context of Agenda 2000 (point II) were the outcome of intense
political negotiations, and the increase in the quotas was the quid pro quo for extending the scheme
beyond 31 March 2000, the date of expiry of the 1992 rules. Moreover, an increase is being made possible by
the planned reduction in institutional prices with effect from 2005. Specific increases are not expected to con-
tribute to greater imbalance since they tend to correspond to quantities already produced.

The flexibility provided for in Community legislation (point VIII) is necessary in order to counteract the
regime’s intrinsic structural rigidity. If the flexibility criticised by the Court had not been allowed, producers
would have found it very difficult to adapt. Moreover, the quotas are complied with on the whole and the Com-
mission has always seen to it that the Community rules concerned are properly applied. While the manage-
ment system may have given rise to a number of inaccuracies in some Member States, those inaccuracies have
never been such as to jeopardise the operation of the regime.

It is premature to consider a future increase in the surplus (point IX): no decision has been taken on the prin-
ciple of the quotas, or their level in the applicant countries; the current positive trend of the consumption of
milk products would suggest a reduction in support (intervention stocks are almost down to zero); the results
of the WTO negotiations and their current impact on EU exports still have to be looked into.

The Commission has made great efforts to enforce the payment of the levy (point XIII), reducing the advances
when the levy is not paid within the time allowed, making corrections in the clearance-of-accounts procedure
in respect of all levy not credited (with the exception of amounts due to irregularities) and calculating and cor-
recting for interest for late payment of levy up to the date of the clearance decision. However, it should be noted
that the Member States concerned have challenged those financial corrections before the Court of Justice (see
point 33). In the course of its missions to Member States, the Commission scrutinises the checks and

30.10.2001

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Official Journal of the European Communities

C 305/29

sanctions in place and makes recommendations regarding those checks and sanctions, both during the mis-
sion and afterwards by official letter. In the course of its next mission to the Member State the Commission
verifies whether the recommendations have been followed up. The Commission always tries to promote best
practices amongst Member States and, during inspection missions, explains how other Member States have
applied the rules to good effect.

All told, two infringement procedures, one against Italy (reasoned opinion 97/2228) and one against Spain
(reasoned opinion 97/2227) are still pending, for incorrect application of the system of quotas and, in par-
ticular, for failure to collect the additional levy (points XI and XII). For the majority of Member States, no finan-
cial correction or only a small correction is necessary in the clearance-of-accounts decisions. Up to 1999,
reductions of advances were necessary for four Member States: Greece, Spain, Italy and the United Kingdom.
(The reductions for the United Kingdom in 1996/97 and 1998/99 account for 3 % and 4 % of the uncollected
levy respectively).

On its own initiative the Commission will soon adopt a new draft regulation on the detailed rules for the
application of the milk quotas. This provides for tighter checks and stiffer sanctions (see also points 43 and 44).

THE MILK QUOTA REGIME WAS INTRODUCED TO REDUCE
THE IMBALANCE BETWEEN SUPPLY AND DEMAND IN THE
MILK MARKET

policy, such as those relating to producers’ incomes and rural
development, plus other economic aspects such as employment
within processing undertakings.

4. Concentrating production on the most efficient holdings (not
to
certain
confused with
regions — see point XIII) is desirable.

concentrating

on

be

it

17. The Commission notes that the 2001 budget again confirms
the trend observed by the Court of Auditors: appropriations for
the dairy sector do not exceed EUR 2,4 billion, compared with
almost EUR 4,3 billion in 1983. The quota system has in this
respect been a major instrument of control over expenditure.

IMPACT OF THE QUOTA REGIME ON THE DEVELOPMENT OF
THE MILK MARKET

The Commission would state once again that the cost of the dairy
sector to the taxpayer has fallen sharply and that the price paid to
producers has only a slight influence on consumers (see point 22).

The quota level leads however to a structural surplus

15. The quantities of skimmed milk powder (SMP) disposed of
on the internal market with the help of subsidies are for 1995 to
1998. In the case of 2001, aid to SMP will cover about 45 % of the
quantity consumed on the internal market. The aid was reduced
by 15 % in October 2000 and now accounts for less than 25 % of
the market price.
cream)
Subsidised butter
totalled 427 000 tonnes in 1991 and 523 000 tonnes in 1994.
Since 1995 between 494 000 and 520 000 tonnes of butter
(including cream) has been subsidised. The subsidy has been
reduced by about 35 % since the beginning of 1995.

(including

18. The Commission would point out that the study referred to
by the Court of Auditors concerns an evaluation of the milk mar-
ket organisation as a whole, i.e. including quotas, and will consti-
tute the initial basis for discussion of the mid-term review by the
Council in 2003 (see point 73(b)).

Production prices and dairy farmers’ incomes

19. A comparison between the 1984 Community of Ten and the
EU-15 of 1996 is not possible on the basis of the FADN (farm
accountancy data network) data available.

Budget expenditure

16. The net budgetary cost of EUR 2 601 million not only makes
it possible to achieve a balance on the market, it is also aimed at
contributing to all the objectives of the common agricultural

Costs for the consumer

22. The series used by the OECD to calculate the PSE (producer
subsidy equivalent) come from disparate sources and, as a conse-
quence, the comparability of the data is poor. The OECD’s calcu-
lations are, in the Commission’s opinion, entirely theoretical since
in essence they compare internal prices in the European Union

C 305/30

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Official Journal of the European Communities

30.10.2001

with world market prices. The gap between the two is multiplied
by total milk production in the European Union to arrive at
the PSE. Additional
the EUR/
USD exchange rate and the volatile nature of the ‘world market’.

factors of uncertainty are

forestry (1994 to 1999). The scheme operated for two seasons, to
help improve the structure of Irish production in a situation where
small farmers had been unable to compete effectively in the mar-
ket for milk quota.

Prices for individual products on the internal market and, above
all, the world market are difficult to estimate. The task is made
more difficult by the fact that the prices are converted into a milk-
equivalent average whereas processing coefficients are far from
homogeneous, even within the European Union (e.g. according to
the type of cheese). Thus, when dealing with the world market,
comparisons based on the milk equivalent can be seriously flawed.
Lastly, the Commission cannot agree with the Court’s claim that
abolishing protection at the borders of the internal market would
bring consumer prices down to the current world market level,
since the world market price would settle at a higher level, given
the size of the dairy economy in relation to what is a fairly small
world market and the importance of the European Union in the
context of that market.

Moreover, the world market is dominated by exporting third
countries which themselves have support systems equivalent to
those of the Community and/or centralise their exports via State
enterprises.

Quota is a valuable asset

25. Quotas were imposed as a restriction in 1984 and, as pointed
out by the Court, resulted in an average reduction of 10 % for pro-
ducers in 1999 in relation to 1984, a reduction which in many
cases gave rise to financial compensation. Successive reductions
in quotas were thus accompanied by compensation, or by incen-
tives to voluntary withdrawals in order not to dismantle produc-
tion capacity. Their cost is very small in relation to the overall
budgetary improvement which resulted from their introduc-
tion. It is therefore unsurprising that the right to produce milk
should now have a monetary value, something which, inciden-
tally, demonstrates that the quota system is being properly imple-
mented on the whole.

26 and 27. The Commission agrees with the Court’s analysis
that milk quota has a monetary value and is traded in several
Member States. The Commission took the general view that nei-
ther the Structural Funds nor national public funds should be
utilised to assist quota purchases. Indeed no Member State should
allow aid to be granted for other investments in dairy farms where
this has the effect of exceeding the milk quota available to the
farmer (see Article 6(3) of Regulation (EC) No 950/97 (1). The
only exception to this was the Irish case quoted, where a subsidy
scheme for milk-quota restructuring was approved under the
operational programme for agriculture, rural development and

(1) OJ L 142, 2.6.1997, p. 1.

The granting, in the milk-production sector, of investment aid
which would result in an overshoot of the reference quantity
applicable under the rules governing the additional levy in the
milk and milk-products sector can be ruled out, except if an addi-
tional reference quantity has either been granted beforehand or
has been obtained by transfer in accordance with the said rules.

It was therefore quite normal that some farmers should receive
aid to improve the situation of their dairy holding, especially for
milk quality, under very specific and restrictive conditions. In
such cases no aid was possible without first having sufficient milk
quota under the rules defined by the market organisation. It there-
fore comes as no surprise that, with the exception of the Irish case
quoted above, no Structural Funding for buying sufficient quota
was forthcoming. This situation prevailed in the EU as a whole
and was in no way specific to Spain.

MEMBER STATES HAVE THE MAIN RESPONSIBILITY FOR
IMPLEMENTATION OF THE QUOTA REGIME

In the Commission’s opinion, the Court views the milk quota
29.
regime from a purely budgetary perspective and overlooks the
importance of quotas in maintaining milk production in less-
favoured or other areas, where there are few alternative forms of
production. The system of dairy quotas is part of the market
organisation for milk, the objectives of which are directly linked
to the maintenance of producers’ incomes.

Moreover, combining accession with a reduction in the quotas of
EU producers would appear to be out of the question in political
terms. With regard to transfers of quotas between Member States,
please see comments on ‘Summary’.

30. The national reference quantities were determined on the
basis of historical records of production and not consumption.
The allocation of individual reference quantities to producers was
done on the same basis and each producer was thus treated in the
same way.

On the matter of statistical data it is true that the Commission
does not have precise figures for the internal consumption of milk
products. This is because it is impossible to obtain all the informa-
tion needed to produce them. Thus, in order to quantify the self-
supply of milk and milk products it is necessary to know how
much milk and milk by-products have been used in a whole series
of sectors of activity, in some cases outside the dairy industry alto-
gether, information which is simply not available. Moreover, Mem-
ber States are not required to draw up dairy supply balances.

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The information on the availability and use of milk and milk
products which is obtainable under current data-gathering arrange-
ments is accordingly not sufficiently precise to allow any reliable
interpretation to be drawn in terms of control.

35. The improvement in Greece is also a direct result of the
numerous missions carried out by the Commission and the rec-
ommendations for changes made to the Greek authorities as well
as their willingness to work to improve their management of the
quota regime.

Implementation of the system

37. The Commission refers to its comment on point 33.

32 and 33. Problems remain with the collection of the supple-
mentary levy in Italy. As in the case of some other Member States,
notably Spain, those problems are also due to the fact that pro-
ducers and purchasers have challenged the levy before the national
courts and that the legal proceedings are very lengthy.

Audit specific to Member States

Quota allocation and management

The Commission has reacted to this situation by reducing the
monthly advances for the Member States in question and by
imposing on them financial corrections in the context of the
clearance-of-accounts procedure, both for the outstanding levy
amounts and for the interest for late payments. The Member States
concerned have challenged those financial corrections before the
Court of Justice. In Case C-277/98 the Advocate-General has
recently presented his conclusions, proposing that the Court
annul the Commission’s decision. A judgment has yet to be ren-
dered in any of the cases, however.

With regard to the previous remarks of the Court in Special Report
No 4/93, producers have now all been allocated individual refer-
ence quantities. The reference to the ‘lack of checks or lack of
strictness in the supervision and control exercised by the compe-
tent authorities’ is, since the launching of the extraordinary con-
trol operations in 1998, no longer correct in the case of Italy.

34. The milk quota regime has been fully implemented since the
1998/99 milk period. However, while the Commission auditors
are pleased with the marked improvement in the Spanish situa-
tion since 1998/99, further progress can be made. The Commis-
sion is monitoring ongoing improvements in the Spanish applica-
tion of the regime. The improvements made by the Spanish
authorities are the direct result of action taken by the Commis-
sion during numerous on-the-spot missions, by written letter, by
reductions of advances, by corrections in the clearance of accounts
and by the launching of infringement proceedings, all of which
induced the Spanish authorities to make the drastic legislative and
organisational changes which have led to the manifest improve-
ment commented upon by the Court.

38. When adopting Regulation (EEC) No 4045/89 on scrutiny
by Member States of transactions forming part of the system of
financing by the Guarantee Section of the European Agricultural
Guidance and Guarantee Fund, the Council took the view that a
three-year period was sufficient.

39. Since Portugal would normally be required to pay the addi-
tional levy for the first time in respect of 1999/2000, the Com-
mission has withheld EAGGF advances for the corresponding
sum, but a draft Regulation exempting producers in the Azores
from payment of the levy for up to 73 000 tonnes was recently
adopted by the Council (28 June 2001) in the context of the
‘Poseima’ Regulation. The levy payable in respect of 1999/2000
will accordingly be reduced to zero. The collection of the sums
payable by purchasers and producers has therefore been sus-
pended.

The offsetting mechanism

41.
If it is felt that no levy should be payable in a particular year,
the transfer price of the quota should be zero or close to zero,
with the supplementary levy remaining at a deterrent level.

42. The reallocation of unutilised quotas is one of the means by
which Member States can enable producers to manage the quota
system more flexibly. It should be noted that such reallocation is
permitted only within the national quota. The flexibility provided
for in the Community legislation is necessary in order to offset
the structural rigidity of the dairy quota system.

Approval of purchasers

Up to the 1998/99 milk period, however, problems occurred in
the recovery of the levy. These were due to failures on the part of
the national authorities and contributed to the widespread legal
challenges lodged by purchasers and producers. As the legal pro-
cedures in Spain are multi-tiered and lengthy, large percentages of
the levy, even for 1993/94, are still outstanding.

43 and 44. Under the draft Regulation which is intended to
replace Regulation (EEC) No 536/93 (see ‘Summary’), Member
States may, if the provisions applicable are not complied with,
withdraw approval from the purchaser or require the payment of
a sum proportional to the volume of milk concerned and to the
seriousness of the irregularity.

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In addition to giving Member States a more important role to play
as regards control measures and the sanctions they must provide
for in order to ensure that the levy is duly collected, the draft
Regulation also specifies the time allowed and the number of
checks needed to verify, within a certain period, whether the
arrangements applicable have been complied with by all those
concerned.

Observations relating to direct sellers

45. The observation of the Court of Auditors points to an
infringement of Community legislation, namely purchases of milk
by non-approved operators (direct salesmen) who have an influ-
ence on the deliveries declared by the Member State.

notifying irregularities (Regulation (EEC) No 595/91) have been
followed. It is for OLAF to monitor the payment of rectifications.

53. The situation in Portugal is known to the Commission depart-
ments concerned. A mission by Clearance-of-accounts officials
in January 2001 found no evidence of an improvement (see also
point 39). No payment has been made by Portuguese producers.
Accordingly, in order to ensure maximum protection of the inter-
ests of the EAGGF, it was decided to reduce the advances.

The Commission departments concerned will continue to keep a
close watch on developments.

The Member States concerned will, in the context of the clearance-
of-accounts procedure, be asked whether rectifications have taken
place and whether the procedure for updating the questionnaire
has been followed.

Declaration of the levy and accounting by the
Commission

Controls on purchasers and direct sellers

48. Scrutiny of audit reports is a key aspect of the missions con-
ducted by the Clearance-of-accounts unit. Any shortcoming noted
is the subject of discussions, comments, observations, recommen-
dations and, where necessary, rectifications, the aim being to
improve the system applicable.

49. See comment on point 46.

The Court of Auditors should note, however, that the transfer of
quotas (direct sales/deliveries/direct sales) is provided for in the
rules in force (Article 4(2) of Regulation No (EEC) 3950/92). An
adjustment can always be made — provided the producer sub-
mits a duly justified request — even if it, in effect, results in non-
payment of the additional levy.

The Commission will follow up on the cases of manipulation and
misdeclaration mentioned by the Court.

51. The Member State concerned will, under the clearance-of-
accounts procedure, be asked whether rectifications have been
made and whether the procedures for updating declarations and
for notifying irregularities (Regulation (EEC) No 595/91) have
been followed. It is for OLAF to monitor the payment of rectifica-
tions.

55. Reduction of advances is normally carried out in October/
November following the end of the milk period. If the declara-
tion due by 1 September is incomplete, absent or unreliable, no
other data are available at that stage. Even if the figures commu-
nicated are unreliable the Commission has few other options.
However, in the case of Italy (1999/2000 period), where the Com-
mission considered the declaration of deliveries to be too low, it
reduced advances on the basis of an extrapolation of the data for
the preceding period.

57. The clearance-of-accounts procedure is used for closing the
accounts for the periods concerned when the Member State has
completed the checks provided for in Article 7(3) of Regulation
(EEC) No 536/93 and has updated the data from the question-
naire (Article 8 of Regulation (EEC) No 536/93). It is only then
that the data are expected to be definitive. The EAGGF Clearance-
of-accounts unit has two options: to accept the data as they are,
or carry out checks in Member States on the basis of a risk analy-
sis. It is in particular thanks to controls by the national authori-
ties and the Clearance-of-accounts unit that situations such as the
one encountered in Italy were resolved, all this to the benefit of
the EAGGF. In an ideal world all amounts would be paid to the E-
AGGF on time, every declaration would be correct and no recti-
fication would be made once the checks had been carried out.
Unfortunately this is not often the case.

58 and 59.
If the questionnaire does not arrive on time (1 Sep-
tember), the Commission has to send a letter to the Member State
concerned informing it of this fact and of the risk of advances
being reduced and giving it time to react. In practice, the Member
State invariably reacts by sending the questionnaire.

Calculation and payment of the levy

52. The three Member States concerned will, under the clearance-
of-accounts procedure, be asked whether rectifications have been
made and whether the procedures for updating declarations and

Where the difference between the data from the questionnaire
and the actual figures is greater than 10 %, reducing advances is
no longer an option, for the simple reason that this can be offi-
cially noted only in the context of the clearance of accounts, when
advances can no longer be reduced.

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C 305/33

This inapplicability stemmed from an inconsistency in the rules,
which will be put right when Regulation (EEC) No 536/93 is
amended (see ‘Summary’ and points 43 and 44). The amendment
will also deal with the other penalties and with interest for late
payment.

It is clear from the decisions of the Council that adjusting milk
production to the level of internal consumption was neither a
political nor an economic objective. The Community’s relative
share of international markets has fallen sharply since quotas
were introduced, even on markets where it has traditionally been
present.

MANAGEMENT OF THE QUOTA LEVELS

62 and 63. The further reduction of 3 % in the quota was no
longer felt to be necessary since the situation had improved. Given
that the levy overpenalises increases in fat content (an increase in
the fat content in relation to the reference level results in an addi-
tional levy of 155 % of the target price, whereas there is simply a
penalty of 115 % for exceeding the quota on volume alone); the
increase reduces the overall quantity, particularly in terms of milk
powder. For this reason, the trend has steadied and the percent-
age of fat is falling in certain cases. Reductions in the price of but-
ter and milk powder are aimed at reducing intervention (and,
therefore, at encouraging a search for new outlets) and not at lim-
iting production. Given the volatile nature of world markets the
Court’s comparison of prices is valid for short periods only and
precludes any long-term strategy. Moreover, many developed pro-
ducer countries (the United States of America, Canada, Switzer-
land, Japan, Norway, etc.) guarantee their producers prices com-
parable with EU internal prices.

AGENDA 2000

64 to 66. The Agenda 2000 decisions should be seen in the
light, on the one hand, of the political debate and, on the other,
of the latest market forecasts. It should be noted that the Council
has decided to accept the Commission’s proposed 15 % reduction
in prices. The Council has also accepted the principle of an
increase in the quotas, but has decided on another allocation both
between Member States and over a period of time. It has also
decided to extend the period of validity by eight years instead
of six as proposed by the Commission.

CONCLUSION

The quota regime

68 and 69. As the Commission sees it, fixing the quotas at a
level which allows a balance to be achieved between, on the one
hand, production and, on the other, consumption and non-
subsidised exports would lead to a reduction in production of
about 20 %. In its opinion this would result in a dismantling of
production and, therefore, of processing capacity.

Flexibility in the management of the quotas was essential to
enabling each producer to attain the reference level he could hope
to achieve pursuant to the Council Regulation.

The decision whether or not to fix national quotas for the appli-
cant countries, the level of any such quotas, and the WTO nego-
tiations are key factors in the future of the Community’s dairy sec-
tor. No decision has thus far been taken.

Implementation of the scheme

70.
In this context Commission departments have reduced
advances in order to protect the financial interests of the Com-
munity and have carried out corrections in the clearance-of-
accounts decisions in respect of any further levy due as well as for
the interest for late payment of levy. The Commission also initi-
ated infringement proceedings against Italy (reasoned opinion
97/2228), notably for failure to collect the levy.

The improvements in Greece and Spain are as a direct conse-
quence of the rigorous approach adopted by the Commission
departments — during and after their audit missions — by way of
reductions in advances and clearance-of-accounts corrections for
further amounts of levy due as well as for interest. The Commis-
sion also initiated infringement proceedings against Spain (rea-
soned opinion 97/2227) for incorrect application of the milk
quota regime and failure to collect the levy. The Commission is
extremely vigilant as regards a continued improvement in these
two Member States. The Commission agrees with the Court that
the fundamental purpose of the levy is to act as a deterrent against
overproduction by individual producers.

Milk prices

72.
If the reform of the dairy sector is to mirror that of the other
sectors, milk intervention prices should be brought down to world
market levels in the context of a liberalisation exercise. Consumers/
taxpayers would thus pay a price close to the world market and
would no longer pay the EUR 3 billion for the disposal of milk
products on the external and internal markets. A fundamental
reform of the market organisation for milk involving the liberali-
sation of production on the same lines as for the arable crops
(cereals and oilseeds) sector would, however, entail a major cost
to the budget, since bringing prices down to world levels would
have to be compensated at producer level by means of direct aid.
This cost to the budget could well replace much of the EUR 3 billion
referred to by the Court as well as the current cost to the con-
sumer based on the difference between prices on the internal and
world markets. The Commission would point out that such expen-
diture cannot be financed within the budget limits applicable pur-
suant to the Berlin agreement and that consumers seldom benefit
from reductions in production prices.

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73.(a)

— A possible transfer of quotas between Member States would
bring into question the very basis of the rules on quotas as
laid down in Council Regulation (EEC) No 3950/92 since the
system is based on national quotas. See also ‘Summary’.

— During its missions to Member States the Commission exam-
ines in detail the checks and sanctions in place; evaluation of
the controls carried out by the Member State’s control body
is a key element of the mission. Any weaknesses found are the
subject of discussion during the mission and written remarks
and recommendations by official letter following the mis-
sion. In the course of the next mission to the Member State
the Commission verifies whether the recommendations have
been followed up, its aim being to improve the system in
place.

— The draft Regulation on the detailed rules for the application
of Regulation (EEC) No 3950/92 is in keeping with the Court’s
request (see also points 43 and 44).

— Apart from the fact that the levy is obviously not collected
and paid in full before 1 September, no particular problems
have been noted with regard to levy accounting in the Mem-
ber States; generally speaking the levy is credited to the EAGGF
very soon after being received by the paying agency. The
Commission is aware that the interest is not always calculated

and collected consistently by the Member States; this is why
the Commission departments concerned scrupulously calcu-
late and apply to the Member states an interest correction
under the clearance-of-accounts procedure.

— To find out more about internal consumption and the degree
of self-sufficiency of the Member States, the Commission is
working on the harmonisation of the methods used to pro-
duce the information concerned.

73.(b) For the future, the Council is committed to carrying out a
mid-term review in 2003 on the basis of a Commission report so
that the current additional levy system can expire after 2006. The
Council’s conclusions in 2003 will be influenced by a number of
factors, including the position adopted by the Member States, the
content of the Commission report, which will also take account
of budgetary aspects, consumers, producers, the processing indus-
try, the environment, progress in the negotiations on enlargement
and the WTO context. Moreover, the current report of the Court
of Auditors will also contribute to the discussions on the future
regime. The Commission feels, however, that the said report does
not provide it with grounds that justify the abandonment of the
regime. In addition, as the Commission sees it, a reduction in the
quotas would not, from a budgetary point of view, appear to be
in keeping with their discontinuation and would be difficult to
achieve while at the same time ensuring a fair income for milk
producers (see also ‘Summary’).