Report from the Commission to the Council - Market Outlook for the Dairy Sector
Date: 2007-12-12
Institutions: European Commission
Subjects: EU Member State, EU market, agricultural market, agricultural quota, dairy production, international market, milk, milk product, price fluctuation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.12.2007 
COM(2007) 800 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

Market Outlook for the Dairy Sector 

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REPORT FROM THE COMMISSION TO THE COUNCIL 

Market Outlook for the Dairy Sector 

TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

Introduction .................................................................................................................. 3 

Developments of dairy production 2003–2007............................................................ 4 

Developments of milk production 2003–2007............................................................. 6 

Developments of prices of milk and dairy products 2003–2007 ................................. 7 

Use of market management tools 2003–2007.............................................................. 8 

EU market outlook: 2007–2014 ................................................................................... 8 

World market outlook: 2006–2016 ............................................................................ 10 

Increase of milk quotas by 2% as from 2008............................................................. 12 

Conclusions ................................................................................................................ 13 

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1. 

INTRODUCTION 

In June 2003 the Council reached an agreement on a number of changes to the EU 
dairy policy. The most important elements were: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

asymmetric reduction in intervention price: 25% for butter (from €328.20 to 
246.39/100 kg) and 15% (from €205.52 to 174,69/100 kg) for skimmed milk 
powder (SMP); 

partial  compensation  for  intervention  price  cut  for  dairy  farmers:  a  direct 
payment  of  €24.49/100 kg  of  quota  and  a  supplementary  payment  per 
Member State equivalent to approximately €11/100 kg. Such compensation is 
paid  for  the  total  of  national  quota  as  at  1999/2000.  Originally  the  coupled 
payments  had  been  programmed  in  Agenda  2000  at  a  lower  level.  The 
payments are to be decoupled at the latest in 2007; 

discouragement of butter intervention: by introducing the possibility to open a 
tender for intervention buying-in after 30 000 tonnes at fixed prices have been 
bought in; 

expiration of production quotas on 1 April 2015; 

postponement by one year of the gradual quota increase of 1.5% in three steps 
of 0.5% for 11 Member States, as already foreseen in Agenda 2000, by one 
year. The increase corresponds to 1.4 million tonnes of milk; 

reduction  of  the  super  levy:  in  four  steps  from  €35.63/100 kg  in  2003/04  to 
€27.83/100 kg from 2007/08 onwards. 

Coinciding with the start of the dairy reform in 2004, 10 new Member States joined 
the  EU.  This  increased  the  EU  base  quota  by  18.5  million  tonnes  and  added 
80 million  consumers.  Furthermore,  in  accordance  with  the  accession  agreements  a 
restructuring  reserve  of  0.67  million  tonnes  was  established  for  eight  of  the  new 
Member  States.  This  additional  reserve  was  added  to  their  national  quotas  on 
1 April 2006. In 2007 a further two new Member States with total quota of 4 million 
tonnes  joined  the  Union,  bringing  the  total  amount  of  quota  for  the  EU-27  to 
142 million tonnes. 

Thus,  by  1  April  2008,  further  to  103  million  consumers,  24.5  million  tonnes  of 
additional quota will have been added to the EU total since 2003. 

The  aim  of  the  2003  dairy  reform  was  to  increase  competitiveness  and  market 
orientation. It was intended that by reducing the guaranteed price for butter and SMP 
these products would be less attractive to produce and this would give the industry an 
incentive to produce more value added products like cheese and fresh dairy products. 
Increasing  the  quota  at  the  same  time  would  encourage  additional  production, 
facilitate restructuring of the sector and encourage entrance into the sector by young 
farmers.  

It  will  be  recalled  that  the  Commissions'  proposal  for  the  2003  Reform  was  to 
increase quota by 2% on top of the 1.5% increase already agreed in Agenda 2000. In 
the June 2003 compromise, however, the Council declared that "No additional quota 

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increase  in  2007  and  2008  will  be  decided  now.  The  Commission  will  present  a 
market outlook report once the reform is fully implemented on the basis of which a 
decision will be taken." 

Apart  from  the  last  scheduled  quota  increase  of  0.5%  in  11  Member  States  on 
1 April 2008,  the  2003  reform  is  now  implemented  and  this  report  reflects  the 
Commission's market analysis as requested by the Council in June 2003. The report 
effectively addresses the question of whether the market offers enough opportunities 
for additional quantities of milk to be supplied, without leading to increased public 
support in the short and/or medium term, were the production limits to be expanded 
for all 27 Member States. 

2. 

DEVELOPMENTS OF DAIRY PRODUCTION 2003–2007 

Developments between 2003 and 2006 were characterised by a continued increase of 
production  of  cheese  and  fresh  products,  a  stabilisation  of  raw  milk  supply  and  a 
reduction of SMP, butter and whole milk powder (WMP) output. There has been a 
constant  shift  towards  products  with  a  higher  value  added  and  away  from  bulk 
commodities.  There  are  two  factors  that  have  played  a  decisive  role  in  this  shift. 
First,  the  reduced  intervention  prices  of  SMP  and  butter  sent  a  clear  message  to 
processors  that  the  Community  would  no  longer  support  these  two  commodities  to 
the same extent as in the past. Second the increased demand for cheese, both in the 
EU-15  and  in  the  new  Member  States.  Cheese  consumption  growth  has  been 
particularly dynamic in the new Member States 

In  the  category  "fresh"  the  development  is  the  combined  result  of  a  decreasing 
consumption of drinking milk and an increasing consumption of other fresh products 
like fermented milk products. 

The  following  table  illustrates  these  developments  by  comparing  the  production  of 
milk and specific dairy products in 2003 and 2006. 

Table 2.1 – EU-25 production of dairy products in 2003 and 2006 ('000 tonnes) 

EU-25 

raw 
milk* 

cheese
** 

fresh 

SMP  WMP 

condensed 
milk 

casein  others  butter 

2003 

2006 

change 

in milk 
equivalents 

130 800

7 492  45 926

1 216

130 700

8 029  46 131

858

–100

+537 

+205

–358

865 

813 

–52 

1 231 

1 212 

–19 

173 

168 

–5 

2 239 

2 072 

–167 

–100

+4 300 

+200

–3 940

–420 

–40 

–170 

+30 

*** 

*  milk delivered to dairy processors 
***  butter is not expressed in milk equivalents, as it mainly is regarded a residual of the other dairy products. 

cheese from cows' milk 

** 

It  is  estimated  that  most  developments  observed  in  2003–2006  have  continued  in 
2007.  However  due  to  rather  strong  price  movements  in  2007  there  has  been  a 
notable change in the production levels of SMP, which increased again. Since cheese 
production  is  expected  to  increase  as  well  and  raw  milk  production  remains  rather 

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stable,  WMP  production  is  being  reduced.  Lower  casein  production  has  also  made 
alternative use of proteins possible. 

Table 2.2 – Production of dairy products in 2007 ('000 tonnes, projections) 

1000 t 

raw 
milk* 

cheese** 

fresh 

SMP 

WMP 

others 

butter 

EU-25 

131 000 

8 147 

46 255 

N-2 

2 100 

142 

1 212 

EU-27 

133 100 

8 289 

47 267 

892 

3 

895 

749 

7 

756 

– 

– 

– 

2 072 

18 

2 090 

*  milk delivered to dairy processors 

** 

cheese from cows' milk 

In  milk  equivalents  the  additional  cheese  production  between  2003  and  2007 
required  5.2  million  tonnes  of  milk1.  For  the  fresh  products  0.3  million  tonnes  of 
milk were needed for the increased production2. This means that in 2007 5.5 million 
tonnes  of  milk  are  used  to  meet  additional  demand  compared  to  2003.  In  order  to 
meet  internal  EU  demand,  the  necessary  milk  solids  came  from  the  reduction  of 
SMP, casein, WMP and butter production. 

During  2007,  despite  1.2  million  tonnes  of  additional  quotas  being  available 
compared  to  2006  (+0.5%  and  the  restructuring  reserve)  overall  production  has 
hardly increased. 

In  the  2003–2007  period,  EU  dairy  exports  have  decreased,  with  the  exception  of 
cheese. This is the effect of a stable EU milk production and increasing volumes of 
milk  directed  towards  cheese  and  fresh  products.  This  had  a  strong  impact  on 
production and export levels of SMP, butter and WMP, with the exception of SMP in 
2007, where high world market prices made it attractive to increase exports. 

Table 2.3 – EU dairy exports 

1000 t 

2003 

2006 

2007 (proj.) 

Butter(oil) 
SMP 
Cheese 
WMP 
condensed 

319 
337 
578 
530 
243 

252 
85 
586 
457 
200 

180 
180 
622 
385 
222 

Imports  did  not  show  a  notable  change  in  2003–2007,  with  import  tariffs 
discouraging imports beyond tariff rate quotas (TRQ's). 

1 
2 

On average 8 kg of milk is needed to produce 1 kg of cheese 
1 kg of milk for 1 kg of fresh product 

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3. 

DEVELOPMENTS OF MILK PRODUCTION 2003–2007 

Since  the  2003  reform  and  the  accession  of  10  New  Member  States,  a  new  feature 
has been observed in the EU dairy market (see Annex 3.2). Contrary to the past were 
quotas  were  fully  taken  up,  several  Member  States  no  longer  meet  their  quota 
potential (see Annex 3.3). This has led in the quota year 2006/07 to a net under usage 
of  quota  of  1.9 million  tonnes,  which  is  the  balance  of  0.8  million  tonnes  of  over-
quota production, mainly in Italy and Austria and 2.7 million tonnes of under quota 
production, mainly in France, UK and Hungary. 

In the first four months of the current quota year milk deliveries are 0.7% below last 
year.  If  this  trend  continues,  the  EU-27  milk  production  this  quota  year,  will  be 
reduced by another 0.9 million tonnes. This would imply a production below quota 
of almost 3 million tonnes of milk. 

This situation has come about in the light of: 

(1) 

(2) 

Continuing  rigidities  in  the  transfer  of  quotas.  Quotas  are  fixed  by  Member 
State and in some Member States by region or even by dairy processor. This 
makes  it  difficult  to  reallocate  quota  within  a  Member  State.  While  such  a 
measure may have kept dairy farming in areas where otherwise it would have 
disappeared,  in  some  cases  it  has  prevented  the  development  of  the  dairy 
sector in more competitive regions or Member States; 

Poor uptake of available quota. The milk production sector is characterised by 
a gradual restructuring and a continued decline in the number of dairy farmers 
(see  Annex 3.1).  Until  recently,  unused  quota  would  have  been  taken  up  by 
other  producers.  This  appears  to  no  longer  always  be  the  case,  even  in 
Member  States  with  open  quota  trading  and  low  quota  prices.  It  must  be 
borne in mind that milk production will only expand if it is profitable. in this 
sense  the  current  high  prices  will  be  a  test  for  the  possibilities  in  the  EU 
towards 2015; 

(3) 

In the context of the 2003 Reform, more profitable alternatives to dairying 
may have emerged, either inside or outside the agricultural sector, especially 
where a time lag occurs in the production response to higher milk prices. 

To what extent decoupling might have been a factor needs further analysis. 

While the previous chapter showed a rather favourable development of demand for 
dairy  products  in  the  EU  in  2003–2007,  this  chapter  indicates  that  the  supply  side 
developments have been less favourable in some Member States (see Annex 3.3). 

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4. 

DEVELOPMENTS OF PRICES OF MILK AND DAIRY PRODUCTS 2003–2007 

With the exception of the last months, prices of raw milk have gone down since the 
start of the 2003 reform. At that time it was estimated that, without a change in the 
product mix, prices could be expected to go down as much as 6 cents/litre from 2003 
to  2007.  The  dairy  industry  has  been  able  to  re-orient  production  to  higher  value 
products, in the light of the following: 

(1) 

(2) 

(3) 

stronger than expected market demand for cheese, both in the EU-15 and in 
the New Member States; 

higher  than  expected  world  market  prices  due  to  sustained  demand  growth, 
mainly from Asia and oil exporting countries due to increased wealth and a 
"westernisation" of diets; 

research and development efforts by the dairy industry that increased the use 
of dairy products as ingredients in a wide variety of products. 

Table  4.1  –  Annual  average  prices  of  raw  milk  in  the  EU-25  (real  fat  content, 
cents/kg) 

2003 

28.7 

2004 

29.1 

2005 

28.9 

2006 

27.9 

2007 (proj.) 

28.5 – 30.0 

Milk  producers  in  the  EU-15  have  received  up  to  3.5  cents  per  kg  of  quota,  as  a 
compensatory payment. This payment is completely decoupled as of 2007. In most 
of  the  New  Member  States  the  payment  was  included  in  the  Single  Area  Payment 
Scheme. 

Until 2006, market prices for butter and WMP went down in line with the reduction 
of EU support prices. On the other hand prices for SMP and cheese hardly changed. 
In 2007 the market prices are far above the intervention prices. 

Table 4.2 – Average EU dairy prices 

EUR/t 

2003 

2004 

2005 

2006 

2007 

SMP 

Butter 

WMP 

2 065 

2 060 

2 010 

2 090 

3 181 

3 040 

2 965 

2 750 

2 525 

3 229 

2 535 

2 545 

2 410 

2 350 

3 281 

Cheddar 

2 850 

3 045 

3 005 

2 865 

3 001 

Buying-in 
price 

2007 price in % 
of buying-in 
price 

1 747 

2 218 

182%

146%

While  the  developments  until  2006  can  be  explained  by  the  reasons  mentioned 
above, the situation in 2007 has been exceptional. 

While  world  market  demand  continued  to  show  an  increasing  trend,  this  was 
combined  with  reduced  exports  by  major  exporting  countries  like  Australia 

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(drought), Argentina (cold weather) and the EU (increased internal consumption). In 
addition  some  world  exporters  imposed  export  taxes  (Argentina)  or  even  an  export 
ban  (India).  This  caused  world  market  prices  to  soar  to  unprecedented,  unexpected 
levels and also pulled up EU prices. No decrease in demand, as a result of these price 
increases  took  place.  High  income  growth  in  parts  of  Asia  and  the  oil  exporting 
countries  seems  to  have  made  the  demand  for  dairy  products  less  elastic  to  price 
increases. This has come about in the light of empty public stocks in the EU and the 
US. 

It is, however, expected that prices will come down to more sustainable levels once 
the  speculative  element  disappears  and  producers  actively  start  to  respond  to  the 
higher price level. 

5. 

USE OF MARKET MANAGEMENT TOOLS 2003–2007 

The reduction of the intervention prices for butter and SMP enabled the Commission 
to reduce the internal disposal aids for butter, SMP and skimmed milk for casein to 
zero. The aid for butter used in non-profit organisations is still applicable.  

The lower supported prices logically implied reducing refunds. Due to tight world 
market conditions, it was possible in 2007 for all refunds to be reduced to zero for 
the first time since the introduction of the common dairy regime in 1968. While the 
difference between the EU and world market prices for SMP is rather limited, there 
is  still  a  large  difference  of  approximately  30%  between  world  and  EU  prices  of 
butter.  The  reduction  of  the  butter  refund  to  zero  was,  however,  based  on  internal 
supply arguments. 

Intervention  stores  are  currently  empty.  There  have,  however,  been  quite  some 
quantities  bought  in  into  intervention  in  2003–2007,  as  well  as  quantities  under 
compulsory private storage arrangements. 

Table  5.1  –  Quantities  bought  into  intervention  and  with  private  storage 
contracts (tonnes) 

Butter 
intervention 

SMP intervention 

Butter 
private storage 

Cheese 
private storage 

2003 
2004 
2005 
2006 
2007 

41 000 
29 000 
36 000 
61 000 
437 

110 000 
20 000 
5 000 
0 
0 

179 000 
130 000 
147 000 
115 000 
124 000 

232 000 
187 000 
251 000 
224 000 
n.a. 

6. 

EU MARKET OUTLOOK: 2007–2014 

The  medium-term  baseline  for  milk  supply  and  production  of  dairy  products 
presented here is based on the DG AGRI report "Prospects for agricultural markets 
and income in the European Union 2007–2014", published July 2007. The report is 
based  on  market  and  policy  information  available  at  the  end  of  June  2007  and 
assumed an unchanged policy environment. The full report can be found on internet 

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at the address below: 
http://ec.europa.eu/agriculture/publi/caprep/prospects2007a/index_en.htm 

The  main  trends  are  described  below  and  presented  graphically  in  Annex  1: 
"BASELINE SCENARIO." 

Milk production in the EU is forecasted to remain rather stable between 2007 and 
2014.  It  may  increase slightly in the short term as a reaction to higher milk prices. 
However, after 2009 total milk production is expected to decline gradually due to a 
steady decline in subsistence production, mainly in the New Member States. On the 
other  hand  milk  delivered  to  processors  is  expected  to  increase  mainly  due  to  shift 
from direct sales to deliveries in the new Member States. 

Cheese consumption is foreseen to remain the main driver of EU dairy production. 
From  2007–2014,  an  additional  cheese  production  of  679 000  tonnes  is  expected. 
Consumption  is  expected  to  grow  by  771 000  tonnes.  Cheese  consumption  is 
predicted  to  grow  very  fast  in  the  New  Member  States:  +35%.  EU-15  cheese 
consumption  also  continues  to  grow  (+5%),  clearly  at  a  much  lower  pace.  While 
imports are expected to increase only marginally, EU cheese exports are expected to 
go  down.  The  additional  771 000  tonnes  of  cheese  consumption  would  require 
approximately 6.2 million tonnes of milk equivalents. 

Consumption of fresh dairy products is the other driver of dairy production in the 
EU. There are two sub-trends. On the one hand the consumption of drinking milk is 
decreasing. On the other hand consumption of fermented dairy products increases. It 
is expected that total consumption will continue to increase annually by 0.5% or 0.25 
million tonnes of milk equivalents. This means an additional milk consumption of 
1.75 million tonnes in 2014. 

Consumption  of  butter  is  expected  to  decrease  further,  despite  a  slight  increase  in 
recent  years.  Production  of  butter  is  expected  to  decrease  faster,  due  to  the  larger 
uptake  of  milk  fat  in  cheese  production  and  a  lower  fat  content  in  raw  milk.  This 
means that exports will be reduced gradually. In 2014 it is expected that the EU will 
be close to becoming a net importer of butter. Intervention stocks are not expected 
to reappear. 

Skimmed milk powder production is seen as decreasing over the forecast period, as 
more proteins are used in cheese and in fresh products. As the production is projected 
to come down and consumption expected to remain stable the exports are expected to 
be reduced. The EU will become a small net exporter of SMP by 2014. Intervention 
stocks are not expected to reappear for SMP either. 

Whole milk powder, unlike most other EU dairy products, is largely produced for 
third  country  markets.  However,  other  suppliers  of  WMP  to  the  world  market  are 
more  competitive  than  the  EU.  This  is  expected  to  lead  to  a  gradual  reduction  of 
WMP  production,  as  well  as  a  reduction  of  the  exports.  WMP  consumption  is 
expected to remain stable. 

In  summary,  it  is  forecast  that  between  2007  and  2014  1.75  million  tonnes 
additional  milk  will  be  needed  to  satisfy  growing  consumption  of  fresh  dairy 
products  and  6.2  million  tonnes  for  growing  cheese  consumption.  Consumption  of 

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SMP and WMP is forecast to be stable. This means that 8.0 million tonnes of milk is 
needed to satisfy increasing internal demand alone. In essence, therefore, the market 
opportunities for the EU dairy sector are very positive. 

7. 

WORLD MARKET OUTLOOK: 2006–2016 

World  production  of  milk  has  been  increasing  on  a  continuous  basis.  Since  1998, 
milk  production  has  been  growing  at  a  rate  of  at  least  10  million  tonnes  per  year. 
This trend is expected to continue. 

Figure 7.1 – World milk production 

4
3
4

0
2
4

5
2
4

2
1
4

5
0
4

5
9
3

5
8
3

8
8
3

8
7
3

1
7
3

0
9
3

1
9
3

2
9
3

5
9
3

2
8
3

4
7
3

5
6
3

4
4
3

7
4
3

5
4
3

0
5
3

8
5
3

8
5
3

9
5
3

1
6
3

0
5
3

1
4
3

3
3
3

4
1
3

6
1
3

3
1
3

8
1
3

6
6
4

0
7
4

0
6
4

3
5
4

6
4
4

3
3
4

2
2
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4
2
4

2
1
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7
1
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6
0
4

2
2
5

2
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2
5

3
4
5

7
3
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3
3
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0
4
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2
3
5

6
2
5

8
2
5

0
7
5

0
6
5

7
4
5

1
5
5

Other Milks

2
1
5

4
0
5

9
9
0 4
8
4

6
6
4

5
6
4

1
7
4

6
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4

9
7
4

0
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1
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4

0
6
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1
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4

8
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9
6
4

4
6
4

4
8
4

5
7
4

8
4
4

2
5
4

8
5
4

Cow's Milk

800

700

600

4
5
6

4
4
8 6
2
6

6
1
6

3
0
6

0
9
5

9
7
5

0
5
5

1
4
5

8
2
5

9
1
5

500

9
0
5

8
9
4

1
9
4

400

300

200

100

0

s
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e
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i

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o

i
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l
i

M
n

i

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o
i
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1
6
9
1

3
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5
6
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7
6
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1

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1

1
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9
1

3
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1

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1

7
7
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9
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1

1
8
9
1

3
8
9
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5
8
9
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7
8
9
1

9
8
9
1

1
9
9
1

3
9
9
1

5
9
9
1

7
9
9
1

9
9
9
1

1
0
0
2

3
0
0
2

5
0
0
2

Only 7% world milk production is used in products traded on the world market. Most 
of the milk produced in the world is consumed in the same region, mainly in the form 
of liquid milk. Traded dairy products are those that, unlike liquid milk, can be stored 
for a certain time: milk powders, butter(oil) and cheese. Also the EU only exports a 
relatively  small  part  of  its  milk  production  to  third  countries  (9%  of  milk  solids  in 
2006).  EU  imports  of  dairy  products  are  small  (1%  of  milk  solids)  due  to  import 
tariffs. 

The  outlook  for  the  world  market  is  analysed  by  the  Organisation  for  Economic 
Cooperation & Development (OECD) working jointly with the Food & Agriculture 
Organisation (FAO) and the Food & Agricultural Policy Research Institute (FAPRI). 
The comparison of both their studies and the EU's own analysis can be found on the 
address below: 
http://ec.europa.eu/agriculture/publi/caprep/prospects2007a/index_en.htm 

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Table 7.1 – Expected world market developments 2006–2016 

Projected price 
for 2016 ($/tonne)

Butter 

Cheddar 

SMP 

WMP 

2 200 

3 000 

2 600 

2 500 

Price 
difference 
1996–2006 
2006–2016 

+24% 

+38% 

+40% 

+35% 

Production and 
consumption 
(annual increase) 

Trade (annual 
increase) 

+2–2.3% 

+1.3–1.8% 

+0.7–1.8% 

+2% 

+2% 

+2.5% 

+0.5–3% 

+1.7% 

Source: Agricultural commodity markets – Outlook 2007–2016. 

The  graph  below,  based  on  FAPRI,  shows  that  the  EU  dairy  industry  will  have  to 
give up market share on the world market as consumption increases on the internal 
market consumes a larger share of the milk produced. 

Figure 7.2 – Share of EU-25 in World Dairy Trade

Share of EU-25 in world dairy trade

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Cheese

WMP

Butter

SMP

1996

1999

2002

2005

2008

2011

2014

Source: FAPRI (2007)

Butter

Cheese

SMP

WMP

In  summary,  average  prices  for  dairy  products  on  world  markets  are  expected  to 
increase substantially during the coming decade compared to the past decade. FAPRI 
and OECD foresee world dairy output and consumption growing moderately over the 
next years. The world market outlook for dairy trade is very positive, especially for 
cheese.  Despite  this  global  demand  growth,  the  Commission's  baseline  foresees  a 
decrease in EU cheese exports, due to the current limitations of the quota system that 
prevents milk production to expand. 

EN 

11 

   EN 

 
 
 
8. 

INCREASE OF MILK QUOTAS BY 2% AS FROM 2008 

Contrary to the uncertainties which prevailed in 2003, there is now greater clarity on 
the  development  of  the  market  post-reform  and  two  successive  enlargements.  The 
Commission  is  therefore  in  a  better  position  to  analyse  the  likely  impact  of  a  2% 
quota  increase  as  originally  proposed  in  2003,  were  it  to  be  proposed  today  in  the 
context of 27 Member States. 

An assessment has been made of the impact on the dairy sector of such an increase, 
assuming  that  2%  additional  quotas  will  be  fully  used,  i.e.  2.84  million  tonnes 
additional milk. The higher quota levels are valid from 2008 onwards. The detailed 
results of this analysis are presented in Annex 2: "deviations from baseline."  

Compared to the baseline in chapter 6, the price of milk is expected to fall by 4%. 
However in the baseline an increase by 7% is foreseen. 

For  dairy  products  there  is  a  shift  towards  more  cheese  production.  Initially  this 
matches additional demand, which is higher due to lower prices for cheese. Towards 
the end of the period it is foreseen that exports will increase again compared to the 
baseline. This means that the reduction of exports of cheese to the world market as 
foreseen in the baseline, is partly neutralized by the additional milk production. 

For butter it is expected that production will increase, but only to a limited extent as 
part  of  the  extra  milk  fat  is  used  in  additional  cheese  and  fresh  dairy  products 
demanded  due  to  reduced  prices.  Initially  butter  consumption  will  increase  due  to 
lower  prices  and  exports  will  increase  as  well,  due  to  the  lower  prices  and  the 
increased  competitiveness  on  world  markets.  This  effect  will  be  less  pronounced 
towards the end of the period.  

SMP production is expected to increase significantly as a result of which the EU will 
increase exports to sell the additional quantity. 

Both  for  butter  and  SMP,  the  extra  production,  should  be  possible  without  further 
market support.  

The  analysis  shows  that  additional  milk  production  of  2%  offers  producers 
more opportunity to meet market demand, either internally or externally, without 
overcharging the existing intervention scheme. 

While the analysis assumes the full utilisation of the 2% increases in quotas the real 
impact  on  production  would  likely  be  more  limited  in  the  light  of  recent  EU  quota 
fulfilment rates. 

EN 

12 

   EN 

 
9. 

CONCLUSIONS 

Between  2003  and  2007,  expanding  cheese  and  fresh  milk  production  absorbed  an 
additional  amount  of  5.5  million  tonnes  of  milk,  while  overall  milk  production 
remained stable. According to the analysis developed in the previous pages, between 
2007 and 2014, an additional supply of about 8.0 million tonnes would be needed to 
meet growing internal demand, while, with quota unchanged, raw milk production is 
not expected to increase. Moreover, the outlook for the world market is positive. The 
study made to assess the impact of a 2% increase of milk production inside the EU 
leads to the conclusion that the market offers ample opportunities for absorbing such 
an additional quantity. While the analysis assumes that the 2% quota increase is fully 
utilised,  the  actual  impact  on  production  is  likely  to  be  more  limited,  taking  into 
account the current situation where national quotas are not fully utilised in a number 
of Member States. The Commission in responding to the Council request to provide 
a basis on which a decision can be taken regarding an increase in quotas, concludes 
that  the  2%  increase,  as  originally  proposed  as  part  of  the  2003  reform,  may  be 
implemented starting from 2008. 

EN 

13 

   EN 

 
ANNEX 1: BASELINE SCENARIO 

Milk production, and deliveries in the EU-27, 2001–2014 

)
t
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m

i

(

s
e
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r
e
v
i
l
e
d
d
n
a
n
o
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t
c
u
d
o
r
p
k
l
i

M

EU-12

EU-15

EU-25

EU-27

Milk Production

Milk Deliveries

Dairy cow herd

EU-N2

EU-N10

EU-12

EU-15

160

140

120

100

80

60

40

20

0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cheese balance sheet in the EU-27, 2001–2014 

)
.
t
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m

i

(
n
o
i
t
p
m
u
s
n
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C

,

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c
u
d
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r
P

11.0

10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

EU-12

EU-15

EU-25

EU-27

Production

Consumption

Exports

Imports

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

40

35

30

25

20

15

10

5

0

2.2

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

)
s
d
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(

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w
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b
m
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N

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.
t
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i

(

e
d
a
r
T

EN 

14 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Butter balance sheet in the EU-27, 2001–2014 

EU-12

EU-15

EU-25

EU-27

Production

Consumption

Stocks

Imports

Exports

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

SMP balance sheet in the EU-27, 2001–2014 

EU-12

EU-15

EU-25

EU-27

Production

Exports

Consumption

Stocks 

Imports

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2.5

2.0

1.5

1.0

0.5

0.0

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

1.0

0.8

0.6

0.4

0.2

0.0

0.8

0.6

0.4

0.2

0.0

)
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EN 

15 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 2: +2% MILK PRODUCTION DEVIATION FROM BASELINE SCENARIO 

MILK production 

2008 

2010 

2012 

2014 

Production (mio t) 

Deliveries (mio t) 

Fat content (%) 

2.0% 

2.0% 

2.0% 

2.0% 

2.0% 

2.0% 

2.0% 

2.0% 

–0.2% 

–0.2% 

–0.2% 

–0.2% 

Milk yield (kg/dairy cow) 

0.5% 

0.6% 

0.5% 

0.5% 

Number of dairy cows (mio heads) 

1.5% 

1.4% 

1.4% 

1.5% 

Price 

–4.9% 

–5.0% 

–4.6% 

–4.0% 

CHEESE production 

2008 

2010 

2012 

2014 

Production (incl. processed cheeses) 

2.2% 

2.3% 

2.2% 

2.2% 

Imports  

Exports 

0.0% 

0.0% 

0.0% 

0.0% 

0.0% 

0.0% 

2.4% 

11.9% 

Domestic consumption  

2.3% 

2.4% 

2.2% 

1.6% 

Price EU 

–3.7% 

–3.8% 

–3.5% 

–2.6% 

World Market Price 

–0.2% 

–0.1% 

–0.5% 

–1.5% 

BUTTER production 

2008 

2010 

2012 

2014 

Production EU-27 

1.1% 

0.6% 

0.5% 

0.3% 

Imports 

Exports 

0.0% 

0.0% 

0.0% 

0.0% 

23.4% 

9.3% 

9.0% 

6.6% 

Consumption EU-27 

3.8% 

4.0% 

3.7% 

3.1% 

Ending stocks 

EU Price 

–1.2% 

–0.6% 

–0.5% 

–0.3% 

World Market Price 

–0.3% 

–0.2% 

0.0% 

0.0% 

SMP production 

2008 

2010 

2012 

2014 

Production EU-27 

7.6% 

5.8% 

5.3% 

4.5% 

Imports 

Exports 

0.0% 

0.0% 

0.0% 

0.0% 

70.9% 

40.0% 

36.5% 

29.7% 

Consumption EU-27 

0.2% 

0.1% 

0.1% 

0.1% 

Ending stocks 

EU Price 

– 

– 

– 

– 

–6.6% 

–7.1% 

–6.6% 

–5.7% 

World Market Price 

–2.3% 

–0.6% 

–0.6% 

–0.7% 

T
C
A
P
M

I

T
C
A
P
M

I

T
C
A
P
M

I

T
C
A
P
M

I

EN 

16 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 3: QUOTA DEVELOPMENTS 

Table A3.1 – Number of dairy farmers with a quota 

MS 

1995 

2005 

2007 

change 
1995–2007 

annual 
change 
1995–2005 

annual 
change 
2005/2007 

BE 
CZ 
DK 
DE 
EE 
EL 
ES 
FR 
IE 
IT 
CY 
LV 
LT 
LU 
HU 
MT 
NL 
AT 
PL 
PT 
SI 
SK 
FI 
SE 
UK 

24 047 

15 301 
230 125 

30 316 
132 352 
167 593 
48 013 
107 011 

1 465 

42 249 
83 793* 

73 197 

31 872* 
17 023* 
41 132 

* 

figures 1996-97. 

14 533 
2 991 
6 540 
113 020 
1 859 
7 752 
35 906 
109 822 
24 194 
52 674 
241 
25 457 
111 097 
991 
6 076 
150 
23 187 
53 713 
0 
15 804 
0 
814 
17 833 
9 449 
20 629 

12 672 
2 727 
5 354 
103 480 
1 506 
6 288 
28 465 
100 853 
21 875 
46 651 
224 
22 141 
82 281 
923 
6 175 
152 
21 209 
47 378 
276 508 
12 294 
9 234 
734 
15 213 
8 369 
18 326 

–47.3% 

–4.9% 

–65.0% 
–55.0% 

–79.3% 
–78.5% 
–39.8% 
–54.4% 
–56.4% 

–8.1% 
–6.9% 

–12.7% 
–12.2% 
–4.1% 
–6.6% 
–6.8% 

–37.0% 

–3.8% 

–49.8% 
–43.5% 

–5.8% 
–4.3% 

–6.6% 
–4.5% 
–9.5% 
–4.3% 
–10.0% 
–9.9% 
–11.0% 
–4.2% 
–4.9% 
–5.9% 
–3.6% 
–6.7% 
–13.9% 
–3.5% 
0.8% 
0.7% 
–4.4% 
–6.1% 

–83.2% 

–14.2% 

–11.8% 

–52.3% 
–50.8% 
–55.4% 

–5.6% 
–5.7% 
–6.7% 

–5.0% 
–7.6% 
–5.9% 
–5.7% 

EN 

17 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure A.3.2 : EU overshoot / under-use

1
0
0
.
8
1
2
.
1

+

8
0
3
.
6
6
8

+

2
3
2
.
6
2
2
.
1

+

2
8
2
.
3
6
8

+

1
7
3
.
9
3
2
.
1

+

0
5
5
.
4
4
0
.
1

+

0
8
0
.
7
4
1
.
1

+

6
5
3
.
6
2
9

+

3
7
0
.
0
6
0
.
1

+

8
0
6
.
3
4
9

+

0
3
6
.
9
7
7

+

6
0
0
.
5
7
4

+

0
1
6
.
3
5
8

+

9
1
8
.
2
8
4

+

0
6
0
.
7
6
0
.
1

+

9
5
7
.
9
7
0
.
1

+

5
9
0
.
0
2
5

+

6
1
9
.
8
4
1
.
1

+

8
2
7
.
3
7
7

+

6
9
4
.
7
1
8

+

3
4
4
.
2
2

+

4
7
9
.
6
2
5
-

5
8
2
.
6
8
6

-

Total Overshoot

Overshoot minus Under use

4
5
7
.
1
5
1

+

8
3
4
.
6
4
2

+

3
9
1
.
7
2
6

-

4
7
5
.
1
3
2
.
1

-

s
e
n
n
o
t

2.500.000

2.000.000

1.500.000

1.000.000

500.000

0

-500.000

-1.000.000

-1.500.000

-2.000.000

-2.500.000

-3.000.000

-3.500.000

6
2
4
.
9
1
9
.
1

-

93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07

Figure A.3.3 : 2006/07 overshoot / under-use EU-25

2
5
2
,
3
2
6
7
1
6

8
7
7
,
4
1
7
6
8

3
8
4
,
1
5
7
0
3

7
6
7
,
9
1
6
8
2

6
8
2
,
6
5
6
8

9
5
,
4
2
7

9
6
2
,
8
3
6

2004/05

2005/06

2006/07

9
0
9
,
0
6
4
7
-

4
5
4
,
8
8
6
4
1
-

5
2
5
,
2
4
5
5
3
-

4
7
2
,
1
6
9
7
3
-

7
8
,
1
7
3
4
4
-

3
2
5
,
6
4
6
5
4
-

5
6
1
,
0
8
4
3
5
-

7
6
2
,
5
2
8
3
5
-

8
7
2
,
6
5
5
3
6
-

7
9
1
,
4
6
3
1
7
-

6
1
4
,
6
8
1
9
7
-

1
6
4
,
4
8
4
2
9
-

7
1
6
,
5
2
5
8
9
1
-

3
5
4
,
9
6
7
6
2
2
-

4
6
8
9
,
5
4
7
2
3
2
-

9
5
5
,
0
6
1
5
2
3
-

900.000

700.000

500.000

300.000

100.000
s
e
n
n
o
t
-100.000

-300.000

2
1
3
,
7
5
3
9
7
4
-

-500.000

-700.000

-900.000

4
0
8
,
2
2
5
6
3
6
-

IT AT NL DK DE LU CY MT IE

SI BE EL EE CZ PT SK FI

LV ES SE PL LT HU UK FR

EN 

18 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A3.4 – Prices paid per kg of quota in different Member States 

Member State 

2007 market price 

Administrative 
price 

Development since last year 

CY 
LU 
NL 
LV 
DK 
AT 
PL 
DE 
BE (FL/W) 
ES 
IT 
IE 
FI 
CZ 
FR 
SE 
HU 
UK 
Other MS 

€1.33 
€1.20 
70-80 cents 
43-72 cents 
62 cents 
50-70 cents 
7-34 cents 
23/42 cents 

30 cents 
10-28 cents 
6-36 cents 
7 cents 

9 cents 
6 cents 
6 cents 
… 

Source: Member States estimates. 

Increasing 
increasing 
decreasing 
increasing 
increasing 
stable 
increasing 
stable 
decreasing 
stable 
stable 
increasing 
decreasing 
decreasing 
stable 
stable 
increasing 
increasing 
no information available 

37/25 cents 
27 cents 

12 cents 
4 cents 

0/15 cents 

… 

Figure  A3.5  –  2006/07  Structure  of  milk  production  in  EU-25:  distribution  of 
dairy holdings by quota size (tonnes) 

0 to 50

50 to 100

100 to 200

200 to 300

300 to 500

500 plus

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

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19 

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