Special report No 4/2008 concerning the implementation of milk quotas in the Member States which joined the European Union on 1 May 2004 together with the Commission's replies
Date: 2008-06-05
Institutions: European Court of Auditors
Subjects: agricultural quota, agricultural statistics, audit, enlargement of the Union, regulation of agricultural production, report

22.7.2008

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

SPECIAL REPORT No 4/2008

concerning the implementation of milk quotas in the Member States which joined the European
Union on 1 May 2004 together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph of the EC Treaty)

(2008/C 185/01)

CONTENTS

Paragraph

Page

ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit objectives and approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SPECIFIC PRODUCTION STRUCTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A plethora of micro-holdings after transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enlargement tripled the number of EU milk producers but brought an increase in pro-
duction of less than 20 % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Production units have increased in size but remained diverse in structure . . . . . . . . . . . .

ESTABLISHING NATIONAL REFERENCE QUANTITIES (NATIONAL QUOTAS)

. . . . . . . . . .

The Commission applied a standardised methodology . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sound statistical bases for adopting national reference quantities for deliveries . . . . . . . .

Data difficult to estimate for direct sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Direct sales declared by producers were systematically lower than all statistical estimates

The Commission released the special restructuring reserve on the basis of information dif-
ficult to verify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-IX

1-7

1-4

5-7

8-14

8-9

10-11

12-14

15-26

15

16-17

18-19

20-22

23-26

3

4

5

5

6

6

6

7

8

9

9

9

10

10

11

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THE ALLOCATION OF INDIVIDUAL REFERENCE QUANTITIES (INDIVIDUAL QUOTAS)

27-34

Reference periods differ from one Member State to another depending on Acts of Acces-
sion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

The initial allocation of individual delivery quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28-30

Paragraph

The initial allocation of individual direct sales quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial producers with a quota account for half of all milk producers

. . . . . . . . . .

INTRODUCTION AND MANAGEMENT OF THE SCHEME . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adoption of the ‘acquis communautaire’

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

Systems introduced by the Member States within the allotted time, but of varying quality
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
and with room for improvement

Replenishment of the national reserve: options that differ from one Member State to
another . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The use of the national reserve: varying procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The massive conversion of unused ‘direct sales’ reference quantities . . . . . . . . . . . . . . . .

The fat content of deliveries: an important parameter that is sometimes ignored . . . . . .

CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Late and inadequate planning of controls by the Member States . . . . . . . . . . . . . . . . . . .

Late and poorly documented controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AN OVERVIEW OF THE FIRST MARKETING YEARS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The national reference quantities for ‘deliveries’ have been attained and the national ref-
erence quantities for ‘direct sales’ have been under-used . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring continues in the new Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enlargement has increased crossborder shipments without destabilising the milk CMO

CONCLUSION AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Did the Commission prepare for and supervise the extension of the milk quota scheme to
the new Member States effectively? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Have the new Member States created adequate structures for administering milk quotas?
Do the management and oversight of the scheme comply with EU legislation? . . . . . . . .

Does the milk quota scheme cover all milk marketed in the new Member States? . . . . . .

What overall influence has the introduction of quotas had on national dairy sectors? How
has enlargement affected the milk CMO? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

32-34

35-52

35-39

40-43

44-46

47

48-49

50-52

53-61

55-59

60-61

62-71

62-66

67-69

70-71

72-80

73-74

75-76

77

78-80

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

Page

12

12

12

13

13

15

15

16

16

16

17

18

18

18

19

19

19

21

21

22

22

22

24

24

26

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ABBREVIATIONS

AIRBC (ŽŪIKVC) The Agricultural Information and Rural Business Centre (Lithuania)

APA Slovakia

Agricultural Paying Agency, the paying agency for agriculture in Slovakia

ARR

ARSKTRP

Agencja Rynku Rolnego (Agricultural Market Agency), the paying agency for agricul-
ture in Poland

Agency of the Republic of Slovenia for Agricultural Markets and Rural development, the
paying agency for agriculture in Slovenia

CMO

CVI

CY

CZ

EE

GUS

HU

KSH

LDC

LV

LT

MT

MVH

NMA

PL

PRIA

SI

SK

SZIF

ZMP

Common Market Organisation

Ciltsdarba valsts inspekcija (National Inspectorate of Pedigree Breeding), the inspecting
agency in Latvia

Cyprus

Czech Republic

Estonia

Główny Urząd Statystyczny, National Statistical Office of Poland

Hungary

Központi Statisztikai Hivatal (Hungarian Central Statistical Office)

Lauksaimniecības Datu Centrs (Agricultural Data Centre), the managing body for the
quota scheme in Latvia

Latvia

Lithuania

Malta

Mezőgazdasági és Vidékfejlesztési Hivatal (Agricultural and Rural Development Agency),
the paying agency for agriculture and rural development in Hungary

Nacionalinė Mokėjimo Agentūra (National Paying Agency), the paying agency for agri-
culture in Lithuania

Poland

Põllumajanduse Registrite ja Informatsiooni Amet (Estonian Agricultural Registers and
Information Board), the paying and managing agency for milk quotas in Estonia

Slovenia

Slovakia

Státní zemědělský intervenční fond (State Agricultural Intervention Fund), the paying
agency for agriculture in the Czech Republic

Zentrale Markt- und Preisberichtstelle für Erzeugnisse der Land-, Forst-, und Ernährung-
swirtschaft

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EXECUTIVE SUMMARY

I.
With the enlargement of 1 May 2004, the 10 new Member States took on the obligation to apply the
milk quota scheme. The scheme requires Member States to adhere to production thresholds that are allocated
to them separately for milk deliveries to dairies and direct sales to consumers, and provides for a financial pen-
alty if the thresholds are exceeded.

II.
The Court audited the implementation of the milk quota scheme in the new Member States, carrying
out on-the-spot checks in eight of them and basing its work on an in-depth analysis of the information pro-
vided by the Commission.

III.
In the new Member States, the dairy sector has already experienced profound changes, with the same
trends in evidence everywhere: reductions in livestock, enlarged holdings, continuing rises in milk yields and
an increased delivery rate. The economic development which followed the transition period has not, however,
been accompanied by a reduction in what is still a substantial subsistence or semi-subsistence farming sector,
thereby helping to moderate the effects of structural unemployment.

IV.
In this very specific context, although the delivery quotas allocated to the new Member States were esti-
mated at levels very close to actual requirements, direct sales quotas were, by contrast, considerably overesti-
mated on the basis of very approximate statistical data.

V.
When individual quotas were being allocated to producers, the auditors noted over-allocation of deliv-
ery quotas in two Member States. At the end of the first two quota years, the Court must conclude that half of
all dairy holdings have not been brought within the milk quota scheme. The fact they have been excluded does
not indicate an inability to implement the scheme, but rather reflects the scale of the semi-subsistence farming
sector.

VI.
In the pre-accession phase, the Commission played an essential role in the negotiations to establish
national quotas. As regards the Commission’s activities in the 2004-2006 period, the Court noted certain
shortcomings.

VII.
The implementation of milk quotas posed a major logistical challenge for the new Member States. On
the whole, a considerable effort was made to ensure that administrative and control systems were operational
in good time. At the time of the audit, these systems were still uneven in quality and were subject to comment
by the Court as regards management of the ‘acquis communautaire’ and the national reserve, rules for convert-
ing quotas, and the planning and implementation of checks.

VIII.
Most of the shortcomings noted may be considered as intrinsic to the system’s start-up phase. It is up
to the Commission and the Member States to continue to ensure that appropriate corrective action is taken.
Furthermore, in order to ensure that the scheme is properly managed and that proposals are drawn up for its
future, it is vital for the Commission to have reliable, standardised information in order to understand the
actual extent of the restructuring process and to corroborate the data on direct sales.

IX.
After the first two quota years, restructuring continues in the new Member States’ dairy sectors. Milk
deliveries have continued to increase as a proportion of total production. National delivery quotas were close
to saturation, or even exceeded in the Czech Republic, Cyprus and Poland. Under-use of direct sales quota was
mitigated as a result of large-scale conversions of direct sales quotas into delivery quotas. There has been a
move towards concentration of production units as the price of milk has risen. As a result of the enlargement,
milk products have been traded more widely without destabilising the European market and without leading
to budgetary drift.

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INTRODUCTION

General observations

new Member States on the date of enlargement, except for Poland
and Slovenia which, at their own request, were granted extra time
to implement the scheme completely (3).

The milk quota scheme has applied in the European Union
1.
since the 1984-1985 milk year and will remain, if the regulations
do not change, until the 2014-2015 marketing year (1). The
essential aim of the scheme is to ‘reduce the imbalance between
supply and demand on the milk and milk products market and
the resulting structural surpluses, thereby achieving better mar-
ket equilibrium’ (2).

2.
On 1 May 2004, the Czech Republic, Estonia, Cyprus,
Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia
joined the European Union. Earlier, the Copenhagen European
Council, in December 2002, had set the national reference quan-
tities applicable to dairy production in the ten candidate coun-
tries. The milk quota scheme thus came into full effect in all the

The accession arrangements for each new Member State,
3.
with the exception of Cyprus and Malta, included the creation of
a special restructuring reserve for the dairy sector (4). This reserve
was available for release from 1 April 2006 to support the
restructuring of the national dairy sector and, in particular ‘the
shift from production for on-farm consumption to production
for the market’ (5).

After the enlargement of 1 May 2004, the national refer-
4.
ence quantities for the 25 Member States totalled 137,3 million
tonnes. Together, the ten new Member States had 18,3 million
tonnes available to them, i.e. 13,3 % of the EU total (Table 1).

Initial milk quotas for the new Member States (1 May 2004)

Table 1

Member States

Deliveries

Direct sales

Total

Special reserve

(tonnes)

Czech Republic

2 613 239

Estonia

Cyprus

Latvia

Lithuania

Hungary

Malta

Poland

Slovenia

Slovakia

EU-10

EU-15

EU-25

537 188

141 337

468 943

1 256 440

1 782 650

48 698

8 500 000

467 063

990 810

16 806 368

117 771 708

134 578 076

68 904

87 365

3 863

226 452

390 499

164 630

0

464 017

93 361

22 506

1 521 597

1 241 943

2 763 450

2 682 143

624 483

145 200

695 395

1 646 939

1 947 280

48 698

8 964 017

560 424

1 013 316

18 327 895

119 013 651

137 341 616

55 788

21 885

0

33 253

57 900

42 780

0

416 126

16 214

27 472

671 418

Sources:
EU-10: Annex I to Regulation (EC) No 1788/2003.
EU-15: Annex to Council Regulation (EC) No 3950/92, as amended by Commission Regulation (EC) No 739/2004.

(1) The milk year, or quota year, is the 12-month period beginning on

1 April and ending on 31 March.

(2) Council Regulation (EC) No 1788/2003 of 29 September 2003 estab-
lishing a levy in the milk and milk products sector, third recital
(OJ L 270, 21.10.2003, p. 123).

(3) For these two Member States, the national reference quantities were
applicable from 1 May 2004, but the obligation to set individual ref-
erence quantities did not take effect until 1 April 2005.

(4) Annex I(g) of Regulation (EC) No 1788/2003.
(5) Article 1(4) of Regulation (EC) No 1788/2003.

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Box 1 — The milk quota system

In response to these questions, the Court’s observations
6.
dealt with each stage in the implementation of the scheme, i.e.:

Each Member State is allocated a ‘national reference quantity’,
i.e. a national production quota, which is subdivided into a
national ‘deliveries’ quota for milk delivered to purchasers (the
majority of them dairies) and a national ‘direct sales’ quota for
milk sold or delivered directly by producers to consumers and
for other dairy products sold or delivered by producers. Pro-
ducers receive individual reference quantities for their deliv-
eries and/or direct sales within national limits.

If a Member State exceeds one of its national quotas, the
Member State becomes liable to the EU for an ‘additional’ levy
set at a level deemed to be dissuasive (33,27 euro per
100 kilos of milk for the 2004-2005 period), and separately
determined for deliveries and direct sales. Each year before
1 September, the Member States provide the Commission
with the information needed to calculate the levy. The Mem-
ber State liable for the levy is required to divide it up between
the producers that have contributed to the overrun of the
national reference quantity, after unused reference quantities
have been reallocated.

The milk quota scheme imposes a general framework on
Member States and guidelines to be respected when calculat-
ing the levy. The Member States nevertheless have latitude, in
particular when defining the arrangements for transferring
quotas between producers, to administer their national refer-
ence quantities in accordance with their own economic and
social objectives, e.g. regarding the type of holding they con-
sider desirable or even the territorial distribution of holdings.
No compensation is possible between the quotas of Member
States with surplus production and those with a shortfall.

— the specific production structures in the new Member States
which directly influenced the implementation of the milk
quota system (paragraphs 8-14);

— the setting of national quotas (paragraphs 15-26);

— the allocation of individual quotas (paragraphs 27-34);

— the implementation and administration of

the scheme

(paragraphs 35-52);

— the

organisation

and

implementation

of

controls

(paragraphs 53-61);

— an assessment of the initial quota years (paragraphs 62-71).

The Court visited eight Member States in 2005 (the Czech
7.
Republic, Estonia, Latvia, Lithuania, Hungary and Slovakia) and
Poland and Slovenia in 2006. The Member States audited on the
spot were thus central and eastern European countries (CEECs)
which had made the post-Communism transition to a market
economy and which together held approximately 99 % of the
total reference quantities allocated to the 10 new Member States.

Audit objectives and approach

SPECIFIC PRODUCTION STRUCTURES

The aim of the audit was to check the introduction and
5.
operation of the milk quota system in the new Member States at
the end of the first marketing year in which it applied (1 May 2004
to 31 March 2005) (6). The principal audit questions were as
follows:

— Did the Commission negotiate the allocation of national ref-
erence quantities to the new Member States correctly? How
did it support and supervise the extension of the scheme to
these new Member States?

— Have the Member States created adequate structures to
administer the milk quotas? Do their systems for managing
and checking the activities of producers and purchasers com-
ply with EU legislation? Does the milk quota scheme cover
all the milk marketed in the new Member States? What influ-
ence has the introduction of quotas had on national dairy
sectors? How has the introduction of quotas influenced
national dairy sectors? How has enlargement affected the
milk CMO?

(6) 1 April 2005 to 31 March 2006 in the case of Poland and Slovenia.

A plethora of micro-holdings after transition

The agricultural economies of the central and eastern
8.
European candidate countries underwent profound restructuring
in the 1990s following the collapse of the Communist regimes.
At the time of enlargement, and in spite of restructuring, marked
differences in productivity still remained between the candidate
countries and the EU-15. The handicap that the agricultural sec-
tor had to overcome, which varied in scale from one country to
another, was mainly a result of under-investment, the low pro-
ductivity of production inputs and delayed development in the
agri-food sector (7).

9.
A corollary of the relative inefficiency of the agricultural
sector, combined with high levels of structural unemployment,
was the preservation or creation of a very large number of small-
scale individual subsistence or semi-subsistence holdings.

(7) See, in particular, the study carried out at the request of the European
Commission by A. Pouliquen ‘Compétitivité et revenus agricoles dans
les secteurs agro-alimentaires des PECO’, INRA, October 2001.

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Box 2 — Semi-subsistence agricultural holdings

No standard definition exists. Semi-subsistence agricultural
holdings is the term generally applied to holdings which pro-
duce primarily for their own consumption but also market a
proportion of their output. This is the definition used in the
EU legislation that provides for transitional support measures
for rural development in the new Member States (8).

On a semi-subsistence holding, the farmer derives income
from his agricultural production, although most of his income
is actually made up of social benefits such as retirement pen-
sions, or salaries and income from non-agricultural economic
activities. Income in kind takes the form of on-farm consump-
tion of food, and the self-supply of current and fixed inputs (9).

The restructuring of dairy production, as the European Union
understands it, entails the development of commercially
viable units. Studies show, however, that traditional agricul-
tural holdings based on semi-subsistence contribute signifi-
cantly in some central and eastern European Member States
to cushioning the effects of structural unemployment and
they may thus continue to exist in the long term.

Enlargement tripled the number of EU milk producers but
brought an increase in production of less than 20 %

10.
Due to the small number of farms in the ten new Mem-
ber States, the enlargement meant that slightly more than a mil-
lion milk producers were added to the 500 000 producers already
operating in EU-15.

11.
However, the million new EU producers produced only
21,7 million tonnes of milk in 2004, whereas the EU-15 produc-
ers produced 121,3 million tonnes (Table 2). On initial examina-
the
these figures provide an adequate illustration of
tion,
difference in average productivity at the time of accession between
‘old’ and ‘new’ milk producers. It should also be noted that four
Member States accounted in 2004 for 84 % of dairy production
in the ten new Member States: Poland (54 %), the Czech Republic
(12 %), Lithuania (9 %) and Hungary (9 %).

Table 2

Milk production in the CEECs (1991-2005)

CZ

EE

LV

LT

HU

PL

1991

4 248

1 093

1 771

2 916

2 620

14 022

2000

2 708

2001

2 702

2002

2 801

2003

2 717

2004

2 673

2005

2 770

630

687

612

647

640

670

823

848

814

786

786

800

1 725

2 080

11 900

1 730

2 080

12 030

1 771

2 068

11 776

1 796

1 977

11 892

1 850

1 939

11 810

1 900

1 839

11 905

SI

643

649

653

728

755

815

810

Source: ZMP-Marktbilanz Milch 2006.

(1 000 tonnes)

SK

EU-10

EU-15

EU-25

1 573

29 014

122 797

151 811

1 099

21 807

121 197

143 005

1 114

22 032

121 398

143 430

1 163

21 921

122 188

144 108

1 109

21 869

122 625

144 494

1 047

21 745

121 307

143 052

1 068

21 950

121 515

143 464

(8) Council Regulation (EC) No 1698/2005 of 20 September 2005 on
support for rural development by the European Agricultural Fund for
Rural Development (EAFRD), (OJ L 277, 21.10.2005, p. 1). As part of
its rural development plan, each new Member State has to provide its
own definition of a semi-subsistence agricultural holding, based on
various criteria: the minimum and/or maximum size of the holding,
the proportion of production marketed and/or the level of income of
eligible holdings.

(9) See A. Pouliquen, op. cit., p. 41-45.

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Production units have increased in size but remained diverse in
structure

12.
Apart from the individual characteristics of each new
Member State, the fundamental trends in the dairy sector between
2000 and 2005 were as follows: a drop in the number of dairy
cows offset by an increase in milk yields, and an increase in the
average size of holdings,
linked to steadily falling numbers
(Illustration 1).

The countries of central and eastern Europe can be placed

13.
in two quite distinct categories:

— in the Czech Republic, Estonia, Hungary, and Slovakia, the
large holdings (50 cows or more), that generally emerged
from the old collective farms, account for a large share of
milk production. In these Member States, the average stock

of agricultural holdings is comparable to the stock in some
EU-15 regions; in the Czech Republic, it is even much higher
than the EU-15 average. The proportion of production deliv-
ered to dairies is regarded as an overall indicator of the level
of industrialisation in the dairy sector since milk deliveries
are subject to strict health standards (10). The countries where
large and medium-sized structures occupy an important
position are those with a delivery rate very close (in the case
of the Czech Republic, Hungary and Slovakia) or fairly close
(Estonia) to the EU-15 average. These Member States also
have the largest average delivery quotas and the highest
productivity;

— in Poland, by contrast, where there was little collectivisation
of agriculture, and in Latvia and Lithuania, where the big
State farms were dismantled, the average stock is no more
than four cows. The position of Slovenia is somewhere in
between.

Dairy stock and average herd in the eight new Member States (2001-2005)

Illustration 1

14.
However, despite the differences in production structures
in the new Member States, there remains a predominant share of
small and very small farms, which are often subsistence or semi-
subsistence holdings, within the total number of dairy producers.
Only those marketing their production through deliveries to dair-
ies or direct sales were required to participate in the milk quota
scheme. A major challenge for each of the new Member States

was to identify the producers concerned and have them join the
scheme.

(10) Council Directive 92/46/EEC of 16 June 1992 laying down the health
rules for the production and placing on the market of raw milk, heat-
treated milk and milk-based products (OJ L 268, 14.9.1992, p. 1).

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ESTABLISHING
(NATIONAL QUOTAS)

NATIONAL

REFERENCE

QUANTITIES

Sound statistical bases for adopting national
quantities for deliveries

reference

The Commission applied a standardised methodology

15.
National reference quantities were the subject of intense
negotiation. The central and eastern European candidate coun-
tries, with the exception of Slovenia, could argue that their milk
production had fallen sharply during the transition towards a
market economy. However, the production statistics for the
period prior to transition appeared unreliable. In addition, had
they been taken into consideration, this would have departed
from the general principle that quotas were to be based on data
for the most recent production period for which information was
available. Exceptional cases aside (11),
in order to adopt the
national reference quantities in December 2002, average milk
production for 1997-1999 was taken as the starting point for
negotiations.

16.
The candidate countries were able to provide statistics for
their total national production, estimated on the basis of stock
size and yields, and precise data on deliveries to dairies accounted
for during the reference period. When preparations were being
made for enlargement, the Commission (Enlargement DG) coor-
dinated peer review exercises on the progress of milk quota
implementation. The reliability of the statistics on milk deliveries
to purchasers in the candidate countries was not called into
question.

17.
For the most part, the negotiations yielded national ref-
erence quantities for deliveries that were close to the situations
observed immediately prior to accession. No new Member State
received an initial deliveries quota that was lower than the quan-
tities delivered in each of the five years prior to accession. Only
Poland and Lithuania obtained a deliveries quota substantially
lower than they initially asked for, i.e. 65 % and 75 % respectively
of their expected quota (Illustration 2).

Deliveries — national reference quantities in the ten new Member States

Illustration 2

(11) For the Baltic States, the data for 1999 were excluded because of the

disruption resulting from the economic crisis in Russia.

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Data difficult to estimate for direct sales

18.
For the years before 2000, no specific data were com-
piled for direct sales and on-farm consumption of milk in the can-
didate countries. The Commission did not take into consideration
the direct-sales data provided by the candidate countries on the
grounds that they were incomplete (Latvia, Lithuania, Slovenia
and Slovakia) or too approximate (Hungary and Poland). For these
countries, the statistical volume of direct sales was established by

subtracting from the total production volume the quantities deliv-
ered to dairies and the estimated on-farm consumption. Only the
initial amounts requested by the Czech Republic and Estonia were
considered by the Commission as a basis for discussion.

The data in Table 3 show that with the exception of
19.
Poland the candidate countries of central and eastern Europe had
provided direct sales figures that were far higher than the Com-
mission’s estimates in support of their initial requests.

Evolution of data on direct sales of milk and milk products

Table 3

CZ

EE

LV

LT

HU

PL

SI

SK

Total

(tonnes)

155 000

90 000

300 000

550 000

200 000

564 000

139 000

61 800 2 059 800

100

100

100

100

100

100

100

100

100

26 686

77 833

84 307

284 667

156 333 1 918 867

92 875

14 000 2 655 568

17

86

28

52

78

340

67

23

129

68 904

87 365

226 452

390 499

164 630

464 017

93 361

22 506 1 517 734

44

97

75

71

82

82

67

36

74

2 776

9 585

11 380

76 301

25 978

308 934

20 278

6 803

462 906

2

11

4

14

13

55

15

11

22

2 600

8 565

10 748

55 985

19 313

195 038

20 085

3 657

315 991

2

10

4

10

10

35

14

6

15

Initial request
(1)

Commission
position (2)

Quota accepted
(3)

Utilisation of
2004/2005
quota(4)

Utilisation of
2005/2006
quota (5)

Sources:
(1) and (2) Commission document SEC(2002) 95 final of 30.1.2002 and documents CONF-H 21/02, CONF-PL 45/02 and CONF-SI 21/02 of

(3)
(4)

(5)

20.6.2002.
Annex I to Commission Regulation (EC) No 1788/2003.
Member States’ replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004 (11 months’ data extrapolated
over 12 months, except for Estonia) and the paying agencies for PL (ARR) and SI (ARSKTRP).
Member States’ replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004.

Direct sales declared by producers were systematically lower
than all statistical estimates

authorised to apply for direct sales quotas before converting them
into deliveries quotas.

20.
According to the data in Table 3, direct sales declared in
the first two quota years (2004-2005 and 2005-2006) accounted
for only a small percentage of the quotas granted. For the eight
CEECs as a whole, there is a difference of over 1 million tonnes
between the quantities recorded as direct sales and the reference
quantities granted. This phenomenon is at least partly explained
by the fact that, in the absence of statistical data, the method used
to estimate the volume of direct sales produced results that were
far removed from the actual situation, which led to the future
Member States’ direct sales quota requirements being overesti-
mated on a large scale. This overestimate subsequently favoured
professional producers that only delivered to dairies but had been

Comparison of the recent statistics for direct sales with
21.
the quantities declared for the two first years (Table 4) shows that
the quota management agencies are unaware of a considerable
proportion of direct sales and that many sales are not charged to
the national reference quantity. Undeclared direct sales would
appear to account for more than 80 % of direct sales in Estonia
and Hungary, 60 %-70 % in Slovenia, 60 %-65 % in Poland and
just under 40 % in Lithuania. During the audit, the Estonian,
Lithuanian, Hungarian and Slovenian authorities acknowledged
that the amount of direct sales had not been declared in their
entirety.

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Table 4

Statistical direct sales and declared direct sales

Direct sales

CZ

EE

LV

LT

HU

PL

SI

SK

(1 000 tonnes)

1997

1998

1999

2000

2001

2002

2003

2004

2005

2004/2005

2005/2006

Statistical data for calendar year

467

345

294

309

330

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

192

142

124

76

91

146

150

148

147

85

77

168

116

159

Quantities declared for quota year

11

11

76

56

26

19

74

75

85

97

120

63

53

67

66

10

9

1 663

1 953

2 141

1 700

1 239

1 141

1 318

869

484

309

195

n/a

n/a

n/a

22

21

13

4

2

4

3

3

n/a

n/a

n/a

91

84

119

78

65

58

20

21

59

62

65

n/a

n/a

31

32

13

7

7

4

Sources (calendar years):
CZ: Report to the Commission for the release of the restructuring reserve.
EE: Ministry of Agriculture (1997) and report to the Commission for the release of the restructuring reserve (1998-2005). Extrapolation over
12 months from nine months for 2005.
LV: ‘Additional information to the position paper of the Republic of Latvia (CONF-LV 26/02)’
LT: Ministry of Agriculture (2001-2004) and report to the Commission for the release of the restructuring reserve (2005).
HU: Hungarian Central Statistical Office (KSH).
PL: Central Statistical Office of Poland (1997-1999) and report to the Commission for the release of the restructuring reserve (2000-2005).
SI: Report to the Commission for the release of the restructuring reserve.
SK: Paying Agency APA (1997-1999) and report to the Commission for the release of the restructuring reserve (2002-2005).

Sources (quota years):
Replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004 and information provided by the paying agencies (PL
and SI). For 2004-2005 (11 months), extrapolation over 12 months (CZ, LV, LT, HU and SK).

22.
The aim of the quota scheme is that the relevant authori-
ties in the Member States should verify that quota holders declare
their direct sales in full. They must therefore possess all the nec-
essary information to establish, even on an approximate basis,
that the milk production of producers without a quota is not mar-
keted, in other words that it is all consumed on farm.

The special restructuring reserve was available for release with
effect from 1 April 2006 insofar as on-farm consumption of milk
and milk products in each of these countries had decreased since
1998 in Estonia and Latvia, and since 2000 in the Czech Repub-
lic, Lithuania, Hungary, Poland, Slovenia and Slovakia.

The Commission released the special restructuring reserve on
the basis of information difficult to verify

23.
The new Member States of central and eastern Europe
were required to present to the Commission, by 31 Decem-
ber 2005 at the latest, a report detailing the results and trends of
sectors (12).
in
the

restructuring

process

dairy

their

(12) Article 1(4) of Regulation (EC) No 1788/2003.

24.
On the basis of the reports referred to above, the Com-
mission released the whole of the special restructuring reserve for
the Member States concerned, i.e. a total of 671 418 tonnes,
allowing an increase of 3,7 % in the national reference quantities
initially allocated to these Member States (13).

(13) Article 1 of Commission Regulation (EC) No 927/2006 of
22 June 2006 on the release of the special restructuring reserve speci-
fied in Article 1(4) of Council Regulation (EC) No 1788/2003
(OJ L 170, 23.6.2006, p. 12).

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Although the figures for direct sales and on-farm con-
25.
sumption are unreliable due to difficulties in dividing undelivered
quantities of milk between the two statistical categories, the Com-
mission used the changes in on-farm consumption reported by
the Member States as the main assessment criterion, and did not
question the data supplied by the national authorities, even after
a cross-check with the replies to the annual questionnaires on the
implementation of milk quotas. All the Member States concerned,
except for Lithuania, reported a decline on national territory of
on-farm consumption of milk and milk products.

26.
However, the reliability of the data forwarded to the
Commission is questionable. In the Czech Republic, for example,

the sharp decrease in on-farm consumption between 2000
and 2004 is chiefly due to the decrease in milk production: pro-
duction for the commercial market increased by only 0,8 %. The
Latvian and Slovakian authorities submitted statistics for on-farm
consumption that differ significantly from the data for the same
periods that were used in the membership negotiations. The spe-
cial reserve provided for Lithuania was released in full, although
the statistical data provided by the national authorities did not
show any significant fall in on-farm consumption. For Estonia,
Hungary, Poland and Slovenia, statistical cross-checks (Table 5)
show that on-farm consumption was underestimated in the
reports submitted by these Member States, and/or that direct sales
were under-declared.

Comparison between quantities of milk for on-farm consumption and non-marketed quantities

Table 5

Approach (1)
On-farm consumption as reported by the Member States

(1 000 tonnes)

Approach (2)
Estimated on-farm con-
sumption (quantities pro-
duced and not declared)

1998

1999

2000

2001

2002

2003

2004

2005

2004/2005

2005/2006

108

381

n/a

68

122

349

n/a

63

199

111

357

n/a

53

174

122

343

554

65

197

43

350

663

28

114

66

302

629

26

70

63

268

632

22

70

37

251

614

20

63

123

271

563

284

72

93

232

615

344

3 408

3 409

3 296

3 039

2 802

2 625

3 167

2 814

234

176

99

169

96

167

119

163

85

134

82

128

79

102

131

123

120

87

Member
State

CZ

EE

LV

LT

HU

PL

SI

SK

Sources:
Approach (1): Reports to the Commission for the release of the restructuring reserve. Reference years are underlined.
Approach (2): Difference between production for the calendar year (per the Reports to the Commission for the release of the restructuring
reserve) and the quantities declared to the paying agencies (replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004).

THE ALLOCATION OF INDIVIDUAL REFERENCE QUANTITIES
(INDIVIDUAL QUOTAS)

The initial allocation of individual delivery quotas

Reference periods differ from one Member State to another
depending on Acts of Accession

Producers were notified of individual reference quantities
27.
by the national authorities before the beginning of the first quota
year. Poland and Slovenia, where the obligation to apply indi-
vidual reference quantities was deferred until 1 April 2005, were
nevertheless in a position to allocate individual quotas for 2004-
2005 and extended them to the 2005-2006 quota year.

28.
In allocating individual reference quantities for deliver-
ies, Hungary and Slovakia did not take account of the upper limit
mentioned in the EU legislation (14); these countries allocated

(14) According to of Article 6(1)(2), of Council Regulation (EC)
No 1788/2003, the basis for calculating reference quantities for
deliveries and direct sales appeared in Table (f) of Annex I.

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delivery quotas to a total quantity above this limit (15). Over-
allocation of quotas entailed the risk that the available national
reference quantity would be more quickly exhausted by inciting
producers to produce more milk.

29.
In the case of Hungary, the over-allocation was resolved
only in the course of the 2006-2007 campaign year, when the
Council authorised the Commission, at the request of the Mem-
ber States, to convert quantities from the national reserve for
direct sales into quantities for delivery for the 2005-2006 quota
year (16).

The Slovakian authorities took steps to ensure that indi-
30.
vidual ‘delivery’ quotas did not exceed the amended national ref-
erence quantity at the end of the 2004-2005 marketing year.

However, the method used to achieve this balance does not com-
ply with EU legislation (17). The Commission accepted the Slova-
kian authorities’ proposal for the final distribution of the national
quota between deliveries and direct sales for 2004-2005,
although the additional quantities allocated to deliveries were
greater than the quantities converted by producers.

The initial allocation of individual direct sales quotas

As regards direct sales, the Member States allocated indi-
31.
vidual quotas for total quantities that were generally far lower
than the national reference quantities (Table 6). Poland was an
exception. The national ‘direct sales’ reference quantity allocated
to Poland of 464 017 tonnes, proved much lower than producer
demand (715 921 tonnes). The Polish authorities consequently
imposed a ceiling on the quantities allocated of 64 % of the quan-
tities requested by producers.

Allocation of individual direct sales quotas (2004-2005 milk year)

Table 6

Quantities

CZ

EE

LV

LT

HU

PL

SI

SK

(tonnes)

Ceiling for direct sales

(1)

Total quantities initially
allocated

(2)

(2)/(1)

68 904

87 365 226 452 390 499 164 630 464 017

93 361

22 506

4 360

11 585

96 580 115 698

20 018 458 190

69 446

11 250

6 %

13 %

43 %

30 %

12 %

99 %

74 %

50 %

Sources:
(1) Regulation (EC) No 1788/2003.
(2) Individual reference quantities allocated to producers at the beginning of the 2004-2005 milk year (data supplied by the paying agencies).

Commercial producers with a quota account for half of all milk
producers

32.
Milk producers join the quota scheme on their own ini-
tiative. Reference quantities are allocated to them on application
in accordance with the arrangements adopted by the national

(15) In Hungary a surplus of 23 201,4 tonnes, or 1,3 % of the national
reference quantity for deliveries, was allocated to producers at the
beginning of the 2004-2005 quota year. In Slovakia, total quotas for
deliveries allocated for the 2004-2005 quota year exceeded the
national reference quantity by 10 348,4 tonnes (1 %).

(16) Commission Regulation (EC) No 1611/2006 of 27 October 2006
amending Regulation (EC) No 832/2006 on the division between
deliveries and direct sales of national reference quantities fixed for
2005/2006 in Annex I to Council Regulation (EC) No 1788/2003
(OJ L 299, 28.10.2006, p. 13).

authorities. In most of the new central and eastern European
Member States, approximately half of all producers remained out-
side the quota scheme (Table 7 and Box 3). The estimated partici-
pation rates for the scheme are particularly low in Slovakia (6 %),
Estonia (less than 20 %) and Hungary (30-40 %). The Court’s
assessment is that milk production of approximately 3,6 million
tonnes (18) is not covered by the quota scheme for the eight new
Member States of central and eastern Europe, i.e. 17 % of their
total production.

(17) In accordance with Articles(6)2 and 8 of Regulation (EC)
No 1788/2003, Slovakia should have notified the Commission of the
quantities finally converted at the request of producers.

(18) This estimate is based on the number of producers without a quota
(2004-2005) and on the average productivity of dairy cows (2005),
the assumption being that producers without a quota own 1,5 cows
on average.

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Number of dairy holdings and number of quota holders (2004-2005 and 2005-2006)

Table 7

2004-2005

2005-2006

(1)

Holdings

(2)

Deliveries
(producers)

(3)

Direct sales
(producers)

(4)

Total

(5)

Holdings out-
side the sys-
tem

CZ

EE

LV

LT

HU

PL

SI

SK

Total

8 450

12 400

61 239

195 231

22 000

734 112

17 190

14 230 1 064 852

6 780

9 210

50 900

170 790

16 250

727 100

19 710

13 460 1 014 199

2 950

1 585

24 409

99 384

5 194

310 460

10 148

800

454 930

2 871

1 525

22 919

86 601

4 821

284 475

9 509

740

413 461

252

264

443

2 253

22 516

1 284

76 014

2 624

99

105 485

437

1 808

16 027

1 561

52 837

2 509

100

75 543

2 991

1 859

25 457

112 073

6 076

374 000

10 575

814

533 845

2 903

1 752

24 039

98 387

5 980

330 019

9 956

766

473 802

5 459

10 541

35 782

83 158

15 924

360 112

6 615

13 416

531 007

65 %

85 %

58 %

43 %

72 %

49 %

39 %

94 %

50 %

3 877

7 458

26 861

72 403

10 270

397 081

9 754

12 694

540 397

57 %

81 %

53 %

42 %

63 %

55 %

50 %

94 %

53 %

Sources:
(1) 2004-2005 milk year: Eurostat 2003 data for all Member States except LV (2004 data of the Latvian Central Bureau of Statistics), LT (AIRBC
2004 data) and PL (ARR 2004 data);2005-2006 milk year: Eurostat 2005 data.
(2), (3) and (4) Replies to the questionnaire required by Article 26 of Commission Regulation (EC) No 595/2004 and information from pay-
ing agencies (PL and SI for 2004-2005).

However, the low rate of producer participation does not
33.
suffice as an indicator to cast doubt on the new Member States’
administrative capacity to operate the milk quota system. It is
worth noting that, overall, 70 % of dairy holdings in the new cen-
tral and eastern European Member States consist of no more than
two cows and may therefore be part of the subsistence or semi-
subsistence sector. Since the total number of such micro-holdings
(680 000) is more than 25 % of the total number of holdings
without a quota, it may be concluded that most of the holdings
without a quota are indeed non-commercial or semi-commercial
holdings.

towards large commercial producers. In these Member States,
approximately 75 % of delivery quota holders have a herd of
more than 50 cows.

Box 3 — Producers without milk quotas — The cases of
Lithuania and Slovakia

In Lithuania, 43 % of milk producers did not receive a quota.

The level of producer participation varies considerably
34.
from one Member State to the next. Some Member States permit-
ted and encouraged the distribution of small and very small quo-
tas. Producers allocated reference quantities under 1 000 kg
(deliveries and/or direct sales) for the first year thus accounted for
12 % of quota-holders in Latvia and 6 % in Lithuania. By contrast,
producers with quotas under 1 000 kg accounted for under 2 %
of quota-holders in Poland, Estonia, Hungary, Slovenia and the
Czech Republic. In Slovakia, no producer had been allocated a
reference quantity under 1 000 kg. In the Czech Republic and
Slovakia, the quota allocation policy was clearly orientated

At the time of accession, milk was still produced by a large
number of producers (195 231), almost all of which (95 %)
had no more than five cows. The process of structural con-
centration is slow but perceptible, as evidenced, for example,
by the increase between 2001 and 2005 in the number of
holdings with six or more cows (from 4 501 holdings in
2001, or 2 % of holdings to 11 242 holdings in 2005,
or 6,2 % of holdings). There was a parallel decline in the num-
ber of very small structures resulting from land privatisation,
but these are still very significant in numerical terms.

The audit showed that milk quotas had been the subject of a
well-organised publicity campaign aimed at all producers.
Given the nature of the dairy sector in Lithuania, the 57 % rate
of coverage achieved by the Lithuanian authorities for the first
quota year seems reasonable.

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For the 2004-2005 marketing year, 77 484 producers with
only one or two cows received a quota, although their total
number was 138 591 (19). The difference (61 107 producers)
constitutes the majority of the population of producers with-
out a quota (63 723). It is likely that producers that have no
quota and only one or two cows, practise subsistence or semi-
subsistence farming. It is also the managing agencies’ respon-
sibility to check that these producers make no undeclared
direct sales.

In Slovakia, 94 % of milk producers received no quota.

Slovakia’s agricultural economy divides into two clear parts.
A large number of family farms (15 586 in 2001, 9 853 in
2005) co-exist with a limited number of farms set up as com-
mercial entities (2 087 in 2001, 1 696 in 2005). In 2005,
89 % of family holdings had only one cow; 10 % had two or
three. In the case of commercial holdings, 38 % had more
than 50 cows. Only 6 % of the national dairy stock belonged
to family farms and 94 % to commercial holdings.

A system of milk quotas was applied in Slovakia prior to
accession. However, there were no ‘direct sales’ quotas and
‘deliveries’ quotas were granted only to producers delivering
over 20 000 litres per year. In 2002, 950 producers held a
quota and around 1 000 small producers (20) made direct
sales or deliveries below 20 000 litres per year.

For the first quota year (2004-2005), by allocating only
814 quotas for deliveries or direct sales, the Slovakian authori-
ties gave priority to bringing commercial entities under the
system. According to the auditors’ estimate, 78 % of delivery
quota holders had at least 50 cows, while 21 % had between
two and 49 cows. The very small quotas, corresponding to
fewer than two cows accounted for 1 % of the total.

INTRODUCTION AND MANAGEMENT OF THE SCHEME

Adoption of the ‘acquis communautaire’

Member States were required to provide the Commission, by
1 September 2004 (22), with a short report on their system for
managing national reference quantities (23). After a reminder
from the Commission, the Maltese and Slovene authorities sub-
mitted this short report in February 2007, followed by the Polish
authorities in March 2007.

36.
Although EU legislation applies directly, all the new
Member States have included the EU’s milk-quota acquis as part of
national
legislation or administrative provisions. In Hungary,
Lithuania and Slovakia the regulatory framework adopted by the
national authorities gave rise to the comments below.

37.
Since Regulation (EC) No 1788/2003 gives no working
definition of deliveries, the Lithuanian authorities decided that
deliveries concern milk ‘that can be sold to a purchaser’. Thus, any
occasional transfer free of charge by a producer should not be
counted as a delivery. There is risk that a producer that has
exceeded its quota may transfer its milk free of charge so as to
avoid paying the levy. Under EU legislation, the Member States
must ensure that all milk delivered, even free of charge, is declared.

38.
In Hungary, the sum of individual reference quantities for
producers in a dairy cooperative may be treated as if it were a
single overall quota. If some producers in the cooperative exceed
their individual quotas, the cooperative receives compensation. If
a levy is payable at national level, the cooperative is not held liable
as long as the total for affiliated producers’ quotas is not exceeded.
Under EU legislation,
individual reference quantities may be
merged only if the cooperative is an approved purchaser. During
the audit, the Hungarian authorities acknowledged the need to
amend national legislation on dairy cooperatives that are not
approved purchasers.

35.
As part of the shared management that is characteristic
of the Common Agricultural Policy, the Member States take
appropriate action to implement the regulations on the establish-
ment of a levy in the milk and milk products sector (Box 1). The
Member States are required to provide the Commission with a
limited amount of information. Before 1 September each year,
they complete and return to the Commission a questionnaire
which is then used to calculate the levy (21). Furthermore the

(19) Data at 1 January 2005 (Agriculture Information and Rural Business

Centre).

(20) Source: Peer Review — Evaluation Mission on Milk in the SlovakRe-

public, Final report, DG AGRI and DG ELARG, 2003.

(21) Article 26(1) of Commission Regulation (EC) No 595/2004 of
30 March 2004 laying down detailed rules for applying Council
Regulation (EC) No 1788/2003 establishing a levy in the milk and
milk products sector (OJ L 94, 31.3.2004, p. 22).

Hungary and Slovakia allowed for the possibility of being
39.
an approved purchaser and a producer at the same time. Com-
bining the roles of purchaser and producer entails specific risks
that should be taken into consideration in risk analysis and
on-the-spot checks. The fact that the entire document chain (reg-
isters, declarations, supporting documents and analysis findings)
is managed by a single party increases the risk of data being
manipulated in the event that the national reference quantity is
exceeded and a levy is established.
In such an eventuality,
producers/purchasers would then have to provide data for calcu-
lating a levy for which they themselves were liable.

(22) Before 1 September 2005 for Poland and Slovenia.
(23) Article 27(3) of Regulation (EC) No 595/2004.

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Systems introduced by the Member States within the allotted
time, but of varying quality and with room for improvement

sales. The Member States may replenish the national reserve by
taking back unused reference quantities, retaining part of trans-
fers or making an across-the-board reduction in quotas.

The new Member States visited by the Court (including
40.
Poland and Slovenia) had put in place the structures essential for
getting the system off the ground and for the everyday manage-
ment of milk quotas as early as 1 May 2004. In due course, man-
agers had the operational facility to manage the file on holders of
reference quantities and the file on purchasers, to charge declared
quantities against reference quantities, to use the national reserve,
to manage quota transactions (purchase, leasing, transfer, inher-
itance and cessation of production) and to adjust delivered quan-
tities on the basis of fat content.

41.
It is worth underlining this overall result, insofar as it
contrasts with the long period of uncertainty which followed the
introduction of milk quotas in some old Member States after
1984 due to negligence in the administration of the scheme and
a large number of protracted legal cases (24).

45.
The Member States are therefore allowed to recover some
or all of the quantities that are not used when a producer does not
market at least 70 % of its individual reference quantity over a
12-month period (25). The new Member States have adopted dif-
ferent practices. Producers that under-used their quota during the
first quota year were not penalised in Latvia, Lithuania, Hungary
and the Czech Republic because the year was based on 11 rather
than 12 months. The Estonian authorities did not take this factor
into account and reduced quotas. During the first quota year
(2004-2005), the Slovakian authorities applied a penalty system
that had been in force prior to accession (26) and was stricter than
the one laid down in EU legislation.

42.
The systems encountered in the new Member States nev-
ertheless appeared to vary in quality as regards internal control.
The audit highlighted transactions that were inadequately traced
and delays in updating the quota database in the Czech Republic,
Estonia, Lithuania, Hungary, Poland and Slovenia. In Slovakia, the
computer system initially in place was rudimentary;
in the
absence of an integrated database, APA managers created a
spreadsheet at the beginning of the year containing the individual
quota allocations and another file at the end of the year listing
deliveries and individual direct sales. In the meantime, the APA
had no information about changes in the situation of producers.

46.
In cases of force majeure or in duly substantiated situa-
tions, the arrangements for withdrawing quantities belonging to
partly or wholly inactive producers do not apply (27). In Poland,
withdrawal decisions were made in 2005 and 2006 in respect of
producers that were completely inactive or that had used less than
70 % of their reference quantity. Approximately 3 900 produc-
ers, i.e. 1 %, were completely inactive in 2004-2005. However,
they kept their full quota for 2005-2006 after lodging an appeal
with the paying agency. Appeals are assessed and a decision taken
by the regional directors of the paying agency (ARR), even though
national provisions have not been adopted to guarantee uniform
treatment of such appeals.

43.
At the time of the Court’s audit, the Commission had not
yet carried out any detailed on-the-spot checks in the new Mem-
ber States to ensure that the scheme was running smoothly, the
checks provided for in the legislation had been implemented and
the weaknesses identified in the peer review exercises had been
rectified. The visits that it made to the new Member States in
2005 with a view to clearing the accounts gave rise to no specific
comments about milk quotas.

Replenishment of the national reserve: options that differ from
one Member State to another

The milk quota scheme provides for the establishment of
44.
a national reserve, distinguishing between deliveries and direct

The use of the national reserve: varying procedures

47.
The purpose of the national reserve is to allocate quotas
to new producers or additional quantities to existing producers
on the basis of objective criteria set by the national authorities.
The allocation criteria applied in some new Member States have
deliberately excluded certain applicants. Some Member States also
used the national reserve to convert available quantities intended
for direct sale into delivery quotas on a massive scale (Box 4).

(24) Annual Report 1988, paragraphs 5.33 to 5.38 (OJ C 312,

12.12.1989).
Annual Report 1992, paragraphs 2.17 to 2.19 (OJ C 309,
16.11.1993)
Annual Report 1993, paragraphs 2.10 to 2.59 (OJ C 327,
24.11.1994)
Special Reports Nos 2/87 (OJ C 266, 5.10.1987), 4/93 (OJ C 12,
15.1.1994) and 6/2001 (OJ C 305, 30.10.2001).

(25) Article 15(2) of Regulation (EC) No 1788/2003.
(26) Ordinance of the Ministry of Agriculture of the Slovak Republic of
25 November 2002 No 2953/2002-100, Annex 2, paragraph III.
Under this system, the paying agency cut the ‘delivery’ quotas of milk
producers that had used less than 90 % of their quota in 2003-2004.
In addition, the utilisation percentage was calculated using the over-
all quota (deliveries + direct sales), even though it should have been
calculated separately for each quota.

(27) Article 15(3) of Regulation (EC) No 1788/2003.

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Official Journal of the European Union

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Box 4 — Allocation of quantities from the national
reserve

In Poland, national legislation did not allow new producers to
receive quotas from the national reserve. However, the quo-
tas allocated to existing producers were not limited to the
quantities requested by producers. Some producers were
therefore allocated reference quantities in excess of their
requirements, as a result of which the ‘deliveries’ national
reserve was quickly exhausted.

In Lithuania, producers with fewer than five cows were not
allowed to receive reference quantities from the national
reserve in 2004-2005.

In Estonia and Hungary, during the first two quota years,
direct sales quotas were systematically granted from the
national reserve to producers that made no direct sales and
had no intention of doing so. This practice is explained by the
respective allocation criteria applied in Estonia (utilisation rate
of the overall quota) and Hungary (inadequate delivery quota).

Hungary and Slovakia continued to allocate additional deliv-
ery quotas for 2004-2005 even though the national reserve
for deliveries had become negative.

The massive conversion of unused ‘direct sales’ reference
quantities

48.
The first two milk marketing years in the new Member
States were marked by a shortage of reference quantities in the
national reserve for deliveries, while sizeable quantities were left
unused in the national reserve for direct sales. The twofold prob-
lem of overestimating the new Member States’ requirements in
terms of direct sales quotas and the under-declaration of direct
sales was mentioned above (see paragraphs 20 et seq.).

49.
In order to increase the quantities available for delivery,
the new Member States were allowed to authorise the conversion
of ‘direct sales’ reference quantities into ‘deliveries’ reference quan-
tities and vice versa, at the duly justified request of the pro-
ducer (28). In all of the new Member States these provisions were
intensively applied. The transformation of direct sales quotas into
delivery quotas was particularly extensive in the Czech Republic
and the Baltic States (Illustration 3).

Illustration 3

Conversion of direct sales quotas into delivery quotas

(28) Article 6(2) of Regulation (EC) No 1788/2003.

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The fat content of deliveries: an important parameter that is
sometimes ignored

be carried out during and after the quota year, and no later than
18 months after the end of the marketing year concerned.

Milk quotas limit the quantities of milk that are marketed
50.
but also, where deliveries are concerned, the production of fat.
Each delivery quota is therefore allocated a representative fat con-
tent or individual reference fat content based on historic yield
data for the producer. The quantities delivered are adjusted up or
down for each producer, based on the difference between the
actual fat content and the individual reference fat content. The lat-
ter is therefore an important parameter in the definitive statement
of quantities delivered.

56.
In some Member States, such as Latvia, Lithuania and
Poland, the control plans were published late. The control plan
must also include the list of purchasers and producers chosen,
which was not the case in Slovakia and Hungary, for the 2004-
2005 quota year.

51.
In Estonia, Lithuania, Hungary and Slovakia, some pro-
ducers made deliveries during the 2004-2005 marketing year
without a quota or a reference fat content. In Poland, the system
does not detect producers that have received an unrealistic refer-
ence fat content, i.e. beyond the 30-50 g/kg range. For 2004-
2005, the Court identified some producers with abnormally low
or abnormally high reference quantities.

57.
The risk analysis for the controls covering the 2004-
2005 marketing year was rudimentary in Hungary and Slovakia.
In the Czech Republic and Latvia, the risk analysis became avail-
able only in March 2005, i.e. at the end of the marketing year. In
Poland, the checks performed during 2005-2006 were not based
on risk analysis; this was performed after the marketing year had
ended.

52.
When ‘direct sales’ quantities are converted into ‘deliver-
ies’ quantities, the reference fat content associated with the con-
verted quota is 38 g/kg (29). The reference content for deliveries
may remain the same only if the producer provides supporting
documentation deemed satisfactory by the relevant authority. The
Czech, Lithuanian and Slovakian authorities do not take account
of this constraint; they systematically refrain from changing the
reference content of producers that have carried out a conversion.

CONTROLS

EU legislation requires a number of controls to be imple-
53.
mented (30). The Member States are required to check the accu-
racy of declarations by producers and purchasers and to ensure,
where appropriate, that the burden of the levy actually falls on the
producers responsible for the overrun of the national reference
quantities.

The audit showed that considerable improvements could
54.
be made in the way the controls were planned and implemented.

Late and inadequate planning of controls by the Member States

58.
It should be borne in mind that approximately 17 % of
the new Member States’ milk production comes from producers
without a quota, the majority of whom are small producers with
herds of no more than four cows. Statistical cross-checks show,
however, that a proportion of these producers without a quota
market milk, essentially in the form of direct sales. As a rule, risk
analysis in the new Member States does not take account of pro-
ducers without a quota. As these producers are practically never
checked, the national authorities have no reasonable assurance
that all producers correctly declare the quantities of milk they
market. The risk of under-declaration is nevertheless lower for
deliveries than for direct sales. The fact is that it is very difficult to
check that direct sales made without a quota have been properly
declared. Deliveries by producers without a quota can, however,
be checked from purchasers’ accounts. The Court identified pro-
ducers who delivered milk without a quota or an individual fat
reference quantity, principally in Estonia, Lithuania, Hungary and
Slovakia (31).

59.
None of the new Member States visited, except for Lithua-
nia, systematically cross-checked the milk quotas database against
the animal
identification database. This type of cross-check
would, however, identify clear risks to the scheme, e.g. holders of
quotas who have no dairy cows, owners of dairy cows with no
quota, and quotas allocated or quantities declared with no bear-
ing on the size and composition of the herd. Some Member States
have informed the Court that cross-checks are being carried out
as a result of its audits.

The relevant national authorities must draw up a control
55.
plan for each 12-month period on the basis of risk analysis. The
controls (on farms, during transport and at the purchaser’s) must

(29) Article 7(2) of Regulation (EC) No 595/2004.
(30) Articles 18 to 22 of Regulation (EC) No 595/2004.

(31) Producers who market milk without a quota allocation may incur
heavy financial penalties if the national reference quantity (deliveries
or direct sales) is exceeded. In such an eventuality, the ‘overrun’ cor-
responds to all quantities marketed by the producer and the levy
must be applied to all quantities delivered or sold directly during the
quota year.

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Late and poorly documented controls

AN OVERVIEW OF THE FIRST MARKETING YEARS

In Lithuania, the principle that some of the checks must
60.
be carried out during the marketing year (32) was formally
observed, as four producers were checked on 31 March 2005.
Almost all of the checks were therefore carried out after the end
of the year. In Hungary, no producers were checked during the
2004-2005 quota year, only later in September 2006.

The national reference quantities for ‘deliveries’ have been
attained and the national reference quantities for ‘direct sales’
have been under-used

The Court’s audit brought to light a number of shortcom-

61.
ings in the on-the-spot checks:

The first milk marketing year (2004-2005) in the new
62.
Member States (Tables 8 and 9) saw no instance of national refer-
ence quantities being exceeded. The deliveries quota was, how-
ever, very close to saturation, whereas the direct sales quota was
significantly under-used.

— in the Czech Republic

(2004/2005)

and Slovenia
(2005/2006),
inspection procedures were not precise
enough and did not ensure that the checks carried out were
uniform in nature. These two Member States told the Court
that markedly improved inspection instructions had been
issued for the second quota year;

— in Estonia, the compatibility between marketed quantities
and production capacity (33) was checked using the holding
register. However, the register was not checked for updates
as the procedures made no provision for the animals to be
physically inspected. Since 2006, a new IT system has
allowed the herd register to be cross-checked against the
quota database;

— in Poland, the annexes to the reports on the checks carried
out at the producers’ in the course of 2005-2006 had not
been kept, thus making it impossible to monitor the checks.
At one dairy visited by the Court, the actual fat contents
established by an accredited laboratory differed from the
average and varied to an abnormal extent over time. No addi-
tional checks had been required by the inspectors even
though national instructions provide for such cases. Inspec-
tors’ estimates of production capacity were systematically
incorrect as they were based on unrepresentative milk yields
that were too low; the number of irregularities noted was
therefore excessive (34);

— in Slovakia, the relevant authorities were able to provide an
overall rate of infringement for 2004-2005 (44 % of checks)
but there were no statistics on the types and frequency of
anomaly.

(32) Article 19(2) of Regulation (EC) No 595/2004.
(33) Article 21 of Regulation (EC) No 595/2004.
(34) The inspectors found 755 irregularities for 2005-2006. The Ministry
of Agriculture examined 12 cases and no penalty was imposed.

63.
The second year (2005-2006), see (Tables 8 and 9), saw
an increase in deliveries in all the new Member States, with the
exception of Hungary and Malta where they remained stable. The
Czech Republic, Cyprus and Poland had to pay a levy totalling
67,7 million euro as they exceeded their national reference quan-
tity for deliveries (35).

64.
The volume of direct sales stabilised or regressed, particu-
larly in Poland. The general increase in the rate at which quotas
for direct sales were used stems from the fact that the national
quantities available fell significantly following conversions.

In Cyprus, the national reference quantity for direct sales

65.
was almost attained, to within one kilo (36).

For 2006-2007, the quantities released from the special
66.
restructuring reserve as from 1 April 2006 reduced the risk of the
delivery quota being exceeded in the Czech Republic and Poland.
In Cyprus, the national reference quantity was exceeded for both
deliveries and direct sales; the levy to be collected is approxi-
mately 180 000 euro for deliveries and 16 000 euro for direct
sales.

(35) The systems in force for the levy were not audited as the national ref-
erence quantities were not attained at the end of the first year in
which milk quotas applied (2004-2005). As regards the levies owed
by the Czech Republic, Cyprus and Poland for 2005-2006, no data
were available at the time of the audit.

(36) National reference quantity for direct sales: 2 780 863 kg; total quan-

tity declared: 2 780 862 kg.

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Table 8

Utilisation of national reference quantities for deliveries in the new Member States (2004-2005 and 2005-2006)

Year

Quantities

CZ

EE

CY

LV

LT

HU

MT

PL

SI

SK

(1 000 tonnes)

Deliveries

(1)

2004-2005

Available quota

(2)

Utilisation of deliveries quota

(1)/(2)

Deliveries

(1)

2005-2006

Available quota

(2)

Utilisation of deliveries quota

(1)/(2)

2 608

520

141

502

1 209

1 589

46

8 347

499

949

2 616

554

141

632

1 280

1 783

49

8 500

516

1 003

99,7 %

93,9 %

99,9 %

79,3 %

94,5 %

89,1 %

93,8 %

98,2 %

96,7 %

94,6 %

2 696

569

144

568

1 250

1 581

41

8 931

509

981

2 679

605

142

678

1 520

1 835

49

8 730

536

1 005

100,6 %

94,1 % 100,9 %

83,7 %

82,2 %

86,1 %

84,6 % 102,3 %

95,0 %

97,6 %

Sources:
2004-2005 year: Replies to the questionnaire required by Article 26 of Commission Regulation (EC) No 595/2004 (data for 11 months extrapolated over 12 months, except for
Estonia) and paying agencies for PL (ARR) and SI (ARSKTRP).
2005-2006 year: Replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004.
Quotas are post conversion (provisional and final).

Table 9

Utilisation of the national reference quantities for direct sales in the new Member States (2004-2005 and 2005-2006)

Year

Quantities

CZ

EE

CY

LV

LT

HU

MT

PL

SI

SK

(1 000 tonnes)

Direct sales

(1)

Available quota

2004-2005

(2)

Utilisation of direct sales
quota

(1)/(2)

Direct sales

(1)

Available quota

2005-2006

(2)

Utilisation of direct sales
quota

(1)/(2)

3

67

10

70

2

4

11

76

26

63

367

165

4,2 %

13,6 %

61,7 %

18 %

20,8 %

15,8 %

3

3

9

19

3

3

11

56

19

17

127

112

0

0

0

0

309

464

20

45

7

10

66,6 %

45,4 %

66,3 %

195

234

21

25

4

8

81 %

44,3 %

100 %

63,3 %

44,2 %

17,2 %

83,2 %

83,5 %

44,6 %

Sources:
2004-2005 year: Replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004 (data for 11 months extrapolated over 12 months, except for Estonia) and
paying agencies for PL (ARR) and SI (ARSKTRP).
2005-2006 year: Replies to the questionnaire required by Article 26 of Regulation (EC) No 595/2004.
Quotas are post conversion (provisional and final).

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Restructuring continues in the new Member States

67.
In-depth restructuring of the professional milk sector in
the new Member States began long before enlargement (see para-
graph 8 et seq.). The introduction of milk quotas did not there-
fore radically disrupt the production apparatus, which continues
to develop gradually towards the technical and economic stan-
dards of the old Member States.

68.
The most recent comprehensive data on the new Mem-
ber States’ dairy herds relate to 2005. Provisional data show that
dairy herd numbers in the new Member States experienced a fur-
fall of approximately 366 000 units between 2005
ther
and 2007, i.e. 8 % (37). Restructuring also manifests itself in the
dairy industry through a reduction in the number of approved
purchasers, which fell from 935 in 2004-2005 to 895 in 2006-
2007. The dairy industry in the new Member States has changed
its market outlets. It produces more cheese and fewer other low
value-added milk products
(skimmed milk, milk powder
and butter).

The introduction of milk quotas coincided with the
69.
beginning of a general rise in milk prices. The price paid to pro-
ducers remains lower in the new Member States than the price
paid to EU-15 producers, but the gap is narrowing. Price changes
have encouraged milk producers to increase their deliveries to the
detriment of direct sales. The new Member States’ delivery rate
therefore continues to converge with that of the other Member
States although a significant gap remains between those countries
where milk production is highly concentrated (the Czech Repub-
lic, Hungary and Slovakia) and those where production is still
fragmented (Lithuania and Poland).

Enlargement has increased crossborder shipments without
destabilising the milk CMO

Since joining the EU,

70.
the ten new Member States
have increased their intra-EU trade in milk and milk products
(Table 10). A transfer trade in raw milk has developed in some
border regions of the new Member States, where the price of milk
is lower, towards neighbouring Member States where prices are
higher. This phenomenon has affected Slovenia in particular
(Box 5).

Table 10

Milk and dairy products — External trade of CEECs

Quantities

Intra-EU exports

Intra-EU imports

2004

2005

2006

2004

2005

2006

(1 000 tonnes)

Milk and cream, not concentrated or containing
added sugar or other sweetening matter

Raw milk included in the above

Milk and cream, concentrated and containing added
sugar or other sweetening matter

Buttermilk, curdled milk and cream, yoghurt, kephir,
and other fermented or acidified milk and cream

Whey, products consisting of natural milk
constituents

Butter and other butterfats

Cheeses

Source: Commission, Eurostat (COMEXT).

334

144

144

62

68

53

120

978

1 470

127

570

165

905

160

124

163

102

49

170

197

36

184

38

19

79

38

15

75

322

147

30

514

292

33

106

121

48

18

69

25

114

144

(37) Source: European Commission, Management Committee for milk and

milk products, Quarterly questionnaires (March 2008).

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Box 5 — The massive transfer of Slovenian raw milk to
Italy

Slovenia is the new Member State whose local milk market
has changed the most since joining the EU. Due to price dif-
ferences with Italy, exports of Slovenian raw milk to Italy have
expanded since 2005. In 2006, the price of milk in Slovenia
was approximately 18 % lower than in Italy. Approximately
28 % of Slovenian milk production was exported and pro-
cessed in Italy in 2006. The effect of this phenomenon has
been to limit the production of milk products in Slovenia
(22 % in the case of butter production in 2006, 13 % for
drinking milk, 11 % for cream and 7 % for cheese) and to
encourage imports of these products.

However, the scenario whereby EU enlargement would
71.
create substantial additional surpluses in milk products to be
exported as from 2005 (38) did not materialise. Only very small
quantities of milk products have been subsidised by the EU since
2004 in the new Member States. In 2005 and 2006, budgetary
expenditure on milk in the new Member States accounted for
3,7 % and 4,8 % respectively of total milk-related expenditure on
intervention, refunds and disposal measures.

CONCLUSION AND RECOMMENDATIONS

The quota scheme limiting milk production was extended
72.
to the Member States that joined the European Union on
1 May 2004. Since then, the dairy market has undergone pro-
found change, characterised by rising world prices and the gradual
disappearance of the structural surpluses that provided the raison
d’être for the quotas. Although milk quotas are practically certain
to disappear in 2015, until they do so the way they are applied
must nevertheless be subject to an adequate level of control.

As regards the Commission’s activities in the 2004-2006

74.
period, the Court noted the following shortcomings:

— the Commission released the special restructuring reserve for
all the new central and eastern European Member States,
even though supporting evidence for certain aspects of the
restructuring process was lacking. It used the changes in
on-farm consumption reported by the Member States as the
main assessment criterion and did not question the data sup-
plied by the national authorities (see paragraphs 23 to 26);

— at the time of the audit, the Commission had still not car-
ried out any detailed on-the-spot checks in the new Member
States to ensure that the scheme was running smoothly, the
weaknesses identified in the peer review exercises had been
rectified or the checks envisaged in the regulations had been
implemented (see paragraphs 40 to 43).

R e c o m m e n d a t i o n 1

As part of shared management, the Commission should con-
tinue to take all necessary action to ensure that the implemen-
tation and sound management of the milk quota scheme are
effectively monitored.

It is vital for the Commission to have reliable, standardised
information in order to assess the actual extent of the restruc-
turing process and to corroborate the data on direct sales.

Did the Commission prepare for and supervise the extension of
the milk quota scheme to the new Member States effectively?

Have the new Member States created adequate structures for
administering milk quotas? Do the management and oversight
of the scheme comply with EU legislation?

During the pre-accession phase, the Commission sup-
73.
ported the implementation of the scheme, mainly by coordinat-
ing peer review exercises and by negotiating national reference
quantities with the candidate countries. ‘Delivery’ quotas were set
at levels close to the quantities actually delivered during the ref-
erence period. The negotiations for ‘direct sales’ quotas, by con-
trast, resulted in the granting of reference quantities that
considerably exceeded requirements (see paragraphs 15 to 21).

(38) Agenda 2000, volume II, Com(97) final of 15 July 1997.

75.
The implementation of milk quotas posed a major logis-
tical challenge for the new Member States. For the most part, the
new Member States made a considerable effort to ensure that
their administrative and inspection systems were operational in
good time and have actually created structures that are broadly
adequate for administering milk quotas (see paragraphs 35 to 61).
Based on the main findings of the audit, the summary table below
(Illustration 4) assesses how well they have been implemented at
each stage of the process and in each of the Member States visited.

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Official Journal of the European Union

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Evaluation of the implementation of the milk quota scheme in the countries of central and eastern Europe
(based on the situation at the time of the audit in 2005 or 2006)

Illustration 4

2004-2005 marketing year

2004-2005 and/or 2005-2006 marketing years

Deliveries

Direct sales

Estimated
amount
required

Quota
use

Estimated
amount
required

Quota
use

Adoption
of the
acquis
commu-
nautaire

Manage-
ment of
the
national
reserve

Design
and
updating
of data-
bases

Controls

Risk
analysis

Control
plan

On-the-spot
checks
carried out

CZ

EE

LV

LT

HU

(1)

PL

SI

SK

(1)

(4)

(4)

(5)

(5)

(5)

(5)

(2)

(2)

(3)

(3)

(2)

(3)

(9)

(9)

(9)

(9)

(6)

(7)

(8)

(9)

(10)

(10)

(10)

(10)

(10)

(10)

(11)

(12)

(12)

(12)

(12)

(12)

(12)

(12)

(12)

(13)

(13)

(13)

(13)

(13)

(16)

(16)

(14)

(15)

(16)

(16)

Good (no problems identified)

Average (room for improvement)

Poor (serious weaknesses)

(1) Over-allocation of individual deliveries quotas (paragraph 28).

(2) Less than 20 % of the national reference quantity for direct sales quotas allocated (paragraphs 19 and 31, Tables 3

and 6) (39).

(3) Between 20 % and 60 % of the national reference quantity for direct sales quotas allocated (paragraphs 19 and 31,

Tables 3 and 6) (39).

(4) Utilisation of quotas for direct sales less than 15 % of the national reference quantity (Table 9) (39).

(5) Utilisation of quotas for direct sales between 15 % and 45 % of the national reference quantity (Table 9) (39).

(6) Risk associated with the definition of ‘deliveries’ (paragraph 37).

(7)

Individual quotas pooled by cooperatives (paragraph 38).

(8) Risks associated with producer-purchasers (paragraph 39).

(9) Anomalies in the management of the national reserve (paragraph 47 and Box 4).

(10) Inadequate audit trail for transactions and delays in updating databases (paragraph 42).

(11) Rudimentary IT system; security unsatisfactory (paragraph 42).

(12) Risk analysis prone to weaknesses (paragraphs 57 to 59).

(13) Control plan published late (paragraph 56).

(14) On-the-spot checks carried out late (paragraph 60).

(15) No on-the-spot checks carried out in the quota year (paragraph 60).

(16) Inadequate checks (paragraph 61).

(39) Member States were ranked according to their score in comparison with the average rate of allocation (41 %) or utili-
sation (31 %) of the national reference quantities for 2004-2005. Poor performance = rates less than 50 % of the aver-
age rate. Average performance = rates in the range between the average rate – 50 % and the average rate + 50 %. Good
performance = rates above the average rate + 50 %.

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It is reasonable to conclude that most of the problems
76.
and shortcomings brought to light by the Court’s audit are intrin-
sic to the system’s start-up phase. By way of comparison, it should
be borne in mind that in some EU-15 Member States the intro-
duction of milk quotas was followed by a long period of uncer-
tainty during which the levy was not collected correctly due to
negligence in the administration of the scheme and a large num-
ber of protracted legal cases.

R e c o m m e n d a t i o n 3

The Commission should invite the new Member States to
adhere to the general principle that all milk marketed must
be recorded. As long as the milk quota scheme is in force, all
producers that make undeclared deliveries or direct sales
should be reminded that membership of the scheme is com-
pulsory.

R e c o m m e n d a t i o n 2

It is the Commission’s responsibility to continue to ensure
that the Member States take appropriate action to rectify
the most significant shortcomings identified by the Court’s
audit, as detailed in the summary table evaluating the system
(Illustration 4).

First and foremost, the Commission should invite the new
Member States to improve their database record-keeping
(identification of cattle, deliveries and direct sales declared,
and results of checks) and to optimise cross-checks.

As regards direct sales, the legislation requiring controls to
cover at least 5 % of producers seems inappropriate to the
fragmented structure of the dairy sector in most of the new
Member States. The upshot is that the national authorities
have to carry out a large number of potentially superficial
inspections, which do not allow the probable veracity of
declared direct sales to be verified. With a view to the reform
of the milk market, and for the sake of simplification, the
Commission should examine the possibility of authorising the
Member States to tailor the rate of on-the-spot checks to
the structure and size of the holdings concerned.

The Commission should also encourage the Member States to
combine on-the-spot checks of dairy producers with
other CAP checks (identification of cattle, direct payments
and environmental cross-compliance).

Does the milk quota scheme cover all milk marketed in the new
Member States?

Overall, the introduction of the milk quota scheme con-
77.
cerned only half of all milk producers The majority of milk pro-
ducers without a quota practise subsistence or semi-subsistence
agriculture. A proportion of them market some milk, however,
mainly in the form of direct sales (see paragraphs 14, 21 to 22
and 32 to 34).

What overall influence has the introduction of quotas had on
national dairy sectors? How has enlargement affected the milk
CMO?

78.
In most of the new Member States, the introduction of
milk quotas has not been detrimental to self-sufficiency and has
not made the milk sector less dynamic. Milk quotas were gener-
ally introduced against a backdrop of rising milk prices, the pri-
mary beneficiaries of which have been professional producers
that make deliveries (see paragraphs 62 to 69).

79.
The semi-subsistence sector still acts as a drag on the new
Member States’ agricultural productivity but is also a factor for
social stability and helps shore up the rural population (see para-
graphs 8 to 14). Given this situation, the new Member States have
responded differently to the question of whether milk quotas were
primarily a restructuring tool for professional producers or
whether they could also help to bring certain small producers into
the formal market (paragraphs 20, 33 and 34).

80.
The 2004 enlargement had no negative impact on the
overall balance of the EU’s milk and dairy products market. The
new Member States’ share of responsibility for the milk product
surpluses to be subsidised by the EU budget is minimal (see para-
graphs 70 and 71).

R e c o m m e n d a t i o n 4

The Commission is invited to take account of all the findings
of the Court’s audit as part of the ‘health check’ for the com-
mon agricultural policy.

Consideration of possible adjustments to the milk CMO and
the milk quota scheme should focus on:

— transitional and accompanying measures to be envisaged
in regions where small producers still largely predomi-
nate;

— the need for milk producers in the new Member States to
have a stable regulatory framework and clear pros-
pects, encouraging them to make the investments that
are vital if their activity is to remain viable.

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This report was adopted by the Court of Auditors in Luxembourg at its meeting of 5 June 2008.

For the Court of Auditors
Vítor Manuel DA SILVA CALDEIRA
President

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THE COMMISSION REPLIES

SUMMARY

On 1 May 2004, the system of milk quota entered into force in the 10 new Member States. While evidently
not everything went perfectly well from the first day, the overall result can be considered to be very positive
given the huge task the enlargement posed for the new Member States. Existing teething problems have been
resolved during the first two campaigns, and if/where needed shortcomings will be followed up through the
clearance procedures.

IV.
The Commission has used the data that were made available to it and its estimations were at the basis
of the final decision taken by the Council on the determination of the quota attributed to each new Member
State.

Regarding the determination of the direct sales, the Commission has been as restrictive as possible, using an
estimation method based on objective criteria. For instance, on-farm consumption has been evaluated on the
basis of the number of persons living on the farm and the number of small calves on the farm. These estima-
tions are deemed to be reasonable and have been applied in a uniform way for all Member States.

V.

Two instances of over allocation of deliveries quantities occurred in Hungary and in Slovakia.

Both have been dealt with: the case for Slovakia during campaign 2004/2005, the one for Hungary during
campaign 2005/2006.

VI.
The Commission systematically examined the national implementing measures adopted, and replied
to numerous questions from Member States during 2004-2006, either in writing or during the bi-weekly man-
agement committee. Moreover, the Commission followed up the Court’s observations, and monitored
improvements and developments during the bilateral meetings arranged following on-the-spot audit enquiries
conducted in 2004 and 2005 under its clearance of accounts procedure. Recent missions enable audit cover-
age of the years and Member States considered by the Court as most at risk from the shortcomings highlighted
by it. So far, no financial corrections have been identified as necessary.

VII.
The Commission considers that Community law has been respected and that the management of the
national reserve, has been consistent with the provisions in force. See replies to paragraphs 35 to 39,
and 44 to 47.

VIII.
The Commission accepts the recommendation, and points out that it is already, in a number of cases,
following-up the Court’s observations in the context of the clearance of accounts procedure. In July 2007, the
Commission sent a questionnaire to the Member States and received further information about the structures:
number of producers and quota size per producer.

For the Commission, the most relevant data are based on the milk quantities declared by purchasers or by indi-
vidual producers in direct sales in the Member States concerned. The summary of this information is already
provided in the questionnaire sent to the Commission each year before 1 September according to Article 26
of Regulation (EC) No 595/2004.

IX.
On-the-spot audit enquiries undertaken in 2007 and early 2008 by the Commission have already tar-
geted those same three Member States mentioned by the Court, thereby providing audit coverage for the ear-
lier and current years in question.

ESTABLISHING
(NATIONAL QUOTAS)

NATIONAL

REFERENCE

QUANTITIES

19.
The Commission agrees with the Court on the data and
concludes that its method of negotiation was well elaborated and
based on the most objective criteria possible and aimed to restrict
the initial requests which were overestimated.

The Commission’s estimation methodology can be con-
20.
sidered as reasonable. Thanks to this methodology, the initial

request of the new Member States (except Poland) initially evalu-
ated at 1,5 million tonnes have been reduced to the acceptable
level of 0,83 million tonnes (negotiation position of the Commis-
sion). The volume negotiated in the Council has been in the order
of 1 million tonnes.

Subsequently, as explained by the Court, the process of restruc-
turation implied a loss of interest in direct sales. Aware of the
need of restructuration and the necessity to authorise the

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Member States to manage their reference quantities according to
their needs, the Council of Ministers of 18 September 2006 intro-
duced the possibility to transfer reference quantities for direct
sales (remaining unused quantities in the national reserve) to the
reference quantities for deliveries for campaign 2006/2007
(Council Regulation (EC) No 1406/2006).

According to Article 6 of

the Regulation (EC)
30.
No 1788/2003, the Commission accepted requests about conver-
sion sent in February 2005 for all Member States including Slo-
vakia. In fact for Slovakia, the Commission later realized the
inconsistency of the method used, after receiving some extra
information from the Slovakian authorities.

21.
In Poland, a large number of producers having received
a quota for direct sales has subsequently renounced it and the
national reserve has increased accordingly.

The follow up has to be assumed firstly by the Member
22.
States’ competent authorities according to Regulation (EC)
No 595/2004.

Aware of the need of restructuration and the necessity to autho-
rise the Member States to manage their reference quantities
according to their needs, the Council of Ministers of 18 Septem-
ber 2006 introduced the possibility of transfering reference quan-
tities for direct sales remaining unused in the national reserve to
the reference quantities for deliveries for campaign 2006/2007
(Council Regulation (EC) No 1406/2006).

24-25.
As foreseen in the act of accession, the Commission
has decided to release the restructuration reserve in favour of the
Member States concerned after having thoroughly analysed the
issue in a report.

In this analysis the Commission has used the data made available
to it by the Member States and assessed the shift from produc-
tion for on-farm consumption to production for the market based
on two criteria: the trend of marketed quantities and the on-farm
consumption.

Box 3, fourth paragraph

The follow up has to be assumed firstly by the Member States’
competent authorities according to the Regulation (EC)
No 595/2004.

INTRODUCTION AND MANAGEMENT OF THE SCHEME

26.
In its report, the Commission noticed a decrease of auto-
consumption in all countries concerned between 2000 and 2005,
with the exception of Lithuania where a decrease of autocon-
sumption was registered between 2002 and 2005.

The most important source of information was the
35.
national legislation that the Member States have to transmit to the
Commission in the month after their adoption. All Member
States, including Poland, Slovenia and Malta did this. This was the
central element in the monitoring of the implementation of the
acquis.

Regarding the Czech Republic, the production intended for the
market has increased by 0,8 % between 2000 and 2004 and then
by 3,7 % between 2004 and 2005.

Concerning Latvia and Slovakia, there are no very significant dif-
ferences between the data estimated by the Commission during
the accession negotiations and those in the reports on the restruc-
turation reserve.

The main criteria assessed were the trend in percentage of
on-farm-consumption and marketed quantities.

Given the production context of the first two milk years
28.
2004/2005, which had only 11 months, and 2005/2006, this
over-allocation did not carry much risk of rapidly saturating the
available national reference quantity. Moreover, this risk did not
arise. In Hungary, 82 % of the delivery quota were used during
campaign 2004/2005 and 86 % during campaign 2005/2006.

Similarly in Slovakia the figures were 87 % for campaign
2004/2005 and 97 % for campaign 2005/2006.

The definition of delivery in Article 5(f) of Regulation
37.
(EC) No 1788/03 does not refer explicitly to either sales or gra-
tuitous donations by milk producers to their purchasers. The defi-
nition of purchaser in Article 5(e) on the other hand states that
purchasers ‘buy’ milk from producers. In line with this, the Lithua-
nian definitions refer to the producer selling quantities to the pur-
chaser. When asked by the Commission to ensure that all milk
movements from producer to purchaser should be declared for
quota purposes, the Lithuanian authorities replied that because of
the definition of purchaser as ‘buying’ milk from the producer,
producers cannot and do not give away milk to purchasers free
of charge.

The Lithuanian authorities have confirmed that all deliveries
(including gratuitous deliveries) are declared.

The provisions called into question regarding coopera-
38.
tives in Hungary permit a dairy cooperative to request the
competent authorities to treat the individual quotas of its con-
stituent members as one global quota, the management of which
is in the hands of the cooperative. Therefore one quota is entered
in the quota register in the name of the legal person which is the

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cooperative. It is further provided that the cooperative thereafter
assumes, on behalf of its constituent members, all the obligations
incumbent upon producers under the quota regulations. The
Commission does not consider that this regime involves any risk
regarding levy collection. The fact that certain types of coopera-
tives in Hungary may aggregate the individual quotas of the con-
stitutive members without a transfer of ownership rights in the
quotas is entirely similar to the situation of partial GAECs (Groupe-
ment Agricole d’Exploitation en Commun or collective farming
grouping) in France, as results from the description of such asso-
ciations in paragraph 45 of the conclusions of the Advocate Gen-
eral
in case C-15/95. The Court of Justice approved in its
judgement in that case, recourse to certain forms of company
such as partial GAECs for the purposes of milk production under
the milk quota regime.

Any inherent risk in the status of producer/purchasers
39.
can be taken into account in the risk analysis implicit in the con-
trol process of producers and purchasers. Evidently, in his capac-
ity of producer, the subject will be registered as a quota holder,
and will, as a purchaser, be approved under the normal proce-
dures. He may be subjected to controls in both capacities regard-
ing any given quota period.

It would be disproportionate to exclude the exercise by a pro-
ducer of the functions of a purchaser and vice versa. Such an
exclusion would rule out for example the activities of producers
of milk processing their own product increased for reasons of
viability by quantities acquired from other producers. Moreover,
producer-purchasers have already been recorded in the old Mem-
ber States without giving rise to contradiction with the milk quota
regime.

The outcome of the various bilateral meetings and
42.
on-the-spot audits undertaken in 2007 by the Commission dem-
onstrate that the problems and criticisms raised by the Court with
regard to the quota operations in the first implementing years
have been addressed, and that
improvements have been
introduced.

Any potential financial risk to the Community budget
43.
began only with the first year of application that could involve the
additional levy, namely 2005/2006. The Commission undertook
two on-the-spot audit enquiries in 2007 in the two Member States
presenting the greatest financial risk (i.e. proximity to or over-
shooting of the national milk quota) for which, thanks to the
clearance of accounts mechanism with its retrospective coverage
of 24 months, the quota year 2005/2006 was indeed covered.
Furthermore, in the framework of other audits that the Commis-
sion did perform in 2005, the resulting bilateral meetings pro-
vided excellent opportunities to discuss the Court’s findings on
milk quotas, and to follow-up relevant developments. A further
audit was made in early 2008 in the third new MemberState to
overshoot the quota, and likewise audit coverage takes in the
quota year 2005/2006.

The Commission advised the new Member States that the
45.
discretion to place unused quantities in the national reserve when
the producer failed to produce at least 70 % of his quota in a
12 month period should not be used in respect of production in
the first period after accession. Due to the date of accession at
1 May 2004, producers in the new Member States did not have
the benefit of the full regulatory reference period of 12 months
against which to measure their production, so reductions would
not have a sound legal basis.

The Estonian and Slovak authorities demonstrated, on the basis
of their national pre-accession provisions that their producers had
operated from 1 April 2004 under a reduction clause for a full
12-month period against which to measure their production. The
Commission confirmed that they were consequently in a position
to make reductions, on condition that the pre-accession higher
thresholds of production were relaxed so that no reductions
would interevene in respect of the 2004-2005 period which did
not respect the 70 % threshold.

Reference is made in footnote 26 to the application by the Slo-
vak Republic of reductions calculated at a higher threshold than
70 % and calculated on the global quota instead of separately for
deliveries and direct sales. These reductions were made in respect
of production in the pre-accession 2003-2004 period, and were
not therefore subject to the post accession regulatory limitations.

46.
The first period in respect of which the abrogation of
quota in cases of total inactivity became obligatory, except for
cases of force majeure or due justification, in Poland is 2005-
2006. It was not an obligation for Poland to allocate individual
quotas for the period 2004-2005, nor therefore could it have
been an obligation to revoke quotas on the ground of underuse
in that period. The criticism of the Court regarding the favour-
able outcome of appeals against revocations which were not
obligatory or the rules applying to such appeal procedures is not
relevant to Poland’s application of the Community milk quota
regime.

The procedure as described by the Court related to the 3 900 pro-
ducers in Poland conforms with Article 15(1) and (3), of Regula-
tion (EC) No 1788/2003.

47.
As the Court of Auditors itself observed earlier, the Mem-
ber States enjoy considerable latitude in managing their national
reference quantities in function of their particular economic or
social objectifs. The exercise of this discretion is regulated by
Article 7 of Council Regulation (EC) No 1788/2003 which pro-
vides that the Member States shall make allocations to producers
of quantities out of the national reserve ‘on the basis of objective
criteria to be notified to the Commission’.

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Box 4, first paragraph

CONTROLS

In accordance with the discretion conferred on Member States,
the Polish system favours existing producers who expand their
production rather than new entrants. According to the legislation
notified by the Polish authorities, allocations from the national
reserve to existing producers are conditional upon a documented
increase in sales compared with the previous quota year. Alloca-
tions are determined by a mathematical computation of the aver-
age annual sales of the expanded holding. The resulting allocation
therefore coincides with actual documented milk sales over a
given period and is therefore not more than is required to cover
the capacity of the beneficiary. The objectivity of this system
appears not to be open to question.

Second paragraph

The Commission considers that production scale and capacity are
objective criteria for distinguishing between categories for access
to the national reserve.

Third paragraph

On 18 September 2006 the Council, aware of the need of restruc-
turation and the necessity to authorise the Member States to man-
age their reference quantities according to their needs, introduced
the possibility to transfer reference quantities for direct sales
remaining unused in the national reserve to the reference quan-
tities for deliveries for campaign 2006/2007 (Council Regulation
(EC) No 1406/2006). This also applies to point 49.

51.
An individual fat reference can only be fixed with refer-
ence to a producer’s milk quota. It is therefore inevitable that pro-
ducers making deliveries without a milk quota do not dispose of
a fat reference, in relation to which their deliveries might be
adjusted either upwards or downwards.

52.
Generally, when producers using ‘direct sales’ switch to
deliveries they do not change their herd. As a consequence, they
still have milk cows of the same race and homogenuous in terms
of quality of produced milk. Therefore, it seems coherent to apply
the derogation foreseen in Article (7)(2) of Commission Regula-
tion (EC) No 595/2004.

The reply of the Lithuanian authorities showed their riguour in
the analysis on the issue of fat content at the moment of the fixa-
tion of the reference levels and during the transfer to deliveries.

Moreover, to avoid risks of deviation of reference levels compared
to the value fixed at the start of the regime, in conformity with
Article 9(5) of Regulation (EC) No 1788/2003, an adjustment
mechanism was foreseen to reestablish the reference levels for fat
from the moment there is an increase of more than 0,1g/Kg of fat.

53.
Whilst agreeing the importance of the controls to be
installed, it is stressed that, for the first year’s implementation
examined by the Court, there was an extremely low financial risk
as there was little likelihood of over-shooting the national refer-
ence quantities given that they applied for an 11-month period
(1 May 2004-31 March 2005).

54.
The Commission’s bilateral contacts with the Member
States involved, and recent on-the-spot audit enquiries in Poland
and the Czech Republic, indicate that the Court’s findings have
been taken on board and that improvements have been, and con-
tinue to be, put in place.

55.
Controls at purchasers are carried out on the basis of his
annual declaration of purchases and are therefore best carried out
after that declaration has been made.

56.
The control plan for purchasers would logically only be
completed after the end of the milk campaign as it is based on the
purchasers’ declarations. As regards producers and transporters,
the Commission agrees that late control plans hamper proper
control.

The Hungarian authorities have explained that all purchasers were
controlled for 2004/2005, but risk criteria have been introduced
for later years.

Slovakia has explained that some form of risk analysis existed
already for 2005/2006, and as from 2006/2007 a points-based
system is used. As from April 2007 an independent risk analysis
section is established in the control department.

It is difficult to conceive a risk analysis for an area that
57.
has not previously been controlled and for which all the risks are
not yet known. The Commission’s bilateral discussions and audit
show that risk analysis and control planning in subsequent years
have become more sophisticated. In the Czech Republic, for
example, the risk analysis was formalised as from 2005/2006.

The Polish authorities carry out their risk analysis for milk pur-
chasers at the end of the quota year. The control verifies the com-
pleteness and veracity of the deliveries declaration (made in May)
and so it is reasonable that the risk analysis be made after the end
of the quota year. In Poland, the control plan was issued in Sep-
tember 2006 — and controls for the 2005/2006 milk period did
not have to be completed until 30 September 2007. It has been
verified by a Clearance of Accounts mission that the 2006/2007
controls were based on a risk analysis. It was also verified that,
while not based on an ex-ante risk analysis, the 2004/2005
and 2005/2006 controls were executed.

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The Commission agrees that the control regime should
58.
encompass all farmers marketing milk and, during audit missions
and bilateral contacts the Commission has requested Member
States to include all producers of milk, whether or not they have
quota, in their risk analysis.

Thanks to this methodology, the initial request of the new Mem-
ber States (except Poland) initially evaluated at 1,5 million tonnes
have been reduced to the acceptable level of 0,73 million tonnes
(negotiation position of the Commission). The volume negotiated
in the Council has been in the order of 1 million tonnes.

However, delivery of milk without a quota is not in breach of the
Regulation, and the financial risk for the very small producers
cannot be great. The proportion of direct sales to delivery quota
is considerably less than 3 % in most cases.

59.
Although not required by the milk quota legislation, the
Commission also strongly urges the cross-checks described by the
Court.

74.
As demanded by the act of accession, the Commission
decided to release the restructuration reserve in favour of the
Member States concerned after a thorough examination in a
report. The statistics made available by the Member States have
been used and cross-checked. Cross-checks have been made
between the data in the report and the data in the survey on quota
(Article 26(1) of Regulation (EC) No 595/2004) and between the
statistics in the report and those of Eurostat and ZMP. See reply
to points 24-25.

60.
The Commission recognises the importance of proper
control at the most opportune time. During missions/bilateral
contacts, Member States have been reminded that producer con-
trols must be at least partially carried out in-year. For 2005/2006
quota year the Lithuanian authorities performed in-year checks
on producers and transport companies.

Hungary, performed no ‘in-year’ controls on producers in respect
of 2004/2005 or 2005/2006, but did make them after the end of
the milk years. However, in-year controls were carried out in
respect of 2006/2007.

61, Third indent

Any potential financial risk to the Community budget began only
with the first year of application that could involve the additional
levy, namely 2005/2006. The Commission undertook two
on-the-spot audit enquiries in 2007 in the two Member States
presenting the greatest financial risk (i.e. proximity to or over-
shooting of the national milk quota) for which, thanks to the
clearance of accounts mechanism with its retrospective coverage
of 24 months, the quota year 2005/2006 was indeed covered.
Furthermore, in the framework of other audits, that the Commis-
sion did perform in 2005, the resulting bilateral meetings pro-
vided excellent opportunities to discuss the Court’s findings on
milk quotas, and to follow-up relevant developments. A further
audit was made in early 2008 in the third new MemberState to
overshoot the quota, and likewise audit coverage takes in the
quota year 2005/2006.

The Polish authorities accepted the Court’s recommendation and
as from August 2006 agreed to attach the working sheets to the
control reports.

Recommendation 1

The Polish authorities follow-up and sanctioning process is being
handled in the context of the Commission’s clearance of accounts
procedure, which covers the year in question and is on-going.

Second paragraph

61, Fourth indent

Whereas the keeping of such information may be useful in cer-
tain circumstances, for example for adapting risk analysis criteria
from one year to the next, it is not a regulatory requirement.

Recommendations to this effect will be made to Member States.

In July 2007, the Commission has sent a questionnaire on the
application of the quota to collect statistical information on the
evolution of the number and size of producers producing for
direct sales and for deliveries.

However, whereas a follow-up of the restructuration process is
useful in terms of knowledge about the product chain, it is less
important for the purpose of monitoring the obligations of the
quota regime.

CONCLUSION AND RECOMMENDATIONS

75.

73.
Regarding the determination of the direct sales, the Com-
mission has been as restrictive as possible, using an estimation
method based on objective criteria. These estimations are deemed
to be reasonable and have been applied in a uniform way for all
Member States.

(1) An over-allocation of deliveries quota occurred in 2 Mem-
ber States. The allocations were brought within the relevant
global quantities within the first period (Slovakia) and with
effect in the second period (Hungary). Neither Member State
concerned registered production in excess of its deliveries
quantity.

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(6) The Lithuanian authorities have confirmed that all deliver-

ies (including gratuitous deliveries) are declared.

(7) The operation of cooperative level quotas in Hungary is in
line with the case-law of the Court of Justice and does not
present a risk for collection of levy.

The problems encountered are inherent in the inaugura-
76.
tion of a new regime. However, it has found that the Court’s con-
cerns in respect of first years’ implementation, when there was
little risk of financial impact on the Community budget, have
been addressed and improvements put in place. This continues to
be monitored under the clearance procedure, also in respect of
the quota years under investigation by the Court, and especially
in those Member States where overshoot is apparent or likely.

(8) The Commission considers that any risks inherent in the sta-
tus of producer-purchasers are to be taken into account in
the risk assessment implicit in the control procedure.

Recommendation 2

First paragraph

(9) As explained in detail

in Commission’s replies to para-
graph 47 and box 4, the Commission does not consider that
anomalies took place in the framework of the operation of
the national reserves.

(10) The outcome of the various bilateral meetings and on-the-
spot audits undertaken by the Commission demonstrate that
the problems and criticisms raised by the Court with regard
to the quota operations in the first implementing years have
been addressed, and that
improvements have been
introduced.

(11) The outcome of the various bilateral meetings and on-the-
spot audits undertaken by the Commission demonstrate that
the problems and criticisms raised by the Court with regard
to the quota operations in the first implementing years have
been addressed, and that
improvements have been
introduced.

(12) Teething problems in early years have been rectified with

significant improvements by Member States.

(13) As explained in Commission’s reply to paragraph 56,
improvements have been introduced by the Member States.

The Commission has followed up developments both in the con-
text of bilateral meetings and on-the-spot audit enquiries con-
ducted in the context of its clearance of accounts procedures.

As regards point 1 of illustration 4: the Hungarian and Slovak
overallocations of deliveries quota have been corrected.

Concerning point 10 of illustration 4: the use of the national
reserve in Poland and Lithuania was based on objective criteria
and is not therefore discriminatory.

Second paragraph

The Commission agrees to further underline the observations of
the Court, whose position it shares.

Third paragraph

The Commission, after consulting the management committee
for milk and milk products, has already proposed a reduction
of the intensity of the controls foreseen in Article 21(2) of Regu-
lation (EC) No 595/2004. A control rate of 1 % has been set for
those producers having a production below 5 000 kg. Commis-
sion Regulation (EC) No 228/2008 (1) applies
from the
2007/2008 period.

Fifth paragraph

(14) The Commission recognises the importance of proper con-
trol at the most opportune time. Improvements have been
introduced by the Member States.

Where possible such practice is indeed encouraged. However, due
to the involvement of different services, competences, technical
expertise, etc, it is often not practical.

(15) Hungary, and other MemberStates concerned, have been
reminded that controls on producers and transporters must
be at least partially carried out in-year. Improvements have
been subsequently introduced by Member States.

Recommendation 3

There is no obligation to allocate quota to all producers. How-
ever, the Commission agrees that all the milk that is commercia-
lised has to be accounted for.

(16) The Commission has followed up the issues raised with the
Member States, and is satisfied that improvements have been
introduced in years subsequent to the Court’s enquiry.

(1) Commission Regulation (EC) No 228/2008 of 13 March 2008 amend-
ing Regulation (EC) No 595/2004 with regard to intensity of controls
on deliveries and direct sales of milk (OJ L 70, 14.3.2008, p. 7).

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Recommendation 4

First paragraph

appropriate to their situation. For instance, they can opt to imple-
ment a restructuration programme according to Article 18(a) of
Regulation (EC) No 1788/2003.

The Health Check will allow to verify if the level of quota has to
be adjusted or if technical improvements have to be made before
2015, before the end of the regime. The objective is to have a
transition before 2015 in a framework as transparent and simple
as possible.

Second bullet point

First bullet point

Member States have a lot of leeway to organise the transfer of
the most
quota. This allows a restructuration which is

The Commission endeavours to propose to the Council a precise
framework with stepwise quota increases until their expiry in
2015 in order to give the producers a clear outlook on their
future. This allows the active producers to continue developing
their business.