Commission staff working document accompanying the Communication from the Commission to the Council - Dairy market situation 2009 : technical annex {COM(2009) 385}
Date: 2009-07-22
Institutions: European Commission
Subjects: EU Member State, EU market, agricultural market, agricultural production, agricultural quota, dairy production, international market, milk, milk product, price fluctuation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.7.2009 
SEC(2009) 1050 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

Communication from the Commission to the Council 

Dairy market situation 2009 

{COM(2009) 385 final} 

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COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

Communication from the Commission to the Council 

Dairy market situation 2009 

1. 

1.1. 

1.2. 

Additional info referring to point 3.1 – market situation to July 2009 ........................ 3 

EU milk supply ............................................................................................................ 3 

EU demand................................................................................................................... 4 

1.3.  World milk supply........................................................................................................ 5 

1.4.  World market demand.................................................................................................. 5 

1.5.  World market prices..................................................................................................... 6 

2. 

3. 

4. 

4.1. 

4.2. 

4.3. 

5. 

6. 

7. 

8. 

9. 

10. 

Additional info referring to point 3.2 – prices in the EU ............................................. 8 

Additional info referring to point 3.3 – prices paid by consumers versus prices paid 
to farmers ..................................................................................................................... 9 

Additional info referring to point 4.3 – other measures to support the outlet of milk 
production .................................................................................................................... 9 

Marketing standards milk products.............................................................................. 9 

School milk scheme ................................................................................................... 11 

Aid for SMP in veal or SMP into casein.................................................................... 11 

Additional info referring to point 5b – Promotion ..................................................... 12 

Additional info referring to point 7.2 – Quota management on an individual producer 
level ............................................................................................................................ 12 

Additional info referring to point 7.3 – Cow retirement scheme............................... 14 

Additional info referring to point 8.2 – redistribution of direct aids – specific support
.................................................................................................................................... 15 

Additional info referring to point 8.3 – state aids ...................................................... 18 

Additional info referring to point 9.1 – rural development........................................ 19 

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1. 

ADDITIONAL INFO REFERRING TO POINT 3.1 – MARKET SITUATION TO JULY 2009 

1.1. 

EU milk supply 

EU  milk  production  has  not  increased  as  a  result  of  the  various  quota  increases.  Milk 
deliveries  to  dairies,  adjusted  for  milk  fat,  under  the  quota  system  was  137.8  million  t  in 
2007/08 and is estimated at 136.4 million t for 2008/9. Despite the increase of the quotas by 
2-2.5 % in the 2008/09 quota year, milk production in the EU-27 fell by 0.9 %. At 31 March 
2009, total milk production was estimated to be 4.2% below the overall deliveries quota. On 1 
April  2009,  quotas  were  further  increased  by  1%  and  the  fat  correction  reduced.  Latest 
statistics indicate that EU-27 production increased by 0.5 % in May 2009 (see table 1). As the 
figures  only  relate  to  May 2009  compared  to  May 2008,  it  may  be  too  early  to  draw  final 
conclusions. Weather conditions in north-west Europe were favourable for dairy production in 
May, with relatively high average temperatures. 

Table 1: Milk deliveries in May 2009 compared to May 2008 

Countries with higher production

Countries with lower production

%

1000 Tonnes

%

1000 Tonnes

DE
DK
IT
PL
LU
AT
NL
FI
SE
BE

+8.5%
+4.5%
+3.8%
+3.1%
+2.3%
+2.0%
+1.6%
+1.3%
+1.2%
+0.9%

+197.9
+18.3
+34.4
+26.0
+0.6
+5.0
+15.3
+2.7
+3.0
+2.3

GR
ES
PT
CZ
UK
SI
HU
FR
IE
EE
CY
SK
RO
LV
LT
BG

-0.5%
-1.8%
-1.4%
-1.8%
-1.9%
-2.6%
-3.2%
-4.3%
-5.2%
-5.2%
-7.8%
-8.3%
-8.5%
-10.4%
-12.8%
-25.9%

-0.3
-9.2
-2.5
-3.8
-24.6
-1.2
-4.2
-94.6
-36.3
-2.9
-1.0
-7.0
-9.5
-6.1
-16.4
-18.3

Total EU

%
+ 0.5%

1000 Tonnes

+ 67.5

Source : EUROSTAT (BE, GR and CY: other sources)

For  individual  Member  States,  the  situation  as  regards  their  quota  use  is  mixed  with  some 
Member States producing close to or more than their quota and others producing less and in 
some cases substantially less than their quota, see graph below: 

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Estimated quota over- and under use in 2008/09 (%)

+5.0%

IT
+3.06%

NL
+1.40%

AT
+1.14%

CY
+0.98%

LU
+0.41%

+0.0%

-5.0%

-10.0%

-15.0%

-20.0%

-25.0%

DK
-0.4%

DE
-0.9%

PL

-1.3% BE
-2.6%

IE
-2.9% PT
-3.9%

ES
-4.3% FR
-5.0%

SI
-5.5%

CZ
-5.6% EE
-7.0%

FI
-9.4%

LV
-9.4%

UK
-9.8%

EL
-11.4%

HU
-12.1% SE
-13.1%

LT
-14.6% RO
-15.7%

SK
-17.7%

BG
-23.1%

National data for NL, DE and AT  

Costs  of  milk  production  are  collected  via  the  Farm  Accountancy  Data  Network.  The  most 
recent report, using 2006 figures, is available at:  

http://ec.europa.eu/agriculture/analysis/fadn/reports/sa207_milk.pdf 

1.2. 

EU demand 

Dairy products made of milk are used in four main outlets: households, industry, food service 
and exports. For households there is some ad hoc information in member states available, but 
the use by industry and especially food service is very limited, if any at all. 

A little over 40% of the EU milk is processed into cheese and 30 % into fresh dairy products. 
The  rest  is  processed  into  powders,  butter  and  casein.  In  the  cheese  market  about  7%  is 
exported and it is estimated that about 20 % is used in the industry and food service and. This 
would mean that a little over 70 % of the EU cheese is consumed by households. 

However,  while  no  overall  consumption  figures  exist  for  the  EU  in  2009,  the  production 
figures of fresh products give a direct indication of consumption developments. In January to 
April  2009  production  for  drinking  milk  decreased  by  2.5 %,  fermented  products  by  1.3 % 
and cream by 0.8 %. For cheese the link between production and consumption is less clear as 
cheese can be stored longer. However the reduction in cheese production by 2.3 % in the first 
four months of the year may be a good indicator of reduction in cheese consumption. 

It is clear that, dairy product consumption has suffered from the economic and financial crisis, 
in  particular  for  the  more  expensive  high  quality  products  like  cheese  and  fresh  dairy 
products.  This  is  a  very  noticeable  development  for  cheese  and  fresh  products  as  their 
consumption  has  been  consistently  increasing  every  year.  Since  more  than  470%  of  milk  is 
used  to  manufacture  cheese  and  fresh  dairy  products,  the  effect  of  lower  consumption  is 

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important.  Further,  the  use  of  dairy  products  in  industrial  processing  is  reported  to  have 
declined with buyers finding competitive substitution products. 

Consumption or disappearance figures can be derived at the end of the year, on the basis of 
annual  production  figures  and  exports/imports.  Detailed  information  can  be  found  on  the 
internet address indicated below: 

http://ec.europa.eu/agriculture/publi/caprep/prospects2008/index_en.htm 

1.3.  World milk supply 

According to FAO statistics the total world milk production in 2007 was 671 million tonnes, 
of  which  560  million  tonnes  cow's  milk.  Milk  production  in  major  southern  hemisphere 
exporters,  strongly  increased  in  the  season  just  ended:  New  Zealand  +7 %,  Australia  +2 %, 
Argentina  +5 %.  US  milk  production,  after  several  strong  annual  increases,  seems  to  have 
stabilised in 2009 with increases of 0.1 % in March/April and 0.2 % in May.  

1.4.  World market demand 

While  production  increased,  there  is  less  demand  on  the  world  market.  Most  notable  is  the 
decrease in world-wide cheese exports which went up until 2007 but decreased by 7.8 % in 
2008  and  12.3 %  in  the  first  three  months  of  2009.  The  EU  is  particularly  hit  by  this 
development as the largest cheese exporter. 

Table 2: Total world exports of major dairy commodities 

2005 

2006 

2007 

2008 

Difference 
2007-2008 

Butter (oil) 

777 856 

790 718 

752 203 

694 831 

-7.6 % 

SMP 

1079 589 

1094 527 

1058 562 

1110 877 

+4.9 % 

WMP 

1710 683 

1776 703 

1641 817 

1838 980 

+12 % 

Cheese 

1475 022 

1512 794 

1586 459 

1463 269 

-7.8 % 

Whey 

823 395 

917 897 

1040 968 

961 953 

-7.6 % 

EU share (%) 

Butter (oil) 

40 % 

30 % 

SMP 

18 % 

8 % 

WMP 

29 % 

24 % 

Cheese 

37 % 

39 % 

Whey 

41 % 

38 % 

27 % 

19 % 

22 % 

38 % 

35 % 

21 % 

16 % 

26 % 

38 % 

37 % 

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Jan-Mar 
2008 

Jan-Mar 
2009 

difference 

Butter (oil) 

185 078 

175 256 

-5.3 % 

SMP 

282 758 

267 350 

-5.4 % 

WMP 

453 012 

448 487 

-1,0 % 

Cheese 

376 434 

330 035 

-12.3 % 

Whey 

228 505 

222 809 

-2.5 % 

Source: GTA 

EU exports take place mainly in the form of cheese, whole milk powder and whey powder. 
While  there  are  also  considerable  exports  of  skimmed  milk  powder,  butter  and  condensed 
milk. The EU world market share is decreasing for most commodities, while it remains stable 
for cheese. In order to give an overall estimation of the size of the EU exports the total fat and 
protein content of the exports are compared to the total fat and protein of EU milk production. 
The  share  of  EU  milk  exported  is  between  7.6 %  for  the  fat  and  10.6 %  for  the  proteins. 
Certain  dairy  products  are  supported  by  refunds.  Imports  are  smaller  with  only  1.4 %  and 
1.1 % of EU milk fat and milk protein production. Imports are mainly in the form of butter 
and cheese within Tariff Rate Quotas or products with low tariffs like casein. 

Table 3: Share of EU milk production exported and imported. 

million tonnes 

2000/01(EU-15) 

2008/09 (EU-27) 

Production 

Milk fat 

4.6 million tonnes 

5.5 million tonnes 

Milk protein 

3.8 million tonnes 

4.5 million tonnes 

Share exported 

Milk fat 

9.7 %  

Milk protein 

14.5 % 

Share imported 

Milk fat 

Milk protein 

2.7 % 

2.7 % 

1.5.  World market prices 

7.6 % 

10.6 % 

1.4 % 

1.1 % 

The  imbalance  on  a  world  market  where  trade  is  marginal  to  total  production  and 
consumption resulted in a significant collapse of prices compared to 2007, remaining at those 
levels after refunds were introduced. Refunds have been set objectively to not undercut world 
market price, as indicated in the tables below. 

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Table 4: World market prices 

$/tonne 

Butter 

SMP 

WMP 

Cheese 

Peak level 

19 January 2009 

2 July 2009 

4 200 (Nov 2007) 

5 200 (July 2007) 

5 100 (Oct 2007) 

5 500 (Dec 2007) 

1 950 

1 875 

1 950 

2 750 

1 900 

1 977 

2 050 

2 600 

Table 5: EU compared to world market prices 

EUR/t 
2 July 2009 

Intervention 
price/equivalent 
price  
(a) 

Butter 
SMP 
WMP 
Cheese(cheddar) 

2 218 
1 698 
2 066 
2 484 

Current 
market 
price1 
(b) 
2 236
1 662
1 966
2 296

World 
market 
price2 
(c) 
1 348
1 402
1 454
1 844

Difference 
(c)- (b) 

Difference 
(a) – (c) 

Common 
Refund 

- 888
- 260
- 512
- 452 

-870 
-296 
-612 
-640 

650
228
350
220

Table 6: demand for export licences 

Butter/oil 

SMP 

Cheese 

Others (incl. WMP) 

23.1.09-23.6.09 

97 500 t 

121 600 t 

144 000 t 

518 300 t 

As of the month of June, demand for export licences slowed down considerably for powders 
and butter. 

1 
2 

Weighted average price of 7 main exporting MS. 
Oceania quotations (Source: USDA Agricultural marketing service). 

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2. 

ADDITIONAL INFO REFERRING TO POINT 3.2 – PRICES IN THE EU 

EU Milk Prices
(May 09 compared to May 08) 

Milk Price 2008 (real fat content)

Milk Price 2009 (real fat content)

9,9
4

7,3
3

7,0
3

9,6
2

8,7
2

8,5
2

8,1
2

6,7
2

5,0
2

4,7
2

4,6
2

4,5
2

4,4
2

4,3
2

2,6
2

2,6
2

2,5
2

2,4
2

1,9
2

1,0
2

0,9
2

0,8
2

0,4
2

9,8
1

7,7
1

5,7
1

5,7
1

CY EL FI

IT PT ES AT FR LU SI SE DK EU
27

BG UK NL IE DE CZ PL BE RO HU EE SK LV LT

54

50

46

42

38

34

30

26

22

18

14

k
0
0
1
/
R
U
E
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3. 

ADDITIONAL INFO REFERRING TO POINT 3.3 – PRICES PAID BY CONSUMERS VERSUS 
PRICES PAID TO FARMERS 

Table 7: Change in the producer and consumer prices for dairy products in the EU (%, 
Q1 2009 compared to Q4 2007) 

EU
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom

Producer prices (farmers, processors)
Cheese
-21%

SMP
-42%
-48%

Butter
-37%
-42%

Raw milk
-28%
-45%
-11%
-38%
-30%
-39%
-28%
-43%
-13%
-28%
-12%
-12%
20%
-34%
-43%
-35%
-33%

-49%
-47%
-49%

-46%
-23%
-43%

-44%

-41%

-46%

-24%
-44%
-45%

-11%

-41%

-46%

-1%

-29%

-37%
-14%

-19%
-7%

-39%
-20%
-40%
-17%

-6%
-32%
3%
-33%
-27%

-47%

-46%

-44%

-54%

-20%

-44%
-39%

-29%
-30%

-44%

1%
-33%
0%

-57%

-27%

Consumer prices
Food Milk/cheese/eggs

6%
6%
9%
3%
5%
3%
7%
4%
6%
3%
5%
5%
13%
15%
14%
4%
8%
13%
7%
5%
6%
3%
9%
6%
3%
14%
9%
13%

4%
6%
5%
-4%
2%
-3%
-1%
9%
4%
0%
7%
5%
5%
8%
-2%
5%
5%
10%
7%
-2%
0%
1%
14%
10%
-2%
22%
8%
11%

NB: Source: Agriview – Member State communication – Absolute raw milk prices ex-farm; absolute ex-factory 
prices for SMP, butter, cheese (depending on the country, prices for the following cheese types have been taken 
into  consideration:  Edam,  Emmental,  Gouda,  Cheddar);  Eurostat:  consumer  price  indices  for  food  and 
milk/cheese/eggs in retail 

4. 

ADDITIONAL  INFO  REFERRING  TO  POINT 4.3 –  OTHER  MEASURES  TO  SUPPORT  THE 
OUTLET OF MILK PRODUCTION 

4.1.  Marketing standards milk products 

The single CMO, Article 114 and Annexes XII and XIII lays down provisions on protected 
designations  for  milk  products.  The  original  legislation  on  the  subject  was  adopted  in  1987 
(Reg.  1898/87)  at  a  time  when  some  products,  with  no  milk  products,  used  references 
suggesting the use of milk products or qualities of milk products. 

Some  designations  (whey,  cream,  butter,  buttermilk,  butter  oil,  caseins,  anhydrous  milk  fat, 
cheese, yogurt, kephir, koumiss, villi/fil, smetana, fil) are limited for milk products as referred 
by  the  Regulation  (‘milk  products’  means  products  derived  exclusively  from  milk,  on  the 
understanding  that  substances  necessary  for  their  manufacture  may  be  added  provided  that 
those  substances  are  not  used  for  the  purpose  of  replacing,  in  whole  or  in  part,  any  milk 
constituent.) 

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Decision  88/566  published  a  list  of  designations  which  were  acceptable  by  derogation. 
Whereas  the  single  CMO  establishes  the  principle  that  the  descriptions  ‘milk’  and  ‘milk 
products’ may not be used for milk products other than those described in Article 2 thereof; 
whereas,  as  an  exception,  this  principle  is  not  applicable  to  the  description  of  products  the 
exact  nature  of  which  is  known  because  of  traditional use and/or  when  the  designations are 
clearly used to describe a characteristic quality of the product;), such as 

Coconut milk 
‘Cream …’ or ‘Milk …’ 
Used in the description of a spirituous beverage not containing milk or other milk products or 
milk or milk product imitations (e.g. cream sherry, milk sherry) 
Cream soda 
Lait d'amande 
Lait de coco 
‘Crème …’ 
used in the description of a soup not containing milk or other milk products or milk or milk 
product  imitations  (e.g.  crème  de  volailles,  crème  de  légumes,  crème  de  tomates,  crème 
d'asperges, crème de bolets, etc.) 
‘Crème …’ 
used in the description of spirituous beverages not containing milk or other milk products or 
milk or milk product imitations (e.g. crème de cassis, crème de framboise, crème de banane, 
crème de cacao, crème de menthe, etc.) 
Pindakaas 
Hoofdkaas 
Cacaoboter 
Margarinost 

The  example  of  "analogue  cheese,"  when  labelled  as  cheese,  is  not  in  conformity  with  EU 
legislation. A complete labelling of all ingredients would not be satisfactory, as it would refer 
to a non-dairy product but using the positive image of cheese as a sales argument. 

Some designations, as "ice cream" were not covered as there were already national definitions 
for the product (exclusively with milk fat or not). The word "cream", relating to the texture of 
the product, is acceptable under Decision 88/566. 

Modifying the current rules to include more protected designations would have to be done at 
Council  level.  One  element  to  be  taken  into  consideration  is  that  the  aim  to  simplify  the 
legislation (Communication on the agricultural products quality policy) might be questioned 

There  are  also  requests  to  extend  the  list  of  derogations,  for  example  for  soy  drinks  to  be 
designated  "soy  milk".  It  is  clear  that  a  designation  presenting  soy  drinks  as  alternative  to 
milk is meant to boost the sales, probably at the expense of 'real' milk, while the product is 
already widely available for consumers who prefer or who need this alternative product. 

There  is  no  reliable  data  on  competing  products  market  share  but,  with  the  exception  of 
margarine, it is estimated not to exceed 1 – 2% of the milk market. Although the Commission 
has  no  concrete  figures  available,  it  is  reported  that  the  use  of  substitutes  for  cheese  is 
increasing. 

Article 115 and Annex XV of Regulation 1234/2007 refers to spreadable fats, regulating the 
designations of a) milk fats, b) fats and c) fats composed of plant and/or animal fats, covering 
in particular the designations 'three-quarter butter", "half butter" and "dairy spread x%" 

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Member states are responsible for the application of the EU legislation and they shall control 
and restrict the use of designations which do not respect the protected designations. 

4.2. 

School milk scheme 

Commission  Regulation  (EC)  No  657/2008  lays  down  detailed  rules  for  applying  Council 
Regulation (EC) No 1234/2007 as regards Community aid for supplying milk and certain milk 
products to pupils in educational establishments. 

Other dairy products are also available under the school milk scheme and are listed in Annex I 
of  Commission  Regulation  (EC)  No  657/2008.  The  amount  of  aid  for  these  products  is 
derived from the basic aid.  

The school milk regime has only recently been adapted, making it more simple by having the 
same aid amounts for all milk (18,15 cents /litre based on a 0,25 l/day portion), extending it to 
secondary  schools  and  increasing  the  product  coverage.  The  level  of  aid  is  fixed  by  the 
Council. The value of the EU aid in relation to the price varies from Member State to Member 
State, but on average is in the order of 15%. 

As  to  the  product  coverage,  this  is  Commission  competence,  where  the  discussion  in  the 
Management Committee is ongoing since April, again with the purpose of making the scheme 
more attractive. The Commission proposed in the management committee of 9 July 2009 to 
reduce the minimum milk content to 75%, which allows adding 25% other products, like fruit, 
to milk (current eligible products must contain at least 80 % milk). 

4.3. 

Aid for SMP in veal or SMP into casein 

Council Regulation (EC) No 1234/2007 establishes in Article 99 an option to use a disposal 
aid for skimmed milk powder for use as feedingstuffs. 

Before the 2003 reform the EU had an intervention price of 205 €/100g for SMP. In order not 
to lose a substantial outlet of SMP to the veal sector, the sector received an aid of 60 €/100kg. 
This brought their net price back to 145 €/100kg and kept the sector  a buyer of SMP to feed to 
their calves. Today the intervention price for food grade SMP is 169.8 €/100kg and the market 
price  for  feed  grade  SMP  is  around  140  €/100kg.  Th is  means  that  the  veal  sector,  which  is 
suffering from the economic situation as well, is able to buy SMP at a lower price than before 
and without having to deal with a large administrative burden of the disposal aid. However, 
despite the low SMP price the sector seems to have turned away from SMP and buys more 
whey  powder.  While  introducing  the  measure  would  be  expensive  in  terms  of  subsidising 
existing use and administrative costs, the additional demand given the already very low price 
of  SMP  is  estimated  to  be  very  limited.  In  that  case  the  subsidy  for  the  additional  demand 
would exceed the price of SMP.  

Council Regulation (EC) No 1234/2007 establishes in Article 100 an option to give an aid for 
skimmed milk processed into casein and caseinates.  

For the aid of skimmed milk processed into casein the same applies, as casein producers can 
buy very cheap skimmed milk today and there is no need for this kind of production aid. 

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5. 

ADDITIONAL INFO REFERRING TO POINT 5B – PROMOTION 

On the basis of the Council Regulation (EC) No 3/2008 of 17 December 2007 on information 
provision and promotion measures for agricultural products on the internal market and in third 
countries,  the  European  Community  can  (co-)finance  measures  that  provide  information  on, 
or promote, EU agricultural products and food on the Internal Market as well as in so called 
"third countries", i.e. outside the European Union.  

Currently,  19  programmes  (among  135  still  active  programmes)  are  exclusively  promoting 
milk  and  milk  products.  Those  19  active  programmes  were  adopted  for  a  total  amount  of 
€ 66.5 million (EU participation: € 33.3 million). It corresponds to 18.3% of the total amount 
of the active promotion programmes.  

The  Commission  is  expected  to  adopt  on  7  July  2009  a  new  decision  approving  16  new 
information  and  promotion  programmes  on  the  internal  market  and  among  them  4 
programmes  cover  milk  and  milk  products  for  a  total  amount  of  € 19.4 million  (EU 
participation : € 8.1 million). 

On  the  internal  market,  the  implementing  Regulation  (CE)  n°  501/2008  of  the  Commission 
currently stipulates that the trade organisations deposit their promotion programmes before 30 
November, that  Member States  forward the programmes selected to the Commission before 
15 February, and that the Commission decides at the latest on 30 June.  

For third country programmes, the same Regulation foresees that programmes are deposited 
by the trade organizations before 31 March, forwarded to the Commission before the 30 June, 
and adopted by the Commission before 30 November.  

Experience  has  shown  that  co-financed  promotion  programmes  initiated  by  the  trade 
organisations  of  this  sector  and  co-financed  at  national  and  EU  levels  provide  a  valuable 
incentive. 

6. 

ADDITIONAL  INFO  REFERRING  TO  POINT  7.2  –  QUOTA  MANAGEMENT  ON  AN 
INDIVIDUAL PRODUCER LEVEL 

In the current Council Regulation, a super levy is due when the national quota is exceeded in 
any given year. The Member State concerned is liable to EAGF for the surplus levy but the 
super  levy  is  subsequently  claimed  from  all  producers  who  have  contributed  to  the  national 
overrun. 

Milk  purchasers  (often  the  dairies)  are  responsible  for  collecting  the  contributions  from  the 
milk producers and shall forward those amounts to the competent body of the Member State. 
The purchaser normally starts to deduct a part of the super levy from the milk price once the 
producer has exceeded his/her individual quota. The final account is made after the end of the 
quota  year  where  underrun  of  individual  quotas  are  matched  against  overruns  and  after 
account is taken of the national reserve. Where, as a result, it appears that there is no national 
overrun, the money collected is reimbursed to the producers concerned. Where on the other 
hand  it  appears  that  a  surplus  levy  in  fact  is  due,  the  final  amount  of  levy  per  overrunning 
producer is generally reduced in  function  of  other  producers'  under  delivery.  It  may  happen 

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that contributions collected from producers are greater than the levy. In such cases, Member 
States may: 

–  use,  partly  or  totally,  the  excess  to  finance  voluntary  retirement  from  milk  production, 

and/or 

–  redistribute, partly or totally, to priority groups of producers. 

Each Member State is managing a national reserve as part of its national quota. The national 
reserve  is  replenished  by  the  yearly  1%  increase  (Health  Check)  and  may  furthermore  be 
replenished  by  applying  Article  72  of  the  single  CMO  where  "Member  States  may  decide 
whether and on what conditions all or part of the unused individual quota shall revert to the 
national reserve" in cases where producers do not market a quantity at least equal to 85 % of 
their quota ("inactivity rule"), up from 70 % as part of the Health Check. The national quota 
may also be increased by retaining part of quota transfers (Member State option) or Member 
States may decide to make an across-the-board reduction in all individual quotas. 

In any case, where at the end of the quota year the Member State has not redistributed all of 
the  national  reserve  to  producers  the  residual  quantity  is  still  taken  into  account  in 
determining whether the Member State is liable of a super levy or not. 

Milk producers may therefore take this flexibility into account in exceeding their individual 
quota,  estimating  that  the  national  reserve  and/or  other  producers'  under  delivery  would 
protect them from paying a super levy on at least some of their overrun. 

In that context, the following elements have been identified to discourage milk production to a 
certain extent: (1) the 85% inactivity rule, (2) the rule providing for a temporary or permanent 
transfer  of  quotas,  (3)  allocation  of  the  national  reserve,  like  the  1%  increase,  to  the  direct 
sales quota and (4) the neutralisation of under delivery in the levy calculation. 

As  to  the  "inactivity  rule",  an  invitation  to  Member  States  not  to  confiscate  the  unused 
quantity may, if followed, lead to more "sleeping quotas" and arguably less production.  

Temporary  transfer  of  quotas  or  permanent  transfer of quotas (without land) are also left to 
Member  States'  discretion  i.e.  the  Member  State  may  decide  not  to  allow  such  transfers.  In 
this case,  some quotas would remain inactive but the impact on total production would still 
depend on the willingness to take risk among the more progressive producers. 

Thirdly,  Member  States  may  at  present  allocate  any  additional  quota  received  to  the  direct 
sales part of the national reserve. By doing this the deliveries part of the national reserve is 
held constant and farmers cannot deliver more milk under the deliveries quota. As the direct 
sales quota is rarely fully used in any Member States, there is less risk of extra production to 
match the extra quota. However, allowing Member States the scope to subsequently reclassify 
any  quota  held  in  the  reserve  from  one  category  to  another  category  would  require  an 
amendment to the Council Regulation at a later stage. 

A fourth element/option for Member States impacting the supply would be, in case a Member 
State  is  exceeding  its  quota  and  has  to  pay  super  levy,  to  disregard  the  unused  part  of  the 
national  quota  allocated  to  deliveries  when  calculating  each  producer's  contribution  to  the 
payment of the super levy. In that case, the progressive producers can no longer bank on the 
under  delivery  of  others  and  would  need  to  pay  the  full  levy  for  his  full  excess  quantity. 
Member  States  may  then  use  the  additional  part  of  the  collected  levy,  not  destined  for 

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"Brussels",  for  restructuring  purposes.  The  impact  on  supply  is  likely  to  be  more  important 
than under the first two options, although again limited to the Member States paying levy or 
risking to do so. 

The  overall  effect  of  the  above-mentioned  potential  measures  would  be  to  encourage  a 
reduction  of  the  supply  of  milk  and  dairy  products,  where  the  third  option,  may  have  more 
effect  than  the  first  three  options,  albeit  limited  to  the  countries  close  to  their  quota  levels. 
However, a number of points should be emphasised: 

–  Production  impacts,  if  any,  will  only  be  felt  at  the  end  of  the  quota  year  (Feb/March) 
provided  that  changes  can  be  taken  in  this  market  year  without  harming  legitimate 
expectations; 

–  Production  impact  from  such  measures,  if  taken,  is  highly  dependent  on  each  producer's 
perceived  risk  in  terms  of  paying  superlevy.  Where  that  risk  is  remote  more  progressive 
producers  will  still  expect  to  benefit  fully  from  the  underrun  of  others  and  from  the 
national reserve; 

–  By restricting the leasing of quotas the prices for permanent transfers go up; 

–  By restricting all quota transfers, the sector will be "frozen"; 

–  Basically,  the  recommendations/proposals  will  penalise  the  most  efficient/  progressive 

milk producers and increase the cost of quota transfer; 

–  The production decisions will be based more on speculation and risk taking than to-day, in 

particular where the unused quotas and national reserves are increased. 

–  In principle such measures should be of temporary nature to meet the objective of solving 

the current imbalance of the market. 

7. 

ADDITIONAL INFO REFERRING TO POINT 7.3 – COW SLAUGHTER SCHEME. 

US HERD RETIREMENT SCHEME 

The Coops Working Together (CWT) Herd Retirement Scheme is used in the USA to reduce 
the  number  of  dairy  cows  in  certain  circumstances.  It  operates  on  a  tender  basis;  producers 
offer to have their entire herd slaughtered if they receive a certain price per volume of milk 
production foregone. The CWT selects the most attractive bids and a payment is made when a 
selected producer proves his entire herd of milking animals has been slaughtered. The CWT 
payment is additional to the price received by the producer for the culled cows. Producers do 
not make a long term commitment to stay out of production. 

The  CWT  operates  a  Herd  Retirement  Scheme  only  when  certain  criteria  relating  to  milk 
margin  and  dairy  cow  numbers  are  observed.  The  Scheme  was  first  put  in  place  in  2003. 
275 000  cows  have  been  subject  of  the  scheme  and  this  is  estimated  by  the  CWT  to  have 
reduced output by about 675 000 tonnes in 2008 (about 0.8% of US production). The latest 
round accepted bids for almost 103 000 cows to be retired. 

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Dairy cow herd 
1000 
head 

2003 
2004 
2005 
2006 
2007 
2008 
2009 

US herd 

# cows taken 
out 

Price accepted 
($/cwt)* 

Milk production 
(Million tonnes) 

9 081 
9 010 
9 050 
9 137 
9 189 
9 315 
- 

32.7 
50.5 
64.1 
- 
52.8 
75.2 
103 

4.03 
5.24 
6.75 
- 
5.50 
6.10 – 6.49 
n.a. 

76.7 
76.9 
79.7 
81.8 
83.5 
85.4 
- 

* US intervention equivalent price is $ 9.90/cwt  

However,  as  indicated  above  the  number  of  dairy  cows  in  the  US  was  never  reduced.  It  is 
noted  that  US  milk  production  has  risen  by  11.3%  in  the  period  since  the  CWT  was  first 
launched in 2003. 

The CWT promotes claims that this measure has added almost 5% to the milk price (both of 
these claims are in comparison to what would have occurred if those cows and their offspring 
had  stayed  in  production).  Further  analysis  would  be  needed  to  assess  the  validity  of  those 
claims. As the CWT scheme is a producer financed scheme, so even if the extravagant claims 
made for it are not fully confirmed, the producers continued financing of the system suggests 
it does deliver benefits to those who pay for it. 

An  EU  scheme,  even  if  fully  complying  with  rules  on  animal  welfare,  may  not  be  well 
accepted by European citizens in relation to the intrinsic value given to the animals as defined 
by the protocol on animal protection in the European Treaty3. 

8. 

ADDITIONAL  INFO  REFERRING  TO  POINT  8.2  –  REDISTRIBUTION  OF  DIRECT  AIDS  – 
SPECIFIC SUPPORT 

The  Health  Check  -  Regulation  (EC)  No  73/2009  has  introduced  three  main  means  to 
redistribute direct payments between farmers/sectors/regions within a Member State: 

– 

– 

– 

Article 68 measures, 

options  for  further  decoupling  of  remaining  coupled  support  (Articles  63  to 
65), 

and options for revising payment entitlements (Articles 46 to 49). 

These measures may be applied simultaneously, offering a large scope of options. They apply 
from 2010, Member States shall take their decisions for 2010 by 1 August 2009.  

3 

Treaty  of  Amsterdam  amending  the  Treaty  of  the  European  Union,  The  Treaties  establishing  the 
European  Communities  and  certain  related  acts  –  Protocol  annexed  to  the  Treaty  of  the  European 
Community – Protocol on protection and welfare of animals (OJ C 340, 10.11.1997, p. 110). 

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Article 68 measures 

•  financed  from  the  national  reserve  and/or  unused  amounts  and/or  reduction  of  all  the 

payments entitlements 

•  Various coupled measures  

o  68(1)(a),  i.e.  those  taken  over  from  the  previous  Article  69  of 
1782/2003 (quality, marketing, environment) plus animal welfare and 

o  68(1)(b)  which  allows  granting  payments  to  dairy,  beef  and  veal, 
sheepmeat and goatmeat and rice sectors in "economic vulnerable or 
environmentally sensitive areas or for economically vulnerable  types 
of farming" 

o 

limited to 3.5 % of the SPS national envelope 

•  One decoupled measure 

o  68(1)(c ): increase the value of the payment entitlements, or allocate 
new  payment  entitlements,  "in  areas  subject  to  restructuring  and/or 
development  programs  in  order  to  ensure  against  land  being 
abandoned  and/or  to  address  specific  disadvantages  for  farmers  in 
those areas" – limited to 10 % of the SPS national envelope, minus the 
part of this envelope that is used for other Article 68 measures 

Example:  Combination  of  Articles  68(1)(b)  and  68(1)(c)  for  dairy  farmers  in  mountainous 
areas- potentially up to 10 % of the SPS national envelope. The coupled part could be linked 
to the number of dairy cows and/or the milk quota and/or the milk production in 2010. The 
decoupled measure under Article 68(1)(c) could be linked to the milk quota in 2007, or any 
other historical reference, or to the criteria used for restructuring under the second pillar. 

Further decoupling 

•  Support under a number of coupled support schemes fully or partially excluded from SPS 
is to be integrated in the SPS as from 2010. Schemes and dates are listed in annex XI of 
Regulation 73/2009.  

•  Hereby, Member States have a discretional margin to allocate the additional amounts in the 
SPS. They can notably (Article 63) decide to allocate all or part of the additional amounts 
to  farmers  in  other  sectors  than  the  sector  that  is  to  be  decoupled.  In  that  case,  the 
allocation between farmers is: 

o  based on the agricultural activity during a reference period to be fixed 
by the MS which shall be one or more years in the period 2005-2008 

o 

in  accordance  with  objective  and  non-discriminatory  criteria  "such  as 
the agricultural potential or environmental criteria". 

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– 

To  protect  legitimate  expectation  the  redistribution  is  limited:  the  overall 
support a farmer receives must not fall below 75% of the total support (coupled 
and decoupled) received prior to further decoupling.  

Examples: The amounts that could be used from 2010 for redistribution in relation to further 
decoupling vary a lot from between MS: no more than 16 millions EUR in Germany, close to 
2 billions EUR in France. The reason is that where no partial recoupling option has been used 
in the first year of application of the SPS (German case), few amounts remain to be decoupled 
from 2010. 

Revising payment entitlements 

•  The basic  principle consists of  annual  progressive modifications  of payment entitlements 
with a view to a flatter rate and based on objective and non-discriminatory criteria. Also 
based  on  objective  and  non-discriminatory  criteria  Member  States  can  identify  particular 
regions, where the value of the entitlements is to be increased, at the expense of the value 
of entitlements in the other regions. The necessary reduction of payment entitlements has 
to  be  done  in  various  steps  to  protect  legitimate  expectations  of  the  owners  of  these 
entitlements.  

•  One criterion for the regions to be identified can be the agricultural potential. This can be 

regions with predominant grassland or dairy production. 

•  The revision can start in 2010 (decision by 1.8.2009) or later (decision by 1.8.2010). 

Examples: in addition to the articles 68 measures described in point 2, payment entitlements 
to dairy farmers in mountainous areas may be increased from 2010 via: 

-  Article  45  for  MS  using  an  historical  model,  and  Article  48(1)  for  MS  switching  to  a 
regional/hybrid  model  from  2010,  which  allow  approximating  the  value  of  the  payment 
entitlements  "at  the  appropriate  geographical  level";  the  effect  would  be  an  increase  of  the 
value  of  the  payment  entitlements  for  regions  where  farmers  practice  extensive  types  of 
production; 

-  Article  46,  for  MS  that  have  used  an  historical  approach  for  decoupling  and  allowing 
transfers  between  regions;  the  transfer  shall  not  induce  any  payment  entitlement  being 
reduced by more than 10 %; this provision would for instance allow moving up to 10 % of the 
amounts  from  favoured  regions  to  less  favoured  ones;  Article  46  may  be  combined  with 
Article 45 or Article 47; 

- Article 47, allowing MS using an historical model to apply a regional model from 2010 (or 
at a later stage); depending on the way the regions are defined, and in conjunction with the 
optional  use  of  Article  46,  moving  to  a  regional  model  could  also  induce  some  transfers  in 
favour of dairy farmers, notably the ones using extensive production practises; 

-  Article  48(2),  allowing  MS  applying  a  regional  model  from  the  first  year  of  SPS 
implementation to revise the regions and/or the regional amounts and/or, to approximate the 
value of the payment entitlements. 

The Health Check offers various options allowing significant redistribution of direct payments 
to  farmers  in  the  dairy  sector.  They  can  be  combined  and  applied  in  addition  to  measures 

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under the second pillar and/or state aid measures. For instance, they can be applied together 
with second pillar measures funded via Article 136 of R.73/2009, i.e. the transfer of the SPS 
"unused  amounts"  to  the  second  pillar  (amounts  fixed  in  Commission  Regulation,  no  more 
than 4 % of the SPS national envelope). 

Apart from advancing the payments from 1 December 2009 to 16 October, the direct payment 
legal  framework  does  not  provide  for  a  means  that  would  allow  alleviating  the  financial 
situation of the dairy farmers in the short term. 

9. 

ADDITIONAL INFO REFERRING TO POINT 8.3 – STATE AIDS 

To improve farm income in the context of the current crisis a modification of the Temporary 
Crisis Framework4could be envisaged. The Framework foresees that a limited amount of aid 
of  up  to  €  500  000  can  be  gran ted  to  undertakings  but  at  the  moment  excludes  primary 
agricultural producers from this possibility. A modification of the Framework could introduce 
a  similar  aid  possibility  to  farmers,  but  at  a  substantially  lower  amount  in  order  to  avoid 
distortion of competition in the agricultural sector.  

Point 4.2.2 of the Temporary Framework foresees that aid not exceeding a cash grant of € 500 
000 can be granted per undertaking until 31.12.2010. Any de-minimis aid already received by 
individual  undertakings  since  the  beginning  of  2008  has  to  be  deducted  from  this  amount. 
Undertakings  active  in  the  processing  and  marketing  of  agricultural  products  are  eligible 
unless  the  amount  of  aid  is  fixed  on  the  basis  of  the  price  or  quantity  of  such  products. 
Primary agricultural producers are excluded from this aid possibility. 

For  farmers  (primary  producers)  a  separate  limited  amount  of  aid  could  be  introduced  by 
modifying point 4.2.2 of the Temporary Framework. An amount of 15,000 EURO would be 
appropriate in order to avoid distortions of competition. This aid would not be limited to milk 
producers but all primary producers could benefit of it.  

An urgent procedure both for the adoption of the modification of the Temporary Framework 
and afterwards for the approval of the national aid schemes could be envisaged. 

Aid  measures  under  the  Temporary  Framework  have  to  be  notified  as  aid  schemes  to  the 
Commission. They are approved on the basis of Article 87 (3) (b) EC Treaty. 

Point  4.1  of  the  Temporary  Framework  requires  Member  States  to  demonstrate  that  the 
notified measure is necessary, appropriate and proportionate to remedy a serious disturbance 
in  the  economy  of  the  respective  Member  State.  A  scheme  limited  to  primary  agricultural 
production is therefore unlikely to be approved as a stand-alone measure. It could, however, 
be approved as complementary measure (as of end of June 2009, the Commission has already 
approved for 18 Member States schemes with compatible limited amount of aid), or could be 
notified  as  comprehensive  measure  open  to  all  sectors  (with  different  aid  levels)  where  no 
such scheme is in place yet. 

4 

Consolidated version OJ C 83, 7.4.2009, p. 1. 

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10. 

ADDITIONAL INFO REFERRING TO POINT 9.1 – RURAL DEVELOPMENT 

Rural  Development  policy  is  an  integrated  EU  policy  and  part  of the  Common  Agricultural 
Policy. It is a modern, flexible and integrated policy that puts emphasis on innovation and the 
development  of  human  and  social  capital.  The  policy  has  successfully  evolved  over  time  to 
take on board the new priorities of European society. The strategic approach ensures an added 
value  at  European  level.  Making  additional  funds  available  for  the  new  challenges  in  the 
context of the Health Check is only one reflection of this.  

Rural  development  programmes  in  the  Member  States  are  adapted  to  reflect  changing 
circumstances. Following the Health Check and the Recovery Package one major revision is 
foreseen  in  2009.  This  revision  of  the  existing  rural  development  programmes  provides  the 
opportunity to inject the additional funds and to direct them towards dairy restructuring and/or 
the other new challenges and broadband infrastructure.  

EU's  rural  development  brings  together  economic,  environmental  and  social  aspects  in  an 
integrated  approach.  The  policy  has  a  three-fold  aim:  fostering  competitiveness  of  the 
agricultural and forestry sector (Axis I), improving the environment and the countryside (Axis 
II) and improving the quality of life in rural areas and encouraging diversification of the rural 
economy (Axis III). In addition, the LEADER approach (Axis 4) plays an important rule in 
improving governance and mobilising the endogenous development potential of rural areas.  

EU's  rural  development  has  a  well  defined  policy  framework.  It  is  based  on  a  strategic 
approach involving four consecutive steps: 

•  First,  the  Community  strategic  guidelines  for  rural  development  set  the  priorities  at  the 

Community level; 

•  In a second step, each Member State submits a national strategy plan which translates the 

Community priorities in the national context; 

•  Thirdly,  Member  States  and  regions  establish  their  rural  development  programmes  with 

specific measures; 

•  Finally, both Member States and the Commission closely monitor and evaluate the results. 

Based on this approach Member States should show what the recent trends in the dairy sector 
imply  in  terms  of  strengths  and  weaknesses.  Based  on  this  analysis  Member  States  have  to 
decide  whether  or  not  to  provide  additional  support  for  dairy  farmers.  And,  if  yes,  which 
support measures should be used. 

An  additional  change  introduced  with  the  Health  Check  was  to  abolish  the  limitation  of 
investment support for dairy farmers to the availability of dairy quotas. Now farmers may get 
investment  support  which  exceeds  the  farm-specific  quota  rights.  This  should  facilitate  the 
provision  of  investment  support  to  the  more  competitive  farmers.  Particularly  those  who 
intend to expand their production capacities in view of grasping a higher share in the world 
market may benefit from the simplification of this rule for investment support granted to dairy 
producers. 
Because the situation of rural areas is diverse across the 27 Member States, it is up to Member 
States to decide whether or not they will provide in the rural development programmes for the 
possibility to use the additional funds under the second pillar for support of dairy farmers or 
not.  The  revised  rural  development  programmes  indicating  the  use  and  distribution  of  the 

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additional  funds  from  Health  Check  and  Recovery  package  across  the  new  challenges, 
including support for dairy restructuring and for support for broadband infrastructure, shall be 
submitted by Member States to the Commission by 15 July 2009. 

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