Special report No 14/2009 #Have the management instruments applied to the market in milk and milk products achieved their main objectives?
Date: 2009-07-23
Institutions: European Court of Auditors
Subjects: EU control, EU financing, agricultural market, agricultural quota, dairy production

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Have tHe management 
instruments applied to tHe 
market in milk and milk products 
acHieved tHeir main objectives?

en

 
 
 
 
special r eport no  14 

 2009

Have tHe management 
instruments applied 
to tHe market in milk 
and milk products 
acHieved tHeir main 
objectives?

(pursuant to article 248(4), second subparagraph, of the ec  treaty)

european court of auditors

european court of auditors 
12, rue alcide d e g asperi
1615 luxembourg
luXembourg

tel.: +352 4398-1
fax: +352 4398-46410
e-mail: euraud@eca.europa.eu
internet: http://www.eca.europa.eu

special r eport no 14 

 2009

a great deal of additional information on the european union is available on the internet.

it can be accessed through the europa server (http://europa.eu).

cataloguing data can be found at the end of this publication.

luxembourg : publications office of the european union, 2009

isbn 978-92-9207-500-2

doi:10.2865/90382

© european communities, 2009

reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

contents

3

Paragraph

AbbreviAtions

GlossAry of key terms  AssociA ted with dAiry  Polic y

i-iX  

summ Ar y

1-11 

1-2 
3 
4-5 
6-11 

introduction

the milk And milk Product mArket
the objectives of the community dAiry Policy
mAnAGement instruments
budGet eXPenditure

12-13 

Audit objectives And  APPro Ach

14-45 

observAtions

14-21 
14-16 
17-19 
20-21 

22-32 
22-27 
28-32 

33-37 
33 

34-37 

38-45 
38-41 
42-43 
44-45 

hAs mArket equilibrium been Achieved?
 tHe quota regime  Has made it possible to limit milk  production...
…but Has not put an end to overproduction
measures to aid disposal  Have  Had a limited effect on market equilibrium

hAs the milk Price been stAbilised?
 producer prices: nominal prices stable but in decline in real terms
consumer prices for milk Have lit tle to do witH  tHe price paid to producers

whAt is the imPAct on Producers' incomes?
 tHe development of producers' net incomes  Has been uneven and subsidies form a major and 
increasing part of tHis income
 restructuring  Has entailed a considerable fall in tHe number of farms

 hAve euroPeAn milk Products become more comPetitive on world mArkets?
 european eXports of basic milk products are falling
tHe  european  union  Has greatly reduced its eXport aid for milk product s
 access to tHe world market is difficult witHout budgetary aid

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
4

Paragraph

46-62 

46-51 

52-54 

55-59 

60-62 

 the most critic Al issues to be tAken into consider Ation in 
the Process of liber AlisinG  the milk sector

 PreliminAry remArk: the 2003 reform PAved the wAy for the withdrAwAl of 
milk quotAs
 mArket equilibrium: instAbility on the mArkets cAn rAPidly leAd to the 
re-emerGence of surPluses
 restructurinG milk Production: risk of considerAble reduction of 
Production in less-fAvoured AreAs And of GeoGrAPhicAl concentrAtion of 
Production
 comPetitiveness on world mArkets: An objective which will hAve A 
siGnificAnt imPAct both on Producers And Processors

63-72 

conclusions And recommend Ations

AnneX i  -  Production And consumPtion of milk in the eu
AnneX ii  -  bAsic dAtA on dAiry fArminG in the eu

rePlies  of the commission

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
abbreviations

5

cAP: common agricultural policy

cmo: common market organisation

coPA-coGecA: Comité des organisations professionnelles agricoles — Confédération générale 
de la coopération agricole,  committee of professional agricultural organisations in the 
european union — general committee for agricultural cooperation in the european union 
(brussels)

edA: e uropean dairy a ssociation (brussels)

eu: e uropean union

eurostat: s tatistical o ffice of the european communities

fAo: food and agriculture organisation of the united nations (r ome)

oecd: organisation for e conomic cooperation and d evelopment (paris)

smP: skimmed milk powder

usdA: united s tates d epartment of agriculture

wto: world trade organisation ( geneva)

ZmP:  Zentrale Markt- und Preisberichtstelle GmbH, central market and price reporting office 
in g ermany (b onn)

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

glossary of key terms 
associated witH  dairy policy

7

milk equivalent: amount of milk used to manufacture a milk product.

target price: price fixed by the council corresponding to the desired level of payment for producers. 
the 2003 cap reform abolished the milk target price and established a direct payment decoupled 
from production as a producer income support.

intervention (or reference) price: for butter and skimmed milk powder (smp): prices fixed by the 
council at 246,39 euro/100 kg for butter and 174,69 euro/100 kg for smp from 1 july 2007. the interven-
tion agencies may intervene (public storage) if there is market disequilibrium by buying butter and/or 
smp during the intervention period (1  march to 31 august) if market prices fall below a certain level 
(92 % and 100 % of the intervention price for butter and smp respectively). the purchases are made at 
90 % and 100 % of the reference price for butter and smp respectively. the intervention is suspended 
when the market price recovers or when stocks reach the ceiling authorised by the council (30 000 
tonnes for butter and 109 000 tonnes for smp). However, the commission may authorise purchases 
above these amounts using a tendering procedure.

delivery quota: milk delivered by producers to approved purchasers.  normally, the milk is collected 
by dairies.

direct sales quota: milk sold or transferred directly by producers to consumers and other dairy prod -
ucts sold or transferred by producers.

2003 reform: cap reform based on an agreement reached in luxembourg on 26 june 2003, reinforc -
ing the process begun in 1992 (mcsharry reform), and confirmed in 1999 (agenda 2000 reform), which 
aimed to reduce price support and compensate for this reduction by direct income aid. the 2003 reform 
introduced the decoupling of aid and conditionality while reinforcing rural development assistance.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

8

summary

i.
m i l k   p r o d u c t i o n   i s   o f   m a j o r   i m p o r t a n c e 
i n   t h e   e u r o p e a n   u n i o n ’s   a g r i c u l t u r a l 
e co n o my.   m o re   t h a n   o n e   m i l l i o n   p ro d u c -
e r s   s u p p l y   1 4 8   m i l l i o n   t o n n e s   o f   m i l k 
a n n u a l l y   w i t h   a n   a p p r o x i m a t e   v a l u e   o f 
41  000  m il lion   eu ro  at  t he  far m  gate.  th e 
m i l k   p r o c e s s i n g   s e c t o r   e m p l o y s   a r o u n d 
4 0 0   0 0 0   p e o p l e   a n d   g e n e r a t e s   t u r n o v e r 
of 1 20 0 00  millio n euro.  m il k fat  and  pro -
te i n s   a re   p u t   t o   u s e   i n   t h e   p ro d u c t i o n   o f 
cheese,  but ter  and dr in k ing  mil k . 

ii.
t h e   e u   h a s   p u t   i n   p l a c e   a   d a i r y   p o l i c y 
w h i c h   a i m s   e s s e n t i a l l y   t o   a c h i e v e   e q u i-
l i b r i u m   o n   t h e   m i l k   m a r k e t ,   s t a b i l i s e 
p r i c e s ,   e n s u r e   a   f a i r   s t a n d a r d   o f   l i v i n g 
for producers and improve their competi-
t i v e n e s s .   t h e   m i l k   c m o,   w h i c h   h a s   b e e n 
i n   e x i s t e n c e   s i n c e   1 9 6 8 ,   h a s   b e e n   p r o -
f o u n d l y   i n f l u e n c e d   b y   t h e   i n t r o d u c t i o n 
o f   m i l k   q u o t a s   i n   1 9 8 4 .   t h e   2 0 0 3   r e fo r m 
c o n t i n u e d   t h e   a g e n d a   2 0 0 0   p r o g r a m m e 
and marked the beginning of sec tor liber-
alisati on  by  we akening  t he  p r ice  s uppor t  
m e c h a n i s m   a n d   i n t r o d u c i n g   d i r e c t   i n-
c o m e   s u p p o r t .   t h e   h e a l t h   c h e c k   i n   2 0 0 8 
c o n f i r m e d   t h a t   l i b e r a l i s a t i o n   o f   t h e   m i l k 
s e c to r   wo u l d   co nt i n u e   w i t h   q u o t a s   to   b e 
dismantled by 2015. total expenditure for 
t h e   m i l k   s e c t o r   r o s e   f r o m   2   7 5 0   m i l l i o n 
euro in 2005 to around 4 500 million euro 
in 2007. this figure includes an estimated 
amount fo r d ire c t aid, whic h has  be e n i n-
tegrated in the  s ingl e far m p aym ent. 

iii.
t h e   c o u r t ' s   a u d i t   c o n s i d e r e d   h o w   e f fe c -
t i ve l y   t h e   co m m i s s i o n   m a n a g e s   t h e   m a r-
ket  for  milk  and  milk  produc ts  with  refer-
e n c e   t o   t h e   m a i n   o b j e c t i v e s   o f   e u  d a i r y 
polic y. 

iv.
w i t h   r e g a r d   t o   m a r k e t   e q u i l i b r i u m ,   t h e 
c o u r t   c o n c l u d e s   t h a t   m i l k   q u o t a s   h a v e 
i m p o s e d   s t r i c t   l i m i t a t i o n s   o n   p r o d u c -
tion   but  th at   th eir   level  prove d  to   be   to o 
h i g h   fo r   a   l o n g   p e r i o d   o f   t i m e   c o m p a re d 
t o   t h e   m a r k e t ' s   c a p a c i t y   t o   a b s o r b   t h e 
sur pluses. th e commun it y had to finan ce 
sur plus industr ial produc tion ( but ter  an d 
powd er) . for a long  time, t he commun it y 
d e l i ve r y   q u o t a   h a d   b e e n   ve r y   m a rgi n a l l y 
exceed ed, but since 2 004 , t here ha s  be en 
c o n s i s t e n t   u n d e r - u s a g e   o f   t h e   q u o t a .   i n 
th e 20 0 7/20 08 m ar ketin g year th e  und er-
u s a g e   w a s   t h e   e q u i v a l e n t   o f   1   %   o f   t o t a l 
q u o t a   f o r   t h e   e u- 2 7 .   t h e   c u r r e n t   q u o t a 
r e g i m e   n o   l o n g e r   r e a l l y   r e p r e s e n t s   a   r e -
s t r i c t i o n   o n   p ro d u c t i o n   exce p t   i n   a   s m a l l 
n u m b e r   o f   m e m b e r   s t a t e s .   m e a s u r e s   t o 
aid  disposal  whic h  aim ed   at  e ncouragin g 
c o n s u m p t i o n   o f   m i l k   f a t   ( b u t t e r )   o r   m i l k 
p r o t e i n s   ( m i l k   p o w d e r )   o n   t h e   e u r o p e a n 
m a r k e t   h a v e   p l a y e d   o n l y   a   m i n o r   r o l e   i n 
th e last  few year s.

v.
as   fo r   t h e   o b j e c t i ve   o f   s t a b i l i s i n g   p r i ce s, 
t h e   c o u r t   f i n d s   t h a t   t h e   n o m i n a l   m i l k 
p r o d u c e r   p r i c e   v a r i e d   l i t t l e   d u r i n g   t h e 
1984–2006 per iod compared with the pe -
r i o d   b e f o r e   t h e   i n t r o d u c t i o n   o f   q u o t a s . 
However, in real ter ms, the milk producer 
p r i ce   h a s   f a l l e n   co nt i n u o u s l y   s i n ce   1 9 8 4 . 
th e   p ro d u ce r   p r i ce   fo r   m i l k   a n d   t h e   co n-
sumer   pr ice   do  not  follow  paralle l  t re nds 
b e c a u s e   t h e y   a re   s u b j e c t   to   d i f fe re nt   p a-
rameters. b et ween the beginning of 2000 
a n d   m i d - 2 0 0 7   n o m i n a l   c o n s u m e r   p r i c e s 
for milk produc ts increased by 17  % while 
t h e   n o m i n a l   p r i c e   p a i d   t o   t h e   p r o d u c e r 
fell by  6 %.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

99

summary

• 

a n d   l a s t l y,   t h e   i s s u e   o f   t h e   c o m p e t i-
t i ve n e s s   o f   t h e   eu ro p e a n   m i l k   s e c t o r, 
which   depend s  on  its   abilit y  to  a da pt 
to wor ld demand in ter ms of the pr ice 
an d qualit y  of its produc ts.

iX.
ta k i n g   t h e s e   f a c t o r s   i n t o   c o n s i d e r a t i o n , 
th e c our t re comm ends:

• 

• 

• 

• 

t h a t   m o n i t o r i n g   t h e   d e v e l o p m e n t   o f 
t h e   m a r k e t   i n   m i l k   a n d   m i l k   p ro d u c t s 
should continue, so that liberalisation 
of the sec tor does not lead once again 
to  over- produc tion ; 

t h a t   t h e   p r i c e   f o r m a t i o n   p r o c e s s   i n 
t h e   f o o d   i n d u s t r y   s h o u l d   b e   s u b j e c t 
to regular monitor ing by the commis-
sion . th e  concentratio n  of  proce ssing 
a n d   re t a i l i n g   co m p a n i e s   m u s t   n o t   re -
d u c e   m i l k   p ro d u c e r s   t o  ‘p r i c e - t a k e r s’, 
and must not restrict oppor tunities for 
fin al  consumer s  to  ben efit  fair ly   from 
dec reas es in pr ices;

t h a t   i n - d e p t h   r e f l e c t i o n   s h o u l d   b e 
gi ve n   to   s t r a te gi e s   to   t a c k l e   t h e   s p e -
c i a l   p ro b l e m s   o f   t h o s e   re gi o n s   w h e re 
milk produc tion is most vulnerable, in 
p a r t i c u l a r   i n   m o u n t a i n o u s   a re a s,   a n d 
t o   t a c k l e   t h e   e n v i r o n m e n t a l   c o n s e -
quen ces of  a geographical con centra-
tion  of milk produc tion ;

t h a t   e f f o r t s   s h o u l d   b e   c o n t i n u e d   t o 
fo c u s   m i l k   p ro d u c t i o n ,   a s   a   m a t te r   o f 
high priorit y, on meeting the needs of 
t h e   d o m e s t i c   e u r o p e a n   m a r k e t   a n d , 
i n   a d d i t i o n ,   o n   p r o d u c i n g   c h e e s e s 
a n d   o t h e r   h i g h   a d d e d   va l u e   p ro d u c t s 
w h i c h   c a n   b e   e x p o r t e d   o n   t h e   w o r l d 
mar ket  wit hout budgetar y suppor t. 

v i. 
a s   f a r   a s   t h e   o b j e c t i v e   o f   g u a r a n t e e i n g 
t h e   i n c o m e s   o f   p r o d u c e r s   i s   c o n c e r n e d , 
t h e   co u r t   n o te s   t h at   t h e   i n co m e s   o f   m i l k 
p r o d u c e r s   r e m a i n   s l i g h t l y   a b o v e   a v e r -
a g e   f a r m   i n c o m e s ,   w h i c h   h a v e   f o l l o w e d 
a   d o w n w a r d   t r e n d   i n   r e a l   t e r m s .   a s s i s t -
ance measures are a major and increasing 
p a r t   o f   m i l k   p ro d u c e r s’  i n c o m e s   b u t   t h i s 
va r ies con siderab ly b et ween t he m ember 
s t a t e s.  t h e   e f fe c t   o f   t h e   re s t r u c t u r i n g   o f 
the dair y sec tor and the steady fall in the 
number  o f  ho ldings  is   th at  the  s t ati st ic al 
a v e r a g e   f o r   p r o d u c e r   i n c o m e s   r e m a i n s 
u n c h a n g e d.   t h e   e u - 1 5   l o s t   h a l f   i t s   d a i r y 
far ms bet ween 1995 and 2007; more than 
5 0 0   0 0 0   p r o d u c e r s   g a v e   u p   d u r i n g   t h i s 
per iod.

v ii.
considering the objec tive of competitive -
n e s s ,   t h e   c o u r t   f i n d s   t h a t   t h e   e u  s h a r e 
o f   wo r l d   t ra d e   i n   m i l k   p ro d u c t s   h a s   b e e n 
d e c l i n i n g   s i n c e   1 9 8 4 .   e u r o p e a n   e x p o r t 
a s s i s t a n c e   f o r   m i l k   p r o d u c t s   h a s   b e e n 
conside rabl y  re duced  du r ing   th e   l ast   few 
y e a r s.   t h e   f a c t   i s   t h a t   e u r o p e a n   p r o d u c -
e r s   o f   b a s i c   m i l k   p r o d u c t s   ( b u t t e r   a n d 
milk powder) have only been competitive 
o n   wo r l d   m a r k e t s   w h e n   p r i ce s   h ave   b e e n 
h i g h .   w h e n   t h i s   w a s   n o t   t h e   c a s e ,   t h e y 
e x p o r t e d   w i t h   a s s i s t a n c e   f r o m   t h e   co m-
m u n i t y   b u d g e t .   wo r l d   p r i c e s   h a v e   l e s s 
i m p a c t   o n   e x p o r t s   o f   h i g h   a d d e d   v a l u e 
produc t s  s uch  as  cheeses.

v iii.
i n the co ntex t o f the p rogres sive  l i berali-
s a t i o n   o f   t h e   e u r o p e a n   d a i r y   s e c t o r,   t h e 
co u r t   m u s t   e m p h a s i s e   t h e   i m p o r t a n ce   o f 
three fac tors which deser ve the attention 
of t he c o mmis sio n and  m em be r s tates :

• 

• 

t h e   i n s t a b i l i t y   o f   t h e   m a r k e t s ,   w h i c h 
i s   l i k e l y   t o   l e a d   r a p i d l y   t o   n e w   l a r g e 
sur pl u ses; 

t h e   i n c r e a s i n g   p a c e   o f   r e s t r u c t u r i n g, 
w i t h   t h e   r i s k   o f   a   g e o g r a p h i c a l   c o n-
centration of production as large num-
bers of producers disappear from less-
favo u red areas;

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

introduction 

10

1. 

2. 

t h e   m i l k   An d   m i l k   Pr o d u c t   m Ar k e t

 m i l k   i s   o n e   o f   t h e   m a i n   a g r i c u l t u r a l   p r o d u c t s   o f   t h e   e u r o p e a n 
unio n;  mo re   t han   one  mil l io n  far m s  pro duce  1 4 8   m illi on  ton n es 
annually with an approximate value of 41 000 million euro, which 
i s   1 4   %   o f   t h e   v a l u e   o f   e u r o p e a n   a g r i c u l t u r a l   p r o d u c t i o n   (e u-
25 ,  200 6) 1.   m o re  t han  6 0  %  o f  beef  an d  veal  produ ced   i n   europe 
comes  fro m dair y far m s 2.  the european union  is  the  wor ld ’s big-
gest producer of milk (27 %), ahead of india (20 %) and the united 
states  (16 %) and wel l  ahead of o cean ia ( 5 %) 3. 

 m i l k   p ro ce s s i n g   e m p l oys   a ro u n d   4 0 0   0 0 0   p e o p l e   i n   eu ro p e   w i t h 
tot al   tu r nover  o f  ap p roximately   1 2 0  0 0 0   m ill ion   euro 4.  r aw  m ilk 
d e l i ve re d   t o   d a i r i e s   i s   p ro c e s s e d   i n t o   a   w i d e   r a n g e   o f   p ro d u c t s 
fo r   b o t h   h u m a n   a n d   a n i m a l   co n s u m p t i o n ,   o r   fo r   u s e   i n   i n d u s t r y 
(Figure 1 and  Annex I).  cow ’s milk is essentially made up of water, 
l a c t o s e,   f a t s   a n d   p ro t e i n s.   s e p a r a t i n g   t h e   f a t   f ro m   t h e   p ro t e i n s 
prod uce s bu tter an d sk immed m ilk , th e lat ter  be i ng  mai nly  use d 
for mak ing sk immed milk powder and casein. cheeses, fresh milk 
produc ts, concentrated milk and whole milk powder are made up 
of b o t h fat s and p roteins. the m ain use of raw milk is in  c h ee se -
mak in g,  ahe ad  of   b utter  and  dr i n k in g   m ilk .   i n   20 08 ,  46  %   of   the 
protein  and   34  %  o f  the  fat  take n  fro m  th e  mi lk  colle c te d  in   th e 
eu-27 was used to produce cheeses; dr ink ing milk accounted for 
2 3   %   o f   t h e   p r o t e i n   a n d   1 3   %   o f   t h e   f a t ,   w h i l e   b u t t e r   u s e d   u p 
32  %  of   t he   fat   and  vir t ual l y  no  prote in .  i t  should  be  n oted  th at 
although butter produc tion requires more milk than the produc-
tion   o f  dr ink ing   mil k ,  t he  l atter   is   ne ver th e le ss  a  more   ef fec t ive 
end  u se as it  u ses  b oth  the  protei n  an d  th e  f at  i n  th e  mil k .

1 

international dairy federation, 

Production of cow milk, 2007 

http://www.fil-idf.org. european 

commission, Agriculture in the 

European Union — Statistical and 

economic information, 2008.

2  ernst and young, CMO for beef and 

veal. Evaluation of market measures in 

the beef and veal sector. final report, 

december 2007.

3 

international dairy federation, 

Production of cow milk, 2007,  

http://www.fil-idf.org.

4  eurostat, 2006 data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
11

f i G u r e   1

t h e   m A i n   e n d   u s e s   f o r   m i l k   d e l i v e r e d  to   d A i r i e s 

changed except for standardisation or skimming

n
 u
n
o
i
t
i
s
o
p
m
o
C

Dehydration

DRINKING MILK (production 33.9 Mio t)
FERMENTED MILK PRODUCTS (production 9.6 Mio t)
MILK DESSERTS

CONCENTRATED MILK (production 1.1 Mio t)
WHOLE MILK POWDER (production 0.8 Mio t)

SKIMMED MILK POWDER (production 1.1 Mio t)

CASEINS/
CASEINATES

n
o
i
t
a
t
a
r
d
y
h
e
D

DELIVERIES
RAW MILK
134 Mio t
Water
Lactose
Milk fat
(MF): 4.05 %
Milk proteins
(MP): 3.34 %

C
o
a
g

ulation and draining

SKIMMED MILK

4.5 Mio t

Skimming

Concentration

CREAM
(intermediate product)

CREAM
(production 2.4 Mio t)

BUTTER (production 2 Mio t)
BUTTEROIL

CHEESES (production 9.2 Mio t)

special report no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special report no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

End uses of MF

End uses of MP

End uses of MF and MP

S o urce: Zmp statistics (eu-27, 2007).

12

t h e   o b j e c t i v e s   o f  t h e   co m m u n i t y   d Ai r y  
Po l i c y  

3.  

 the communit y dair y polic y, as is the case with other agricultural 
sec tor policies, is based on the global objec tives set out in ar ticle 
33 of  t he treat y  es t abl ish ing th e european commun it y 5. b ec ause 
o f   t h e   d i f f i c u l t y   o f   f u l f i l l i n g   a l l   t h e s e   o b j e c t i ve s   s i m u l t a n e o u s l y, 
t h e i r   o rd e r   o f   p r i o r i t y   i n   re s p e c t   o f   t h e   o rg a n i s at i o n   o f   t h e   m a r -
kets may change over time 6. the rules gover ning the cmo in milk 
expl icit l y refe r to t he fol l owing  four  obj ec t ives :

- 

- 

- 

- 

to provide equilibr ium to the milk mar ket. equilibr ium refers 
to matching supply to demand on the milk market and reduc-
ing  st ru c tu ral  s ur p l u ses 7;

t o   s t a b i l i s e   t h e   p r i c e s   o f   m i l k   a n d   m i l k   p r o d u c t s .   s t a b i l i t y 
can be evaluated on the basis of changes in producer prices 8. 
ch ang es in co ns umer  p r ices  also gi ve  so me i n dic at io n of  th e 
imp ac t  t he c mo is having  on  con sum e r s;

t o   e n s u re   a   f a i r   s t a n d a r d   o f   l i v i n g   fo r   t h e   a g r i c u l t u r a l   c o m -
munity 9. an improvement in the incomes of individual farmers 
c a n   b e   o b t a i n e d   by   i n c re a s i n g   f a r m   p ro d u c t i v i t y.   s t r u c t u r a l 
a d j u s t m e n t s   a re   a n   i n t e g r a l   p a r t   o f   t h e   c m o   i n   m i l k   e ve n   i f 
t he ap p licat ion of agr icul t ural poli c y  m us t ta ke  into  accou nt 
t he ne cess it y o f c ar r y ing out  s uc h  adj us tm e nt s  gra duall y 10;

to improve the sec tor's competitiveness on international mar-
k e t s 1 1.   c o m p e t i t i v e n e s s   m u s t   b e   a t t a i n e d   b y,   a m o n g   o t h e r 
t h i n g s ,   a l i g n i n g   e u r o p e a n   p r i c e s   w i t h   w o r l d   m a r k e t   p r i c e s , 
w h i c h   a re   s t r u c t u ra l l y   l owe r.  th e   co m p e t i t i ve n e s s   o b j e c t i ve 
has   b eco me  o ne  o f  t he  main   pr ior i ti es   of  commiss ion   ac tion 
s i n c e   t h e   d e c i s i o n   w a s   t a k e n   i n   2 0 0 3   t o   r e d u c e   t h e   l e v e l   o f 
m a r k e t   s u p p o r t   a n d   t o   i n t ro d u c e   d i re c t   i n c o m e   s u p p o r t   fo r 
mil k p ro du cers. 

5  according to article 33 of the ec 

treaty, the objectives of the common 

agricultural policy are:

a)  to increase agricultural 

productivity by promoting 

technical progress and by ensuring 

the rational development of 

agricultural production and the 

optimum utilisation of the factors 

of production, in particular labour;

b)  thus to ensure a fair standard 

of living for the agricultural 

community, in particular by 

increasing the individual earnings 

of persons engaged in agriculture;

c) to stabilise markets;

d)  to assure the availability of 

supplies;

e)  to ensure that supplies reach 

consumers at reasonable prices.

6  the court tackled this question 

in special report no 2/99 on the 

effects of the cap reform in the 

cereals sector, oj c 192, 8.7.1999. 

moreover, according to court of 

justice case-law, ‘the community 

institutions must secure the 

permanent harmonisation made 

necessary by any conflicts between 

those objectives taken individually 

and, where necessary, give any one of 

them temporary priority in order to 

satisfy the demands of the economic 

factors or conditions’, judgment of 

the court of 19 march 1992 in case 

c-311/90, Josef Hierl v Hauptzollamt 

Regensburg, grounds (13), European 

Court Reports 1992, p. i-02061.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
13

m AnAGe m e n t   i n s t r u m e n t s

4. 

 the common market organisation (cmo) in milk and milk products, 
w h i c h   e n te re d   i n to   fo rc e   i n   1 9 6 8 ,   w a s   o n e   o f   t h e   f i r s t   c m os   u n-
der the common agr icultural polic y (c ap).  there have been many 
re fo r m s,   t h e   m o s t   r a d i c a l   o f   w h i c h   w a s   t h e   i n t ro d u c t i o n   o f   m i l k 
quotas in 1984 to deal with struc tural surpluses resulting from the 
i m b a l a n c e   b e t we e n   s u p p l y   a n d   d e m a n d   fo r   m i l k   a n d   m i l k   p ro d-
uc ts 13.  i n acco rdance w ith t he dec ision s  contai ne d i n  t he  age nda 
200 0 a c tio n pro gramme,  the 200 3 re for m in i ti ated  th e  libe ral is a-
t i o n   o f   t h e   m i l k   s e c to r   by   re d u c i n g   p r i ce   s u p p o r t 1 4  a n d   c re a t i n g 
d i r e c t   i n c o m e   s u p p o r t .   i n   2 0 0 7 ,   a s   p a r t   o f   t h e   s i m p l i f i c a t i o n   o f 
communit y rules, the council included all the milk sec tor regula-
t i o n s   i n   a   s i n g l e   c o m m o n   m a r k e t   o r g a n i s a t i o n   fo r   a l l   r e g u l a t e d 
agr icu l tu ral  p ro du c tion 15.

7  whereas (3) and (9) of council 

regulation (ec) no 1255/1999 

of 17 may 1999 on the common 

organisation of the market in milk and 

milk products, oj l 160, 26.6.1999, 

p. 48, and whereas (19), (36), (43) 

and (60) of council regulation (ec) 

no 1234/2007 of 22 october 2007 

establishing a common organisation 

of agricultural markets and on specific 

provisions for certain agricultural 

products (single cmo regulation),  

oj l 299, 16.11.2007, p. 1.

5. 

 in addition to the ceiling on production through the use of quotas, 
the 2003 refor m retained most of the traditional mar ket manage -
m e n t   i n s t r u m e n t s   fo r   t h e   m i l k   s e c t o r,   i . e.   i n t e r n a l   s u p p o r t ,   p ro -
te c t i ve   m e a s u re s   at   t h e   ex te r n a l   f ro nt i e r s   a n d   ex p o r t   a s s i s t a n ce 
(B ox 1).

8  whereas (2), (5), (9) and (25) of 

regulation (ec) no 1255/1999 and 

whereas (10), (19), (43) and (60) of 

regulation (ec) no 1234/2007.

9  whereas (2) of regulation (ec) 

no 1255/1999 and whereas (10) of 

regulation (ec) no 1234/2007.

10  article 33(2)(b) of the ec treaty. 

11  whereas (4) of regulation (ec) no 1255/1999 and whereas (16) of regulation (ec) no 1234/2007.

12  whereas (4) of regulation (ec) no 1255/1999 and whereas (10) of regulation (ec) no 1234/2007.

13  council regulation (eec) no 856/84 of 31 march 1984 amending regulation (eec) no 804/68 on the common organisation of the market in 

milk and milk products, oj l 90, 1.4.1984, p. 10. 

14  the price support mechanism was weakened by the abolition of the milk target price, by the lowering of the intervention prices, by the 

increase of 1,5 % in national quotas and by the gradual reduction in the levy payable by producers if they exceeded their quota. 

15  council regulation (ec) no 1234/2007.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
14

b oX   1

m Ar k e t   m AnAGe m e n t   i n s t r u m e n t s 

the regulations in force since 2003 made provision for the following market management instru-
ments:

•	

• 

• 

• 

• 

• 

	the	milk	quota	regime, which the council has extended until 31 march 2015. the scheme gives each 
member state a national delivery quota for milk delivered to buyers (mainly dairies), and a national 
direct sales quota for direct sales and transfers of milk to consumers, and for all sales and transfers 
of other milk products. producers receive individual quotas for their deliveries and/or their direct 
sales within the limits of national ceilings. if either national quota is exceeded, the member state 
becomes liable to pay a ‘levy’ to the community. the 2003 reform led to an increase in national 
milk quotas by 1,5 % (for 11 member states of the eu-15) and set out a gradual reduction in the 
levy down to 27,83 euro per 100 kg (quota year 2007/08), a reduction which was proportional to 
the reduction in intervention prices;

 public storage of butter and skimmed milk powder, which is the instrument of direct intervention 
used to maintain market prices at a level near to ‘intervention prices’. purchases are nevertheless 
restricted to a certain period of the year (from 1 m arch to 31 august);

 aid for private storage of cream and skimmed milk powder (abolished in 2007), of certain butter 
products and certain cheeses in order to regulate the volumes on the market; 

 measures to aid disposal on the internal market (chiefly in the form of aid for skimmed milk for ani-
mal feed, aid for processing skimmed milk into casein, aid for the use of butter in pastry products, 
and school milk). the aim of these forms of aid is to limit use of the intervention mechanism;

 regulation of foreign trade using import levies16 and, when european prices are higher than world 
prices, export refunds for certain products;

 income support for milk producers during the period 2004–07 (milk premium and additional pay-
ments), intended to partially compensate for the fall in milk prices following successive reductions 
in intervention prices17. since 2007, there has been a mandatory requirement to decouple the milk 
premium and additional payments from production and include them in the single payment18.

the 2008 health check resulted in the following main adjustments: another increase in production 
quotas (see paragraph 48), abolition of seasonal storage aid for certain cheeses, abolition of aid for 
the use of butter in pastries, inclusion of accompanying measures for restructuring the milk sector in 
the list of priorities which member states may incorporate in their national and regional rural devel-
opment programmes and the possibility for the member states to grant special aid to producers of 
up to 3,5 % of the amount of direct aid.

16   the milk and milk products cmo initially consisted of a mechanism of import levies based on a ‘threshold price’. this system was abandoned 

in 1995 (gatt accords of 15 december 1993) and replaced by fixed customs duties.

17  articles 95 to 97 of council regulation (ec) no 1782/2003, oj l 270, 21.10.2003, p. 1.

18  article 47(2) of regulation (ec) no 1782/2003.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

15

b u dGe t   eX Pe n d i t u r e

6. 

 budget expenditure on market suppor t for the milk and milk prod-
uc ts sec tor fell considerably af ter the introduc tion of milk quotas, 
a n d   e v e n   m o r e   i n   t h e   p e r i o d   w h e n   t h e   d e v e l o p m e n t   o f   w o r l d 
pr ices   made   it   p os s ib l e  to   su spen d  t h e  i nte r ve nti on  me ch ani s m, 
meas ure s to  aid disp o sal  and expor t  as si st an ce  (Fig ur e   2) .

fiGu r e   2

e u   d Ai r y   eX Pe n d i t u r e   ( 19 8 1 – 20 07 )

Budgetary expenditure 
(million euro)

7 000 

6 000 

5 000 

4 000 

3 000 

2 000 

1 000 

0 

– 1 000

912,5
637,0

1
8
9
1

2
8
9
1

3
8
9
1

4
8
9
1

5
8
9
1

6
8
9
1

7
8
9
1

8
8
9
1

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

Total dairy expenditure 
Disposal measures   
Net expenditure (total levy) 

Export refunds 
Storage 
Milk premium and additional payment 

S o urce: european commission, budget dg and agriculture and rural development dg.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
16

7. 

8. 

9. 

 the 2003 reform had an impac t on the organisation and inter pre -
tation of the budget. expenditure on markets was separated from 
direc t suppor t for farmers as a result of the progressive introduc -
tion   o f  de coup l ing.  the  dair y  expend iture  budget  the re fore  o nly 
s h ows   co s t s   re l a t i n g   to   m a r k e t   s u p p o r t .   th e   d a i r y   p re m i u m   a n d 
the supplementar y premium have been entered in the accounts as 
d e co u p l e d   d i re c t   a i d   s i n ce   2 0 0 5   fo r   d e n m a r k ,   g e r m a ny,   i re l a n d, 
l u x e m b o u r g   a n d   t h e   un i t e d   k i n g d o m ,   s i n c e   2 0 0 6   f o r   b e l g i u m , 
sp a i n ,   fr a n c e ,   fi n l a n d   a n d   i t a l y,   a n d   s i n c e   2 0 0 7   f o r   t h e   e n t i r e 
eu-15.   i n th e n ew  m em be r st ates 19 aid for  milk producers  was in-
cluded in the per hec tare flat rate paid on the basis of a simplified 
and   transit ional   model   s ing le  are a  paym ent   s ch eme.   as  from  t he 
2 0 0 8   b u d g e t ,   d i re c t   a i d   t o   m i l k   p ro d u c e r s   h a s   b e e n   c o m p l e t e l y 
inte grated in t he sing l e p ayme nt.

19  except in malta and slovenia, 

which opted to apply the normal 

single payment scheme as from 2007 

at regional level.

20  the commission’s replies to 

special report no 6/2001 on milk 

quotas.

21  expenditure under budget 

headings 050212, 05030216 and 

05030217

 i n 2001, the commission was still dismissing the idea of liberalis-
ing milk produc tion using the model of the arable crop sec tor, on 
t h e   gro u n d s   t h at   t h e   b u d g e t a r y   co s t   wa s   to o   h i g h 2 0.   si n ce   t h e n , 
the commission has come down in favour of liberalisation in spite 
of its inherent cost. available data in fac t confir m that reor ienta-
tion of  t he milk c mo wil l  n o t result  in  any  new budge t  savi n g, a s 
exp l ained b el ow.

 i n 2 005,  ne t exp end it ure o n the mi lk s ec tor  wa s more  t ha n 2  7 5 0 
millio n  e uro,  o f  w hich  50  %  ( 1  3 7 0   m ill ion   e uro)  was  for   t he   mi lk 
pre miu m and ad dit ion al p ayment s 21.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
17

10.  

11.  

 i n   2 0 0 7 ,   i n   s p i t e   o f   t h e   a c c e s s i o n s   i n   2 0 0 4 ,   n e t   e x p e n d i t u r e   r e -
c o r d e d   i n   t h e   a c c o u n t s   u n d e r   t h e   b u d g e t   h e a d i n g s   r e l a t i n g   t o 
the milk sec tor did not total more than 912 million euro, of which 
637  m il l io n euro were for the mil k  pre m iums a n d add it ion al  n on -
decou p le d  payment s.   fo r  th e  same   ye ar,  the  total  of  mi lk  premi-
ums and additional decoupled payments is estimated to be 3 600 
m i l l i o n   e u r o.   t h e   t o t a l   c o s t   o f   t h e   m i l k   s e c t o r   f o r   t h e   t a x p a y e r 
th erefo re  c ame  to  more  t han  4   50 0   m ill ion   e uro  i n  2 00 7 ,  or   6 4   % 
more t han t he exp enditu re entere d  in  t he  2 0 0 5  bu dge t 22.

22  in 2004, the oecd had come to 

the conclusion that the premium for 

milk products could only decrease 

taxpayers’  ‘welfare’. see Analysis of  

the 2003 CAP reform, oecd, paris, 

2004. 

 in 2014, when the new member states receive the full payment, the 
m i l k   p re m i u m s   a n d   a d d i t i o n a l   d e co u p l e d   p ay m e nt s   a l o n e   m i g ht 
add up to more than 4 700 million euro. expenditure on inter ven-
t i o n ,   m e a s u r e s   t o   a i d   d i s p o s a l   o r   e x p o r t   r e f u n d s   w i l l   a l s o   h a v e 
to   b e   a d d e d,   i n s o f a r   a s   t h e s e   m a r k e t   i n s t r u m e nt s   h ave   n o t   b e e n 
t o t a l l y   p h a s e d   o u t .   H o w e v e r,   i t   s h o u l d   b e   n o t e d   t h a t   t r a n s i t i o n 
t o   d e c o u p l e d   a i d   c o u l d   l e a d   s o m e   b e n e f i c i a r i e s   t o   g i ve   u p   m i l k 
prod uc t io n.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
audit objectives  
and approacH

18

12.  

 the audit considered how effectively the commission manages the 
market for milk and milk produc ts. the repor t therefore hinges on 
th e fo ll ow ing  key qu est io n: 

23  visits were made to the following 

organisations: 

h Av e t h e m AnAGe m e n t i n s t r u m e n ts  A P Pl i e d to t h e 
m Ar k e t i n m i l k  An d m i l k  Pr o d u c ts  Ac h i e v e d t h e i r 
o b j e c t i v e s?

-  the european dairy industry (eda), 

which represents the interests of the 

european dairy industry towards the 

european institutions and towards 

international bodies like the world 

trade organisation or the codex 

alimentarius;

-  copa-cogeca, the committee 

more precisely, the audit dealt with the following specific questions: 

of professional agricultural 

- 

- 

H as  mar k et  equil ib r iu m b een  ac h i eve d?

H as  the  milk p r ice b een s tabilise d?

-  w hat h as b een  t he imp ac t on  pro duce r s’ i nco mes ?

organisations in the european 

union (copa) and the general 

committee for agricultural 

cooperation in the european 

union (cogeca), which represent 

the political interests of european 

farmers and cooperatives in the 

- 

H a ve   e u ro p e a n   m i l k   p ro d u c t s   b e c o m e   m o re   c o m p e t i t i ve   o n 
wor l d m ar ke ts?

european union;

-  instut für Ökonomie der 

 t h e   c o u r t   a l s o   h i g h l i g h t e d   t h e   m o s t   c r i t i c a l   i s s u e s   t o   b e   c o n -
s i d e re d   i n   t h e   m a r k e t   l i b e ra l i s at i o n   p ro ce s s,   w h i c h   a m o n g   o t h e r 
th ing s w ill  invo lve w ithd rawal  of  th e m ilk  q uot a  sc h em e.

13.  

 t h e   a u d i t   f i n d i n g s   a r e   b a s e d   o n   a n   a n a l y s i s   o f   t h e   d o c u m e n t a-
t i o n   av a i l a b l e   a n d   i n t e r v i e w s   w i t h   t h e   d i f fe re n t   s t a k e h o l d e r s   i n 
the sec tor. the cour t examined statistical material, ar ticles, stud-
i e s,   a c t i v i t y   re p o r t s   a n d   t h e   re s u l t s   o f   p re v i o u s   e v a l u a t i o n s   a n d 
aud it s.   i nter views   to o k  p l ace  with  t he  commiss ion   (e urostat   and 
agriculture and rural  development dg,  direc torates  c and  d) and 
v i s i t s   we re   m a d e   to   b o d i e s   a n d   a s s o c i a t i o n s   w h i c h   a re   a c t i ve   i n 
th e mil k se c tor  o r w h ich  have ex pe r t ise  in th is  are a.  th e aim was 
to complete the analyses made and test the relevance of the initial 
concl u sio ns on  the s it uat ion i n t he  mi lk s ec to r  and  i ts  prospe c t s, 
and  on  the man agement of the cm o 23.

ernährungswirtschaft (institute of 

food business economics);

-  the international farm comparison 

network;

-  the organisation for economic 

cooperation and development 

(oecd).

finally, the auditors attended 

two seminars on the future of 

the milk sector: the international 

management forum milk (riga) 

and the world dairy summit 2007 

(dublin), and they also attended 

information and consultation 

sessions organised by the 

commission as part of the 2008 cap 

health check.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
 
 
observations

19

14.  

15.  

hAs   m Ar k e t   e q u i l i b r i u m   b e e n   Ac h i e v e d ?

t h e   q u otA   r eGi m e   hAs   m Ad e   i t   Po s s i b l e  to   l i m i t 
m i l k   P r o d u c t i o n … 

 as from 1984 most member states managed fairly rapidly to bring 
t h e   q u a nt i t i e s   o f   m i l k   m a r k e te d   i n   t h e i r   te r r i to r i e s,   e i t h e r   i n   t h e 
fo r m   o f   d e l i ve r i e s   o r   d i re c t   s a l e s,   i n to   l i n e   w i t h   t h e i r   re s p e c t i ve 
q u o t a s .   a f t e r   s o m e   i n i t i a l   r e t i c e n c e ,   t h e   u s e   o f   q u o t a s   w a s   a c -
c e p t e d   b y   a   m a j o r i t y   i n   t h e   s e c t o r   a s   a   p o we r f u l   a n d   p o l i t i c a l l y 
accep t ab le inst ru ment fo r regulat in g  prod uc ti on . sin ce its int ro -
duc tion the system has been effec tive in the sense that, generally, 
co m m u n i t y   p r o d u c t i o n   c o m p l i e s   w i t h   t h e   c e i l i n g   i m p o s e d .   t h e 
fac t that the produc tion ceiling decided by the council remained 
f i x e d   f o r   a   l o n g   t i m e   a t   a   l e v e l   a b o v e   t h a t   o f   i n t e r n a l   d e m a n d 
cer t ainl y contr ib u ted  to the sc h em e’s  acce pt ance.

 Fi g u r e   3   s h o w s   t h e   r e c e n t   d e v e l o p m e n t   o f   t h e   t o t a l   o f   t h e   n a -
tional quotas allocated and their ac tual use by the member states. 
d ur ing  t he p er io d under review,  t h e quota  for  de li ve r ies  was  f re -
quentl y   exceeded  in  the  eu-15 ,  but  th e  scale  of   th e  ove r r un   was 
limited, i.e. less than 1 % for most of the 1995/96 to 2004/05 mar -
keting years. i n contrast, in the eu-25 and  eu-27, for the 2004/05 
and   su b sequ ent  mar ket ing  year s,   t he   commun it y  de liver y   quota 
wa s  unde r-u sed  (B ox  2).

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
20

fiGu r e   3

ut i l i sA t i o n   o f  t h e   co m m u n i t y   m i l k   q u otA   
( m A r k e t i n G  y e A r s  1993 /9 4 to   200 7 /08 )

Deliveries 
(Mio tonnes)

EU-12

EU-15

EU-15/EU-25

Direct sales
(tonnes)

140 

120 

100 

80 

60 

40 

20 

0 

4
9
–
3
9

5
9
–
4
9

6
9
–
5
9

7
9
–
6
9

8
9
–
7
9

9
9
–
8
9

0
0
–
9
9

1
0
–
0
0

2
0
–
1
0

3
0
–
2
0

4
0
–
3
0

5
0
–
4
0

6
0
–
5
0

7
0
–
6
0

8
0
–
7
0

Deliveries quota 

Direct sales quota

Under-usage of quota

Overruns of quota

20 

18 

16 

14 

12 

10 

8 

6 

4 

2 

0 

S o urce: european court of auditors on the basis of replies by the member states to the questionnaire specified in article 26 
of commission regulation (ec) no 595/2004.

b oX   2

A   r e c e n t   Ph e n o m e n o n :  u n d e r - u sAGe   o f  t h e   co m m u n i t y   m i l k 
q u otA   f o r   d e l i v e r i e s

since the 2004/05 milk marketing year, the overruns of their delivery quotas by a number of member 
states have no longer made up for the under-usage noted in the other member states. for the eu-25, 
net under-usage came to 0,613 million tonnes for the 2004/05 marketing year (0,5 % of the quota), 
0,524 million tonnes for the 2005/06 marketing year (0,4  % of the quota), 1,919 million tonnes for the 
2006/07 marketing year (1,4 % of the quota). for the 2007/08 marketing year, under-usage amounted 
to 1,682 million tonnes for the eu-25 (1,2 % of the quota), and 2,222 million tonnes (1,0 % of the 
quota) for the eu-27.

obviously, the reasons for the under-usage of quotas vary according to the specific conditions in 
each member state. no in-depth study has yet been made of the impact of decoupling aid on the 
abandonment of milk production.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21

24  although denmark under-used its 

quota in the 2007/08 marketing year.

16.  

 a t   n a t i o n a l   l e v e l ,   c e r t a i n   c o n s t a n t s   c a n   b e   o b s e r v e d .   r e c e n t l y 
( 2 0 0 2 / 0 3   t o   2 0 0 7 / 0 8   m a r k e t i n g   ye a r s ) ,   t h e   m e m b e r   s t a t e s   m o s t 
freq u ent l y exceeding  their quot as  h ave  been , i n  th e  ord er  of th e 
size of the overrun, i taly, germany, the netherlands,  austria, den-
mar k 24, cyprus and luxembourg. the major par t of the total over-
r u n   h a s   b e e n   r e p e a t e d l y   r e c o r d e d   i n   i t a l y   ( a p p r ox i m a t e l y   8 0   % 
fo r   t h e   2 0 0 6 / 0 7   m a r k e t i n g   ye a r ) .   fro m   t h e   o u t s e t ,   t h e   s i t u a t i o n 
in  i t al y  ha s  be en  af fec ted  by  the   f ac t  th at  it s  n at ion al  q uot a  was 
set, as for the other member states, by reference to the quantities 
p ro d u c e d   i n   t h e   p a s t ,   w h i c h   we re   l e s s   t h a n   d o m e s t i c   c o n s u m p -
t i o n .   i t a l y ' s   p ro d u c t i o n   h a s   b e e n   s t i m u l a te d   by   i t s   p o s i t i o n   a s   a 
n e t   i m p o r te r   o f   m i l k   a n d   m i l k   p ro d u c t s,   w h i c h   ex p l a i n s   t h e   co n -
stant pressure on its national deliver y quota. the united  kingdom, 
swe de n and, rece ntl y, fra nce are the m ember  states  mak ing  le ss 
and  l ess  u se o f the qu ot a available   to  th e m  (Fig u re   4) .

fiGu r e   4

ut i l i sA t i o n   o f   nA t i o nAl   m i l k   q u ot As   
(de l i v e r i e s   i n  1 000 to n n e s ) 

800

600

400

200

0

– 200

– 400

– 600

– 800

– 1 000

Overruns

NL

IE

BE DK

CY LU

LV

EL

FI

EE

SI

SK

MT

PT

CZ

ES

LT

HU

SE

FR

UK

Under-usage

IT

DE

AT

BG

PL

RO

2005/06

2006/07

2007/08

S o urce : european court of auditors on the basis of replies by the member states to the quarterly questionnaire specified in article 26 of 
commission regulation (ec) no 595/2004.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
22

… b u t   hAs   n ot   Pu t   An   e n d  to   o v e rPr o d u c t i o n

17.  

 m ilk  q uo tas  impo s ed s tr ic t l imitat i ons  on european m ilk  produc -
t i o n   b u t   f o r   2 0   y e a r s   i t   h a s   b e e n   n e c e s s a r y   t o   r e s o r t   t o   i n t e r -
v e n t i o n   b u y i n g ,   s u b s i d i s e d   e x p o r t s   a n d   a i d   t o   c o n s u m p t i o n   i n 
order to regulate the mar ket as a whole and dispose of struc tural 
s u r p l u s e s   o f   i n d u s t r i a l   p ro d u c t s 2 5.   fro m   1 9 8 4   t o   2 0 0 4   t h e   q u o t a 
re g i m e   d i d   n o t   p u t   a n   e n d   t o   ove r p ro d u c t i o n   (Fi g u r e   5) .   wi t h i n 
t h e   f r a m e w o r k   o f   t h e   q u o t a   r e g i m e   m a j o r   s t r u c t u r a l   s u r p l u s e s 
subsidised by the taxpayer were not considered to be at var iance 
wi th  th e ob jec t ive of  equil ib r i um .

25  european commission, dg vi, 

Situation and outlook: Dairy sector. 

CAP 2000, working document, april 

1997. and-international/abtq.  

Evaluation of the CMO in ‘Milk 

and milk products’ and of the ‘Quota’ 

regulation, final report, march 2002.

fiGu r e   5

suP Ply,  co n s u mPt i o n   An d   s u b s i d i s e d   q u An t i t i e s   o f   m i l k 
Pr o d u c t s   i n   m i l k   e q u i v Al e n t   ( 19 86 – 2 008 )

Quantities in milk equivalent
(Mio tonnes)

EU-12

EU-15

EU-25

Subsidised consumption

160

140

120

100

80

60

40

20

0

6
8
9
1

7
8
9
1

8
8
9
1

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

Supply (EU production + imports) 

Subsidised exports (non-subsidised*)

EU consumption at market price

* completely non-subsidised exports from 2006 to 2008: export refunds were set at zero on 16 june 2006 for skimmed milk powder, 
on 26 january 2007 for concentrated milk and whole milk powder and on 16 june 2007 for butter and cheeses.

S o urce: european court of auditors on the basis of Zmp and and-international data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
23

18.  

19.  

 i n it s sp ecia l  r ep o r t  no  6/2 00 1, th e  cour t foun d t hat  q uotas had 
been set at too high a level. european milk produc tion was still in 
sur plus because it had not been brought into line with consump -
tion and non-subsidised expor ts, and this led the cour t to recom-
mend abolition of the milk quota regime 26. the level of quotas has 
b e e n   c o r r e c t e d   o n   a   n u m b e r   o f   o c c a s i o n s   t o   b r i n g   i t   m o r e   i n t o 
line with demand but these adjustments were inadequate. in 2002, 
th e co mmis sio n pro po sed ex ten din g t he  m ilk  quo ta regim e unti l 
3 1  m a rc h   2 0 1 5   co n s i d e r i n g   t h at  ‘q u o t a s   wo u l d   re m a i n   n e ce s s a r y 
to maintain a reasonable market equilibrium’ 27. another argument 
i n   f a v o u r   o f   r e t a i n i n g   q u o t a s   w a s   t h a t   b y   f r e e z i n g   p r o d u c t i o n 
struc tures the quotas were helping to maintain the territorial dis-
t r i b u t i o n   o f   m i l k   p ro d u c t i o n ,   p a r t i c u l a r l y   i n   l e s s - f a v o u re d   r u r a l 
areas 28.

26  special report no 6/2001 of the 

european court of auditors, oj c 305, 

30.10.2001.

27  european commission, Report on 

milk quotas, commission working 

document, sec(2002)789 final of 

10.7.2002.

28  the commission’s replies to 

special report no 6/2001 on milk 

quotas.

 as from 2004, and as a result of the 2003 reform, surpluses began 
to   s h r i n k   b e c a u s e   o f   t h e   d e c l i n e   i n   t h e   p ro d u c t i o n   o f   m i l k   p ow -
d e r   a n d   b u t t e r   i n   f a vo u r   o f   c h e e s e s   a n d   b e c a u s e   o f   a n   i n c r e a s e 
in  inter n al  con su mp t io n ,   p ar ti c ular ly   in   t he  n ew  m embe r   state s. 
never theless, in 2006, subsidised milk products still accounted for 
15  %   o f  eu rop ea n  milk  produc tion   but   t he   level   of   aid  was  lowe r 
because of the reduc tion in the inter vention prices for butter and 
sk imm ed  mil k  p owder.  i t   was   on ly   as  a  re sult   of  a  s urge   in   wor ld 
prices at the end of 2006 and in 2007 and of the continued growth 
in the consumption of cheese that the sur pluses temporar ily dis-
a p p e a re d   a n d   t h i s   t h e re fo re   m a d e   m e a s u re s   to   a i d   d i s p o s a l   a n d 
expo r t  refu nds  u nn ecessar y.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
24

m eAs u r e s  to   Ai d   d i sPo sAl   hA v e   hAd   A   l i m i t e d 
e f f e c t   o n   m Ar k e t   e q u i l i b r i u m 

20.  

 to suppor t milk market equilibrium and to stabilise market prices, 
the  mil k cm o set o ut a var iet y  of  me as ures  to ai d d is pos al 29: 

29  whereas (19), (43) and (60) 

of council regulation (ec) no 

- 

- 

- 

- 

- 

pr ivate storage of cream, cer tain butter produc ts and cer tain 
cheeses;

1234/2007. 

provision of milk to schools;

use of milk powder in animal feed;

processing of sk immed milk into casein and caseinates;

the use of butter under the butter for pastr y/ice -cream products 
scheme.

21.  

 af ter measures to aid disposal were set at zero in 2006 and 2007, 
r e c e n t   g r o w t h   i n   i n t e r n a l   c o n s u m p t i o n   o f   m i l k   f a t   ( b u t t e r,   Fi g -
ure  6) and milk protein (sk immed milk powder,  Figure 7) indicates 
that the additional demand generated by measures to aid disposal 
h a d   a   l i m i te d   e f fe c t   o n   m a r k e t   e q u i l i b r i u m .  th e   i n c re a s e   i n   co n-
sumption at market prices compensated completely (butter) or to 
a   l a rg e   ex te nt   ( m i l k   p owd e r )   fo r   t h e   re d u c t i o n   o r   d i s a p p e a ra n ce 
of as sis ted con su mp tion.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
25

fiGu r e   6

bu t t e r :  s u b s i d i s e d   co n s u mPt i o n   i n   2 0 0 6   An d   n o n - s u b s i d i s e d 
co n s u mPt i o n   i n  2007  An d   2 00 8

Quantities of butter 
(1 000 t)

Initial stocks

Imports

Production

2 500

2 000

1 500

1 000

500

0

Subsidised

At market price

2006 2007 2008

2006 2007 2008

2006 2007 2008

2006 2007 2008

Availability

Consumption

Final stocks

Exports

date of aid being set at zero: 26 april 2007.
S o urce: european court of auditors on the basis of Zmp data.

fiGu r e   7

s mP:  s u b s i d i s e d   co n s u mPt i o n   i n   2 0 0 6  An d   n o n - s u b s i d i s e d 
co n s u mPt i o n   i n  2007  An d   2 00 8

Quantities of SMP 
(1 000 t)

Intial stocks

Imports

Production

1 400

1 200

1 000

800

600

400

200

0

Subsidised

At market price

2006 2007 2008

2006 2007 2008

2006 2007 2008

2006 2007 2008

Availability

Consumption

Final stocks

Exports

date of aid being set at zero: 26 october 2006.
S o urce: european court of auditors on the basis of Zmp data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
26

hAs  t h e   m i l k   Pr i c e   b e e n   s tAb i l i s e d ?

Pr o d u c e r   Pr i c e s :  n o m i nAl   Pr i c e s   s tAb l e   b u t   i n 
d e c l i n e   i n   r eAl  t e r m s 30

M i l k  q u o t a s  h a v e  s t a b i l i s e d  n o M i n a l  p r i c e s 

 the first phase of the milk cmo gave rise to an untenable situation. 
until 1984, the effect of the  cmo was to encourage investment and 
achieve  a  continuous  increase  in  produc tion.  producers  relied  on 
per manently r ising nominal pr ices to finance expansion and were 
encouraged in this by the annual increase in the target pr ice. the 
mar ket situation created by the cmo in the per iod until 1984 was 
neither stable nor in equilibrium since there was a rise in nominal 
producer  pr ices  at  the  same  time  as  massive  over produc tion.  for 
p ro d u c e r s,   h owe ve r,   m a r k e t   g row t h   w a s   p re d i c t a b l e   a n d   t h e   e x -
pec ted pr ice changes were always increases.

 no t   u nt i l   t h e   i nt ro d u c t i o n   o f   m i l k   q u o t a s   i n   1 9 8 4   d i d   t h e   c m o' s 
m a n a g e m e n t   b e g i n   t o   t a k e   i n t o   c o n s i d e r a t i o n   t h e   o b j e c t i ve s   o f 
stability and equilibrium at one and the same time. the milk quota 
s y s t e m   l i m i t e d   s u p p l y   a n d   a l l o w e d   n o m i n a l   p r i c e s   t o   b e   m a i n-
tained at a relatively high and stable level 31. allowing for seasonal 
variations, prices recorded in the eu for raw milk varied little dur -
i n g   t h e   1 9 8 4 – 2 0 0 7   p e r i o d   co m p a re d   w i t h   t h e   p e r i o d   b e fo re   t h e 
intro du c tio n  of   q uot as.  the  ave rag e  nomin al  pr ice   calcu lated   by 
t h e   co m m i s s i o n   wa s   2 9   e u ro / 1 0 0   k g   i n   2 0 0 6 ;   t h i s   ave ra g e   co r re -
sponds to a price range of bet ween 20,1 euro/100 kg in lithuania 
to 40, 4 e uro/ 100 kg in c yp ru s 32.

 Fi g u r e   8  s h ows   t h e   grow t h   i n   t h e   ave r a g e   p ro d u ce r   p r i ce   i n   t h e 
f i v e   l a r g e   m i l k   p r o d u c i n g   c o u n t r i e s ,   f r o m   1 9 7 1   u n t i l   r e c e n t l y 3 3. 
the se   m em b er  st ate s  acco unt  for  approxim ately   7 5   %   (e u- 1 5 )   or 
65 %  (eu-25) o f mil k del iver ies.

 overall, the objective of price stability had therefore been achieved 
a f te r   1 9 8 4 .  th e   p r i o r i t y   gi ve n   d u r i n g   t h i s   p e r i o d   to   t h e   s t a b i l i t y 
of nominal prices is also reflec ted in the vir tual stagnation of the 
ta rg et  pr ice, b efore its  abol ition  i n  2 0 0 4 . 

22.  

23.  

24.  

25.  

30  nominal and current prices — 

including monetary inflation; 

real prices — monetary inflation 

deducted.

31  price volatility tends to fall in a 

system regulated by quotas: see 

in particular j.m. boussard, Price 

risk management instruments in 

agricultural and other unstable 

markets, fea  ‘thursday seminar’, sao 

paulo, october 2003.

32  european commission, Statistics 

from the Management Committee 

for Milk and Milk Products, data 

forwarded by member states  

(22 january 2009).

33  as short-term price fluctuations 

reflect seasonal variations in milk 

production, the annual average 

change in the producer price is used 

as an indicator of stability in the 

member states. However, the prices 

in absolute figures forwarded by the 

member states to eurostat are of 

variable reliability and do not allow 

a weighted average price which 

is statistically representative to be 

calculated. this is why the growth 

in eu prices is synthesised here by 

weighting the indices of the member 

states which are largest in terms of 

production. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
 
 
27

fiGu r e   8

no m i nAl   m i l k   Pr i c e   i n   G e r m An y,  fr An c e ,  it Aly, t h e 
ne t h e r l An d s   An d  t h e   un i t e d   ki nGd o m   ( 1 9 71 – 2 007 ) 
( A nnual weighted averag es  o f  in d ice s )

Index of nominal milk prices 
2000=100

120

100

80

60

40

20

0

Early CMO

Introduction of milk quotas

2003

reform

0
7
9
1

1
7
9
1

2
7
9
1

3
7
9
1

4
7
9
1

5
7
9
1

6
7
9
1

7
7
9
1

8
7
9
1

9
7
9
1

0
8
9
1

1
8
9
1

2
8
9
1

3
8
9
1

4
8
9
1

5
8
9
1

6
8
9
1

7
8
9
1

8
8
9
1

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

S o urce: eurostat.

DE+FR+IT+NL+UK

Target price

fiGu r e   9

no m i nAl   Pr i c e   PAi d  to   m i l k   Pr o d u c e r s   i n   eu r oPe , 
t h e   un i t e d   st At e s   An d   ne w   Z eAl An d   ( 20 00 – 0 8 )

Milk price paid to producers 
(euro/100 kg)

60

50

40

30

20

10

0

0
0
-
n
a
J

0
0
-
r
p
A

0
0
-
l
u
J

0
0
-
t
c
O

1
0
-
n
a
J

1
0
-
r
p
A

1
0
-
l
u
J

1
0
-
t
c
O

2
0
-
n
a
J

2
0
-
r
p
A

2
0
-
l
u
J

2
0
-
t
c
O

3
0
-
n
a
J

3
0
-
r
p
A

3
0
-
l
u
J

3
0
-
t
c
O

4
0
-
n
a
J

4
0
-
r
p
A

4
0
-
l
u
J

4
0
-
t
c
O

5
0
-
n
a
J

5
0
-
r
p
A

5
0
-
l
u
J

5
0
-
t
c
O

6
0
-
n
a
J

6
0
-
r
p
A

6
0
-
l
u
J

6
0
-
t
c
O

7
0
-
n
a
J

7
0
-
r
p
A

7
0
-
l
u
J

7
0
-
t
c
O

8
0
-
n
a
J

8
0
-
r
p
A

European dairies

USA

NZ

Switzerland

S o urces: european court of auditors on the basis of data from the milk market bulletin, the dutch federation of  
agricultural and Horticultural organisations (Land- en Tuinbouw Organisatie Nederland) and the swiss federal office for 
agriculture, market monitoring unit.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
28

26.  

27.  

 e u r o p e a n   m i l k   p r o d u c e r s   g e n e r a l l y   r e c e i v e   h i g h e r   p r i c e s   t h a n 
those obtained by producers in new Zealand but lower than those 
paid to swiss producers. european pr ices are quite close to those 
in t he usa b ut  more s t ab l e (Fi gur e  9) .

i n  r e a l   t e r M s   t h e  p r o d u c e r   p r i c e  h a s  f a l l e n  c o n t i n u o u s l y

  the constant increase of the milk pr ice in the 1970s and until 1984 
o c c u r r e d   d u r i n g   a   p e r i o d   o f   g e n e r a l i s e d   i n f l a t i o n .   fo l l o w i n g   t h e 
introduc tion of quotas, the fac t that nominal producer pr ices were 
maintained masked the realit y that, in real ter ms, pr ices suffered a 
distinc t erosion. o ver a long per iod, milk producers never ac tually 
b e n e f i t e d   i n   r e a l   t e r m s   f r o m   s t a b l e   p r i c e s .   Fi g u r e   1 0   s h o w s   t h i s 
deter ioration using an index of deflated pr ices.

fiGu r e   1 0

de f l At e d   Pr i c e   o f   m i l k   PAi d  to   Pr o d u c e r s   i n   G e r m An y, 
fr An c e ,  it Aly, t h e   ne t h e r l An d s   An d  t h e   un i t e d   ki nGd o m    
(Annual weighted avera ges  of   d ef late d   in d i ces )

Index of deflated milk prices
2000=100

150

140

130

120

110

100

90

80

70

5
8
9
1

6
8
9
1

7
8
9
1

8
8
9
1

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

DE+FR+IT+NL+UK

S o urce: european court of auditors on the basis of eurostat data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
29

28.  

29.  

30.  

co n s u m e r   Pr i c e s   f o r   m i l k   hA v e   l i t t l e  to   d o 
w i t h  t h e   Pr i c e   PAi d  to   Pr o d u c e r s  

 on   t h e   w h o l e,   t h e re   i s   l i t t l e   c o n n e c t i o n   b e t we e n   t h e   p r i c e   p a i d 
b y   t h e   c o n s u m e r   f o r   m i l k   a n d   t h e   p r i c e   p a i d   t o   p r o d u c e r s ,   a s 
s h ow n   by   a   co m m i s s i o n   s t u d y,   a c c o rd i n g   to   w h i c h   b e t we e n   t h e 
beginning of 2000 and mid-2007 nominal consumer prices for milk 
pro du c ts ro se by 17 % w hil e th e n om ina l pr i ce pai d  to  produce rs 
fell  by  6 % 34.

 e u r o s t a t   d a t a   c o n f i r m   t h a t ,   g e n e r a l l y,   c o n s u m e r   p r i c e s   fo l l o w   a 
diffe rent  p at ter n f rom  p ro ducer  pr i ces 35. b et wee n 19 9 6 and 20 00 
t h e   e u r o s t a t   c o n s u m e r   p r i c e   i n d e x   i n c l u d i n g   m i l k ,   c h e e s e s   a n d 
eggs remained prac tically unchanged (Figure 11), while the index 
of  t he  pr ice   p aid   for  m il k   to   pro duce r s   fe ll,   th e n   rose   ag ai n  (Fig -
ure  8).  between 2000 and 2007 consumer prices showed an almost 
lin ear  inc rease  of  ap p roximate ly   1 5  %.  o ver  th e  sam e  per iod  t he 
i n d e x   o f   p r i c e s   p a i d   t o   p r o d u c e r s   s h o w e d   a   d e c r e a s e   o v e r   f i v e 
conse cu tive years,  fo l lowed by  an  in c rea se.

 i n the milk sec tor, as for the entire food supply chain 36, consumer 
p r i c e   f o r m a t i o n   i s   a   c o m p l e x   p r o c e s s .   w h i l e   t h e   p r i c e s   p a i d   t o 
producers by dair ies closely follow developments on the inter na-
tional market, consumer prices are influenced not only by the cost 
of the  raw  mater ial  b u t al so  by ot he r  param eter s,  s uc h  as  e n erg y 
a n d   l a b o u r   c o s t s .   t h e   r a w   m a t e r i a l ,   t h e   m i l k ,   a c t u a l l y   a c c o u n t s 
for  a  re lat ively   s mal l   s hare  o f  con sume r   pr i ce s  for   mil k   prod uc ts, 
bet we en 30 and 50 %  dep endin g  on  t he   prod uc ts 37.

34  european commission, agriculture 

and rural affairs dg, The impact of the 

developments in agricultural producer 

prices on consumers, document cm/

wm/pb d(2007) 34703, 13.11.2007.

35  the data are not exactly 

comparable: Figure 8 summarises 

trends in the price paid to producers 

in the five main milk-producing 

member states in the eu-15. apart 

from the fact that it includes data 

relating to eggs, Figure 11 shows 

consumption by the entire eu 

population. the size and structure 

of this population changed 

considerably during the period under 

review.

36  the food supply chain covers 

three sectors of the economy: the 

agricultural sector, the agri-food 

industry and the distribution sector.

37  according to a survey carried out 

in belgium the agricultural value only 

represents 30–40 % of consumer 

prices for milk products (Évolution 

récente des prix et des coûts dans la 

filière du lait (recent price and cost 

developments in the milk sector), 

service public fédéral Économie, 

brussels, 2008). according to other 

sources the percentage is close 

to 50 % for cheeses of the gouda 

or cheddar type (see in particular 

european commission, The impact 

of the developments in agricultural 

producer prices on consumers, p. 22).

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
30

31.  

 anot he r chara c ter ist ic featu re of t he  european milk  s ec tor is the 
extreme concentration of processing and distribution companies 38 
w h i c h   m ay   gi ve   t h e m   a   p re d o m i n a nt   we i g h t   i n   d e te r m i n i n g   p r i-
ces. i n a communication concerning food prices 39 the commission 
highlighted the phenomenon of concentration in the food supply 
chain, which has a par ticular impac t on milk produc ts, and stated 
th at  t he ‘co mp et it io n au thor it ies at th e sam e  tim e  n e ed  to  m ake 
s u r e   t h a t   t h e   o n - g o i n g   c o n s o l i d a t i o n   p r o c e s s   d o e s   n o t   w o r s e n 
u p s t r e a m   a n d   d o w n s t r e a m   c o m p e t i t i o n   c o n d i t i o n s   a t   t h e   l o c a l 
level  to  t he  det r iment of  con sume r s  an d busi n es se s’.

32.  

 new Ze aland  and  aust ral ia b egan  libe ralis atio n of their  m ilk sec -
tors in 1985 and 2000 respec tively. d eregulation was followed by 
a   m a r k e d   i n c r e a s e   i n   c o n s u m e r   p r i c e s   i n   ne w   Ze a l a n d   a n d   b y   a 
ver y s mal l dec rease in a u st ralia 40.

38  total turnover of the 15 largest 

european mass retailers accounts for 

approximately 77 % of the european 

food market. Source: european 

commission, Rural development in 

the European Union — Statistical and 

economic information — Report 2008.

39  communication from the 

commission to the european 

parliament, the council, the european 

economic and social committee and 

the committee of the regions, ‘food 

prices in europe’, com(2008) 821 

final, 9.12.2008.

40  gouin, d-m., Supply management 

in the dairy sector, still an appropriate 

regulation method, laval university, 

may 2006.

fiGu r e   1 1

th e   eu r oPeAn   m Ar k e t:  hAr m o n i s e d   i n d eX   o f   n o m i nAl 
co n s u m e r   Pr i c e s   f o r   m i l k ,  c h e e s e s   An d   eG Gs   ( 1 99 6 – 2 007 )

Consumer price index for milk,
cheeses and eggs
2005=100 

110

105

100

95

90

85

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

S o urce: eurostat food item f 0114; european union geographic unit (eu-12 1994, eu-15 2004, eu-25 2006, eu-27).

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
31

w hA t   i s  t h e   i mPA c t   o n   Pr o d u c e r s '  i n co m e s ?

t h e   d e v e loP m e n t   o f   Pr o d u c e r s '  n e t   i n co m e s 
hAs   b e e n   u n e v e n   An d   s u b s i d i e s   f o r m   A   m A j o r 
An d   i n c r eAs i nG   PAr t   o f  t h i s   i n co m e

33.  

 the average net income of agr icultural enter pr ises, in real ter ms, 
has shown a downward trend (Figure 12).  at cur rent pr ices far ms 
spec ial ising in mil k h ave maintai n e d,  on  average,  s lig htl y  hi g h er 
i n c o m e s   t h a n   f a r m e r s   a s   a   w h o l e,   a c c o rd i n g   t o   i n fo r m a t i o n   c o l-
l e c te d   by   t h e   fa r m   acco u nt a n c y   dat a   ne t wo r k   (fa d n) 4 1.  th e   n e t 
inco me s at  c ur rent p r ices of a gr ic ultural e nte r pr ise s s pec i ali si n g 
in milk 42 grew at the same pace as the incomes of farms as a whole 
d u r i n g   t h e   1 9 8 9 – 2 0 0 6   p e r i o d   (F i g u r e   1 3) .   t h e r e   i s   a   v a r i e t y   o f 
reas o ns fo r t he  grow th in  dair y  f ar mer s’  inco mes :

- 

- 

- 

sectoral reorganisation: in recent years the number of produc-
ers  has  fall en by more th an  50  %  ( se e  pa ragraph  34 ) ;

a n   i n c re a s e   i n   t h e   s i z e   o f   h o l d i n g s   a n d   a   s t e a d y   i n c re a s e   i n 
produc tivit y : efficient dair y farmers are compensating for the 
de creas e in p r ices by  continu ous ly  in crea s ing  produc ti on;

incre ase s  in  sub s id ies   ( milk  prem iums,  si n gl e  pay me nt,   r ural 
development aid). according to fadn data, milk accounts for 
approximately 60 % of the income of specialist dair y farms but 
this percentage is falling. fadn also shows that subsidies as a 
percentage of gross far m income var y considerably from one 
m e m b e r   st ate   to   a n o t h e r ;   t h i s   p e rce nt a g e   i n c re a s e d   gre at l y 
between 2000 and 2006 but to var ying degrees depending on 
t he m em b er s t ate s (Tab le 1).

 41  the fadn data are not 

representative for the whole of 

the sector, however, because the 

specialist dairy farms registered in 

fadn only represent 60 % and 25 % 

respectively of farms with at least one 

cow in the eu-15 and eu-25. in 2006 

specialist dairy farms included in 

the fadn covered 78 % of specialist 

dairy farms in the eu-25 (according to 

eurostat’s Farm structure survey 2007).

42  fadn, oteX 41 (bovine animals — 

milk). see also european commission, 

agriculture and rural development 

dg g3, Milk margins in the European 

Union, 2004.

43  aid entered in the fadn variable 

se605 covers total subsidies — 

european and national, first and 

second pillar of the cap, coupled and 

decoupled — excluding subsidies on 

investments.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
32

fiGu r e   1 2

tr e n d s   i n   n e t   AGr i c u lt u r Al   i n co m e   i n   r eAl  t e r m s 
(Al l  t y Pe s   o f   Pr o d u c t i o n ,  19 93 – 2 0 08 )

Trends in net agricultural income

100=2000 index

130

120

110

100

90

80

70

60

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

EU-15

EU-25

S o urce: eurostat, Economic accounts for agriculture — Agricultural income
(indicator c: real net entrepreneurial income from agriculture)

fiGu r e   1 3

tr e n d s   i n   n e t   i n co m e   At   c u r r e n t   Pr i c e s   o f   
sPe c iAl i s t   d Ai r y   f Ar m s   ( 1 9 89 – 20 0 6 )

Average net income 
 (euros)

80 000

70 000

60 000

50 000

40 000

30 000

20 000

10 000

0

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

European farms

Specialist dairy farms in Germany

Specialist dairy farms in Italy

European specialist dairy farms

Specialist dairy farms in France

S o urce: fadn database: family farm income (se 420) of specialist dairy farms

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
33

tAb l e   1

su b s i d i e s   As   A   s hAr e   o f   Gr o s s   i n co m e   o f   d Ai r y   f Ar m s   b e f o r e 
tAX e s   A n d   l e v i e s   ( 200 0,  20 04   A n d   20 06 )

Belgium

Czech Republic

Denmark

Germany 

Greece

Spain 

Estonia

France

Hungary

Ireland

Italy

Lithuania

Luxembourg

Latvia

Netherlands 

Austria

Poland

Portugal

Finland

Sweden

Slovakia

Slovenia

United Kingdom

2000

11 %

18 %

18 %

14 %

5 %

22 %

15 %

10 %

31 %

4 %

32 %

18 %

72 %

36 %

16 %

2004

19 %

44 %

28 %

31 %

12 %

32 %

33 %

42 %

22 %

11 %

35 %

43 %

58 %

12 %

44 %

22 %

27 %

73 %

41 %

43 %

37 %

23 %

2006

28 %

60 %

31 %

36 %

46 %

17 %

43 %

40 %

41 %

36 %

16 %

37 %

46 %

63 %

23 %

42 %

35 %

37 %

77 %

56 %

65 %

37 %

34 %

S o urce: fadn gross farm income before taxes, levies and vat = gross farm income 
(se 410) — the balance of current farm subsidies and taxes (se 600) + total farm 
subsidies (se 605).

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

34

34.  

35.  

36.  

r e s t r u c t u r i nG   hAs   e n tAi l e d   A   co n s i d e r Ab l e  
fAl l   i n  t h e   n u m b e r   o f   fAr m s

 the objec tive of ensuring a fair standard of living for milk produc -
e r s,   i n   p a r t i c u l a r   by   ra i s i n g   t h e i r   i n d i v i d u a l   i n co m e s,   h a s   m a i n l y 
been achieved by increasing far m produc tivit y. the restruc tur ing 
of the milk sec tor and the constant fall in the number of farms has 
m e a nt   t h at   t h e   s t at i s t i c a l   ave ra g e   i n co m e   o f   m i l k   p ro d u ce r s   h a s 
re m a i n e d   s te a d y   o r   e ve n   i n c re a s e d.  th e   e u- 1 5   l o s t   h a l f   i t s   d a i r y 
far ms  b et ween 19 95  and 2007; in  oth er  word s m ore th an 5 0 0 0 00 
p ro d u c e r s   g ave   u p   d u r i n g   t h a t   p e r i o d.   r e s t r u c t u r i n g   i s   p a r t i c u-
lar ly  obviou s in d en mar k , gre e ce, spain , i taly  an d p or t ug al.

 i n all m ember states restruc tur ing has led to a steady increase in 
t h e   a ve r a g e   s i z e   o f   f a r m s,   o f   t h e   a ve r a g e   d e l i v e r y   q u o t a   a n d   o f 
herd p ro duc t ivit y  (A n nex I I) .

 there is considerable diversit y of produc tion struc tures both be -
t we en t he m em b er s t ate s and within  th em :

- 

- 

- 

i n   d e n m a r k ,   t h e   n e t h e r l a n d s   a n d   t h e   u n i t e d   k i n g d o m   t h e 
ave ra g e   s i ze   o f   h e rd s   a n d   o f   d e l i ve r y   q u o t a s   i s   m u c h   h i g h e r 
t han in t he o th er eu-15 m ember  s tates ;

t h e re   a re   gre at   d i s p a r i t i e s   b e t we e n   t h e   n e w   m e m b e r   st ate s. 
i n   t h e   c z e c h   r e p u b l i c ,   es t o n i a ,   H u n g a r y   a n d   sl o v a k i a   t h e 
a v e r a g e   d e l i v e r y   q u o t a   i s   q u i t e   h i g h   b e c a u s e   t h e   s e c t o r   i s 
dominated by a number of ver y large farms; these coexist with 
nu mero us smal l  p ro du cers,  many of  wh om h ave  no t re ce ive d 
a ny   d e l i ve r y   q u o t a ;   i n   co n t r a s t ,   i n   la t v i a ,   li t h u a n i a   a n d   po -
land, the vast majorit y of quota-holders are ver y small family 
far m s;

overa ll,   in  t he  m em b er  st ates  of  central  an d  easter n  europe, 
the majority of dair y farms carr y on semi-subsistence farming; 
in 20 05, 67 % o f herds  con sisted  of   a max im um  of  t wo  cows. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
35

37.  

 there is a considerable difference of scale between european dair y 
farms and those of europe's main competitors on the world market 
(Table 2).  small operations (1 to 29 cows) still account for 30 % of 
euro p ean pro du c tion, bu t o nly  1 ,2  % i n  th e united  states, wh ere 
herd s  of   mo re  than  2  00 0  cows   account  for   2 3  %   of   n at ion al  milk 
produc tion. m ost of european produc tion comes from far ms with 
bet wee n 3 0 an d 49  cows ( 20  %) a nd  more t h an  5 0  cows  (5 0 %) 44.

44  eurostat, Dairy cows: Number of 

farms and heads by size of farm (UAA) 

and size of herd in 2005.

tAb l e   2

P r o d u c t i o n   s t r u c t u r e s   i n   eu r oPe   ( 2 00 5 ) , 
t h e   un i t e d   st At e s   An d   ne w   Z eAl An d   ( 20 06 )

EU-25 (1)

EU-15 (1)

EU 10 (1)

New Zealand (2)

United States (3)

Average herd size

15

35

5

322

120

S o urces:
(1) eurostat (average herd = number of cows/number of farms in 2005). 
(2) livestock improvement corporation (lic), New Zealand Dairy statistics 2005/06.
(3) usda, Profits, costs and the changing structure of dairy farming, september 2007 and usda,  
World markets and trade, july 2008.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
36

hA v e   e u r oPeAn   m i l k   Pr o d u c t s   b e co m e   m o r e 
co mPe t i t i v e   o n  w o r l d   m Ar k e t s ?

e u r oPeAn   eX Po r t s   o f   b As i c   m i l k   Pr o d u c t s   Ar e  
fAl l i nG

 t h e   w o r l d   m a r k e t   f o r   m i l k   p r o d u c t s   i s   v e r y   l i m i t e d :   i t   o n l y   a c -
count s fo r 6 % of  wor l d milk pro duc t ion  (2 0 07 ) an d it s pr ices  a re 
vo l a t i l e 4 5.   i t   i s   m a i n l y   a   m a r k e t   fo r   p ro ce s s e d   p ro d u c t s   w i t h   l ow 
water  co nte nt,   su ch  as   milk  p owd er,  but ter   and  ch e es es.  i n   20 0 7 
the eu expor ted approximately 9 % of its total produc tion in milk 
e q u i v a l e n t 4 6,   w h i c h   m a k e s   i t   t h e   s e c o n d   l a r g e s t   e x p o r t e r   i n   t h e 
wor ld  af te r new  Zeal and.

45  fao, Food outlook, june 2008 and 

november 2008.

46  Source: Zmp.

 wo r l d   p r i c e s   f o r   m i l k   p o w d e r   a n d   b u t t e r   a r e   p r a c t i c a l l y   a l w a y s 
l o w e r   t h a n   p r i c e s   w i t h i n   t h e   e u.  t h e   w o r l d   m a r k e t ,   b e i n g   l e s s 
profitable, is therefore mainly used as the final outlet for produce 
that the domestic market cannot absorb. world market prices have 
less impac t on expor ts of produc ts with greater added value, such 
as c hee se s.

38.  

39.  

tAb l e   3 

w o r l d   eX Po r t s   o f   c e r t Ai n   m i l k   Pr o d u c t s   —   e u   s hAr e   ( i n   % )

1984

EU-10

48,4

30

52

70,2

67,7

1995

2000

27

31,6

48,6

48,1

61,7

20,8

29,1

28,6

37,6

51,6

2001

EU-15

19,6

12,7

30

29,8

44,4

2002

2003

2004

21,8

13,3

32,3

28,3

45,5

30

19,4

30,3

27,6

38,9

41,4

27,4

38,8

28,3

30,7

2005

EU-25

39,7

17,4

34,8

27,2

28,5

2006

29,9

7,2

34,1

23,9

29

2007

EU-27

29,1

19,7

35,9

22

36,1

Butter/butteroil

Skimmed milk 
powder

Cheeses

Whole milk 
powder

Condensed milk

S o urce: european commission, agriculture and rural development dg.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
37

40.  

41.  

 th e   e u' s   p o s i t i o n   o n   t h e   wo r l d   m a r k e t   d e te r i o rate d   a f te r   t h e   i n-
t ro d u c t i o n   o f   m i l k   q u o t a s,   m a i n l y   to   t h e   a d va nt a g e   o f   ne w   Ze a-
land and australia. the eu's share in world trade in milk produc ts 
continues to fall (Table 3) 47 and the trend is for european expor ts 
of b as ic milk  pro duc t s  to  shr ink   (Fi gu re   14) . 

 ex p o r t s   f e l l   s t e e p l y   i n   2 0 0 8 ,   e x c e p t   f o r   w h o l e   m i l k   p o w d e r. 
 ne ve r t h e l e s s,   t h e   q u a n t i t i e s   e x p o r t e d   a re   gre a te r   t h a n   t h o s e   o f 
non -su bs idis ed exp or ts ac hieved be fore  jun e 2 0 0 7 .

47  european commission, data 

taken from various reports under 

the title, The agricultural situation 

in the European Union. with regard 

to Table 3, it should be noted that 

the eu’s share of world trade in milk 

products has been affected by the 

eu’s successive enlargements; every 

enlargement has automatically 

increased the volume of intra-

community trade and reduced the 

volume of exports.

fiGu r e   1 4

e u   eX Po r t s   o f   b u t t e r ,  s mP,  c h e e s e s   An d  w h o l e   m i l k   Po w d e r 
( 1995 – 2008 )

EU-15

EU-25

EU-27

Quantities 
(1 000 t)

700

600

500

400

300

200

100

0

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

Butter

SMP

Cheeses

Whole milk powder

S o urce: european court of auditors based on Zmp data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
38

42.  

43.  

t h e   e u r oPeAn   u n i o n   hAs   Gr eA t ly   r e d u c e d   i t s 
eX Po r t   Ai d   f o r   m i l k   Pr o d u c t s

 th e   o b j e c t i ve   o f   e x p o r t   a i d   i s   to   s a fe g u a rd   t h e   co m m u n i t y ’s   i n-
te r n at i o n a l   t ra d e   i n   m i l k   a n d   m i l k   p ro d u c t s 4 8.   e x p o r t   re f u n d s   o n 
m i l k   p ro d u c t s   a re   b a s e d   o n   t h e   d i f fe re n ce   b e t we e n   i nte r n a l   a n d 
w o r l d   p r i c e s .   H o w e v e r,   s u b s i d i s e d   e x p o r t s   a r e   l i m i t e d   i n   v a l u e 
a n d   vo l u m e   by   g at t  q u o t a s   o n   fo u r   c a t e g o r i e s   o f   p ro d u c t :   b u t -
t e r   a n d   b u t t e ro i l ,   s k i m m e d   m i l k   p o wd e r,   c h e e s e   a n d   o t h e r   m i l k 
pro du c ts 49.

48  whereas (77) regulation (ec) no 

1234/2007.

49  this category mainly covers 

whole milk powder, concentrated 

milk, drinking milk and fresh milk 

products.

 a s   f r o m   2 0 0 4 ,   t h e   r a t e   o f   r e f u n d   w a s   p r o g r e s s i v e l y   r e d u c e d   t o 
a l l o w   f o r   t h e   p l a n n e d   d e c r e a s e s   i n   i n t e r v e n t i o n   p r i c e s   fo r   b u t -
ter and sk immed milk powder. european expor ts continued to be 
s u b s i d i s e d   b e c a u s e   o f   t h e   d i f fe re n ce   i n   p r i ce   w h i c h   s t i l l   e x i s te d 
b e t we e n   t h e   eu ro p e a n   a n d   wo r l d   m a r k e t s   a f te r   t h e   re d u c t i o n   i n 
t h e   i n t e r v e n t i o n   p r i c e s .   fr o m   j u n e   2 0 0 7   t o   d e c e m b e r   2 0 0 8   t h e 
rate  of  refu nd set by the c o m mission wa s zero for all produc ts.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
39

44.  

45.  

Acc e s s  to  t h e  w o r l d   m Ar k e t   i s   d i f f i c u lt 
w i t h o u t   b u dGe t Ar y   Ai d

 for  basic  produc ts,  i.e.  butter  and  milk  powder,  the  wor ld  mar ket 
remains  a  second  choice  for  european  producers.  i n  the  past  they 
co u l d   o n l y   g a i n   a cce s s   to   i t   w i t h   a s s i s t a n ce   f ro m   t h e   co m m u n i t y 
b u d g e t ,   e xc e p t   d u r i n g   p e r i o d s   o f   h i g h   w o r l d   p r i c e s.   a ny   s i g n i f i-
cant drop in world prices rendered european products insufficiently 
competitive on the wor ld mar ket.

50  institut d’économie industrielle 

(idei, toulouse university), Economic 

analysis of the effects of the expiry of the 

EU milk quota system, march 2008, p. 5.

 as demand for milk produc ts on the european mar ket is inelastic, 
a n   i n c r e a s e   i n   p r o d u c t i o n   f o l l o w i n g   t h e   a b o l i t i o n   o f   m i l k   q u o -
ta s  w il l   l ead  to  a  significant   inc re as e  i n  expo r ts   o f   m ilk  prod uc t s 
f r o m   t h e   e u.   t h e   s c e n a r i o   a d o p t e d   b y   t h e   c o m m i s s i o n   d u r i n g 
t h e   h e a l t h   c h e c k   a nt i c i p ate s   t h a t   7 0   %   o f   a d d i t i o n a l   p ro d u c t i o n 
w i l l   h ave   to   b e   ex p o r te d.  th e   co m m i s s i o n   i s   s e e k i n g   to   d e ve l o p 
expor ts without having recourse to expor t refunds, which should 
d i s a p p e a r   b y   2 0 1 3 .   ac h i e v i n g   t h i s   o b j e c t i ve   w i l l   d e p e n d   o n   t h e 
e u  i n d u s t r y ’s   c a p a c i t y   t o   re s p o n d   t o   wo r l d   d e m a n d   b u t   a l s o   o n 
monetar y fac tors. at the beginning of 2009 the fall in world prices 
to g e t h e r   w i t h   t h e   f a l l   o f   t h e   d o l l a r   a g a i n s t   t h e   e u ro   h i g h l i g hte d 
the problem of european producers' competitiveness and induced 
th e c o mmis sio n to revive t he expor t  re fund  syste m.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
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tHe  most critical issues to be taken 
into consideration in tHe  process of 
liberalising tHe  milk sector

Pr e l i m i nAry   r e m Ar k : t h e  2003  r e f o r m   PAv e d 
t h e  wAy   f o r  t h e  w i t h d r AwAl   o f   m i l k   q u otAs

46.  

47.  

48.  

 th e   re fo r m   d e c i d e d   by   t h e   co u n c i l   i n   2 0 0 3 ,   b a s e d   o n   t h e   o p t i o n s 
o u t l i n e d   i n   ag e n d a   2 0 0 0 ,   p l a ce d   t h e   m i l k   s e c to r   f i r m l y   o n   co u r s e 
fo r   t h e   a b o l i t i o n   o f   q u o t a s :   t h e   e n d   o f   m i l k   q u o t a s   i s   s c h e d u l e d 
for 2015. the commission has regular ly infor med the sec tor of the 
situation on the mar kets and of the change in milk polic y towards 
liberalisation 51. 

51  under ‘comitology’, the 

commission manages milk policy 

together with the member states 

within the framework of the 

management committee for milk and 

milk products.

 as par t of progressive deregulation, decisions abolishing the tar -
g e t   p r i ce,   t h e   l owe r i n g   o f   i nte r ve nt i o n   p r i ce s 5 2  a n d   q u a nt i t at i ve 
restr ic tions on inter vention have already considerably weakened 
th e  p r ice  sup po r t   mech anism  wh ic h  wa s  t he   co unte r par t   of   pro -
duc tio n ceilings.  with thes e decisions the commission  was aler t-
ing  th e sec tor to the fac t  th at produ c ti on  o f  but te r  an d s k im me d 
milk powder would become less profitable and that a changeover 
to p rod uc t s w ith  greater added value,  s uc h as  ch e es e, wa s ad vis-
able 53.

 i n 2 008 the  s pec ial  procedu re fo r  con sul ti n g s tak e hol de r s wit hi n 
t h e   f ra m e wo r k   o f   t h e   h e a l t h   c h e c k   m a i n l y   fo c u s e d   o n   m a n a gi n g 
the transition to the withdrawal of quotas. the council approved 
th e p r in cip l e of  in creas ing the n ati ona l quo tas  in  st age s  in  orde r 
to allow a ‘sof t landing’ for the system 54. the m ember states' quo -
t a s   w i l l   b e   s u b j e c t   t o   f i v e   a n n u a l   i n c r e a s e s   o f   1   %   b e t w e e n   t h e 
marketing years 2009/10 and 2013/14 before being withdrawn on 
31  m arc h  2015.  b y  way  o f  de rog ation,  the  i talian   quota  has  bee n 
r a i s e d   b y   5   %   f o r   t h e   2 0 0 9 / 1 0   m a r k e t i n g   y e a r.   t h e s e   i n c r e a s e s 
wi ll be added to  the overal l  inc re ase  of  2  % fo r  t h e quo t as whic h 
too k effec t  o n 1  ap r il  2008 (2 ,5 % for  11  e u- 1 5  m ember  states ) 55. 
i n   a d d i t i o n ,   f ro m   t h e   2 0 0 9 / 1 0   m a r k e t i n g   ye a r   t h e   a d j u s t m e nt   o f 
the quantities delivered, calculated on the basis of the difference 
between the ac tual fat content and the reference fat content allo -
cated to ever y producer, will be relaxed, to the producer ’s advan-
t a g e 5 6.   on e   i m m e d i ate   e f fe c t   o f   t h e s e   m e a s u re s   w i l l   b e   to   s o l ve, 
c o m p l e t e l y   o r   t o   a   l a r g e   e x t e n t ,   t h e   p r o b l e m   o f   t h o s e   m e m b e r 
states  wit h ins uff icient qu ot a, in  par t icular  i taly.

52  for butter, a decrease of 7 % in 

july 2004, 7,5 % in july 2005, 8,1 % in 

july 2006 and 5,1 % in july 2007. for 

milk powder, a decrease of 5 % in july 

2004, 5,3 % in july 2005, and 5,5 % in 

july 2006.

53  report from the commission to 

the council, ‘market outlook for the 

dairy sector’, com(2007) 800 final.

54  Health check agreement, 

20.11.2008, 

http://ec.europa.eu/agriculture/

healthcheck

55  council regulation (ec) no 

248/2008 of 17 march 2008 

amending regulation (ec) no 

1234/2007 on national milk quotas, 

oj l 76, 19.3.2008, p. 6.

56  relaxation of the fat content 

parameter would be equivalent 

to an increase of 1,5 to 1,7 % of 

the community milk quota (i.e., 

for example, + 0,9 % for france, 

+ 2,2 % for denmark, + 3,4 % for the 

netherlands), normandy chambers 

of agriculture, bilan de santé de la 

pac – Expertise technique, november 

2008 (cap health check — technical 

report).

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
41

4 9 .  

 the  commission  estimates  that,  following  withdrawal  of  the  milk 
quotas 57:

57  european commission, CAP health 

check, Impact assessment note No 6, 

- 

- 

the majorit y of specialist dair y far ms will be able to continue 
mil k p ro du c tio n;

20 may 2008. 

document d(2008) mk / 15332, 

c o n s u m e r s   w i l l   b e n e f i t   f r o m   a   s l i g h t   f a l l   i n   p r i c e s   f o r   m i l k 
p rod uc t s.

58  institut d’économie industrielle, 

Economic analysis of the effects of the 

expiry of the EU milk quota system, 

march 2008. 

oecd, food, agriculture and fisheries 

directorate and trade directorate, 

 acco rd i n g   to   v a r i o u s   s t u d i e s,   t h e   ove r a l l   e f fe c t s   to   b e   e x p e c te d 
from  the  w ith drawal  of  q uot as  a re  t he  followin g 58:

An analysis of dairy policy reform 

and trade liberalisation. Trade and 

50.  

- 

- 

- 

- 

an increase in milk produc tion which should lower the market 
p r ice 59;

a  red uc t ion   o f  pro du cers '   incom e s,   i n   spi te   o f  an  i n c re ase   i n 
t he q uantit ies  p rodu ced;

t he t ran sfe r o f ‘ wel fare’ from  prod uce r s  to  con sum e r s;

a stimulation of the eu's expor ts, possibly causing a downturn 
in wo r l d p r ices.

51.  

 whil e a dmitt ing t hat  fo recas ts  base d on  t he se  m od els  are of  li m-
ited value 60, the cour t would like to highlight the most critical is-
sues to be given par ticular attention when liberalising the market 
in mil k .

economic effects of milk quota systems. 

com/agr/td/wp(2004)19/final, 

http://www.oecd.org/

dataoecd/1/37/34456378.pdf. 

s. langley, a. somwaru and m.a. 

normile, usda, Trade liberalization in 

international dairy markets. Estimated 

impacts, economic research report 

no 16, february 2006.  

consortium inra-university of 

wageningen, Study on the impact 

of future options for the milk quota 

system and the common market 

organisation for milk and milk 

products, june 2002.

inra-esr, ‘quelle politique laitière pour l’europe ? sortir du régime des quotas laitiers ? paramètres à considérer et illustration dans le cas 

français’, Journée lait du département Économie et sociologie rurales de l’Institut National de la Recherche Agronomique (INRA), paris, 8 october 

2001.

59  in the european union, an increase of 1 % in the production of milk will bring about a fall in the producer price of between 3 and 4 % (see 

institut d’économie industrielle, Economic analysis of the effects of the expiry of the EU milk quota system, p. 47.

60  the european milk sector is particularly complex and its development will depend on a multitude of parameters, the combined effect of 

which is difficult to anticipate. even at the mega-trend level the models could prove wrong, as witnessed by the fact that prices did not evolve 

as forecast after the 2003 reform.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
61  communication from the 

commission to the european 

parliament, the council, the european 

economic and social committee 

and the committee of the regions, 

‘food prices in europe’, com (2008) 

821 final, 9.12.2008.

62  coefficients of equivalence: 1 kg 

for 20,5 litres (butter) and 1 kg for 

11 litres (skimmed milk powder).

42

52.  

53.  

54.  

m Ar k e t   e q u i l i b r i u m :  i n s tAb i l i t y   o n  t h e 
m Ar k e t s   c An   r A Pi d ly   l eAd  to  t h e   
r e-e m e r Ge n c e   o f   s u rPlu s e s

 acco rding  to  th e co mmis sio n, on  agr ic ult ural mar k e ts  ‘p r ices  are 
e x p e c t e d   t o   s h o w   g r e a t e r   f l u c t u a t i o n s   t h a n   o b s e r v e d   o v e r   r e -
c e n t   d e c a d e s   [ … ]   a s   a   re s u l t ,   a ny   s i g n i f i c a n t   c h a n g e s   t o   s u p p l y 
o r   d e m a n d   co u l d   q u i c k l y   re s u l t   i n   h i g h e r   p r i ce   vo l at i l i t y.   an   i m-
proved capacity to adjust production through an increased market 
o r i e nt at i o n   co m b i n e d   w i t h   a d e q u ate   s a fe t y   n e t s   i s   i n s t r u m e nt a l 
i n   f a c i l i t a t i n g   f a r m e r s '   re s p o n s e   t o   m o r e   vo l a t i l e   m a r k e t   c o n d i-
tion s’ 61.

 wi t h i n   t h e   f r a m e wo r k   o f   t h e   h e a l t h   c h e c k ,   t h e   co u n c i l   d e c i d e d, 
o n   a   p ro p o s a l   b y   t h e   co m m i s s i o n ,   t o   re t a i n   p u b l i c   i n t e r ve n t i o n 
o n   t h e   m a r k e t   a s   a  ‘s a fe t y   n e t ’  o f   i nte r ve nt i o n   p u rc h a s e s   o f   b u t-
t e r   a n d   s k i m m e d   m i l k   p o w d e r.  t h e   c e i l i n g s   fo r   t h e s e   p u r c h a s e s 
a t   f i xe d   p r i c e s   a re   3 0   0 0 0   t o n n e s   fo r   b u t t e r   a n d   1 0 9   0 0 0   t o n n e s 
fo r   s k i m m e d   m i l k   p owd e r.  th e   co m m i s s i o n   m ay   m a k e   a d d i t i o n a l 
p u r c h a s e s   a b o v e   t h e s e   l i m i t s   b y   i nv i t a t i o n   t o   t e n d e r.   w h e n   t h e 
ceilings have been reached, the commission alone will decide on 
the volumes for inter vention buying and at what price, depending 
on  de vel op ments  o n the mar ke t s.

 as the eu  produces approximately 2 million tonnes of butter and 
900 000 tons of sk immed milk powder, surplus produc tion of only 
1 , 5   %   ( b u t te r )   a n d   1 2 , 1 1   %   ( m i l k   p owd e r )   w i l l   b e   e n o u g h   fo r   t h e 
i nte r ve nt i o n   ce i l i n g   to   b e   re a c h e d.   i n   o t h e r   wo rd s,   t h e   t wo   ce i l-
i n g s   e q u a l   t h e   p u r c h a s e   o f   a p p r ox i m a t e l y   1 , 8   m i l l i o n   t o n n e s   o f 
m i l k   e q u i v a l e n t ,   o f   t h e   1 4 8   m i l l i o n   t o n n e s   p r o d u c e d   i n   e u r o p e, 
i . e.   1   % 6 2.   gi ve n   t h e   ve r y   n a r ro w   m a r g i n ,   t h e re   i s   a   r i s k   t h a t   t h e 
safet y ne t w ill o nl y b e of l imited  use,  out of  all  propor ti on to t he 
scale of the risks and surpluses to which the eu might be exposed 
in  a  ma jo r  cr is is.   at   t he  e nd  of  2 0 08,   in  th e  contex t  of   th e   fi nan-
cial and eco no mic cr is is,  the in s tabi lit y of  th e  mar k e ts  l ed to  t he 
re - e m e rg e n ce   o f   s u r p l u s e s   o f   b u t te r   a n d   m i l k   p owd e r.   al t h o u g h 
inte r ventio n  sto res  remained  em pt y   i n  20 07   an d  2 0 08 ,  t h ey   con-
tained 36 700 tonnes of butter and 67 500 tonnes of milk powder 
by the end of the first quar ter of 2009. i n three months therefore, 
the commission’s purchases had exceeded the inter vention ceiling 
for b u t ter and re ac hed 60 % of t he  cei lin g  for   mi l k  powde r.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
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55 . 

56.  

57.  

58.  

r e s t r u c t u r i nG   m i l k   Pr o d u c t i o n :  r i s k   o f 
co n s i d e r Ab l e   r e d u c t i o n   o f   Pr o d u c t i o n   i n 
l e s s-f Av o u r e d   Ar eAs   An d   o f   Ge oGr A Ph i c Al  
co n c e n t r At i o n   o f   Pr o d u c t i o n

 the commission estimates that restruc tur ing will continue in the 
s e c t o r.   i t   p u t s   t h e   a n n u a l   r a t e   o f   l o s s   o f   f a r m s   f o r   t h e   2 0 0 3 – 1 3 
per iod  at  be t ween 2, 8 % and 3,7  % 63.

63  european commission, 

Development in the structure of the 

agricultural sector, tv d(2007) of 

27 march 2007.

64  chatellier v. and delattre f., Les 

soutiens directs et le découplage 

dans les exploitations agricoles de 

montagne. economie rurale  

n°288/juillet-août 2005.

65  european commission, Agricultural 

development in the EU — Statistical 

and economic data — 2008 report, 

december 2008.

66  in the new member states, very 

small dairy farmers who have been 

able to integrate in the market by 

obtaining milk quotas are at risk of 

being the first affected by a fall in 

prices.

67  the commission’s replies to 

special report no 6/2001 on milk 

quotas.

 the  dis ap pea rance at  a s teady  pace of  agr icult ural h old in g s,  an d 
dair y farms in par ticular, presents a socio - economic challenge for 
l e s s - f a vo u r e d   a re a s,   p a r t i c u l a r l y   i n   m o u n t a i n o u s   re g i o n s   w h e r e 
p ro d u ce r s   h ave   l i m i te d   o p p o r t u n i t i e s   fo r   re s t r u c t u r i n g   a n d   co n-
ver sio n 64.

 i n   a d d i t i o n ,   t h e   m i l k   q u o t a   s y s t e m   w a s   o r i g i n a l l y   o r g a n i s e d   o n 
a   n a t i o n a l   b a s i s ,   i n t e r   a l i a,   t o   a v o i d   a   g r a d u a l   s h i f t   o f   p r o d u c -
tion  to  t ho se  areas  w ith  t he mos t f avou rable  con di ti on s for  d air y 
f a r m i n g.   H o we ve r,   i n   2 0 0 5 ,   m o s t   e u ro p e a n   m i l k   p ro d u c t i o n ,   i . e. 
approximately 50 %, was already concentrated on 11 % of the eu’s 
territor y 65. the environmental risk is obvious: one expec ted effec t 
o f   d e re g u l a t i o n   a n d   t h e   f a l l   i n   p r i c e s   i s   t h a t   p r o d u c t i o n   w i l l   b e 
intensified in high-yield areas where pressure on the environment 
i s   a l re a d y   co n s i d e ra b l e,   w h i l e   i n   l e s s   p ro d u c t i ve   re gi o n s   n u m e r-
o u s   f a r m e r s   w i l l   h ave   to   a b a n d o n   d a i r y   f a r m i n g,   i n   p a r t i c u l a r   i n 
mou nt aino us areas 66.

 i n   2 0 0 1   t h e   co m m i s s i o n   i m p l i c i t l y   a c k n ow l e d g e d   t h e   s o c i o - e co -
nomic  and env iro nmental  r is k s a ss oc iate d wit h  t he  re st r uc t ur in g 
of the sec tor, the greatest of which concerned the maintenance of 
produc tion in ‘the less-favoured regions of the communit y, espe -
c i a l l y   i n   m o u nt a i n   a re a s,   w h e re   p ro d u c t i o n   co s t s   a re   h i g h e r   a n d 
dair y farming is of ten the only agricultural ac tivit y available’. the 
co m m i s s i o n   a l s o   fe l t   t h a t  ‘c o n c e n t r a t i n g   m i l k   p ro d u c t i o n   c o u l d 
well give r ise to major environmental problems’ and fur ther more 
‘ w o u l d   l e a d   t o   a   s t a n d a r d i s a t i o n   o f   p r o d u c t s   a n d ,   t h e r e fo r e,   t o 
lower q ual it y ’ 67.

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special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

  
 
 
 
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68  council decision 2009/61/ ec of 

19 january 2009 amending decision 

2006/144/ec on the community 

strategic guidelines for rural 

development (2007–13 programming 

period), oj l 30, 31.1.2009, p. 112.

69  a diseconomy of scale might 

appear when production costs rise as 

production increases. this situation 

occurs when ‘some inputs are in fixed 

supply and cannot be easily adjusted 

to the level needed to achieve the 

efficiency frontier, because of a poor 

operating environment (weather, 

topography) or because the operator 

is less effective than other operators.’ 

macdonald james m., o’donoghue 

erik j., mcbride william d., nehring 

richard f., sandretto carmen l. 

and mosheim roberto, Profits, costs 

and the changing structure of dairy 

farming, united states department 

of agriculture, economic research 

report no 47, september 2007.

59.  

 t h e   c o m m i s s i o n   h a s   a c k n o w l e d g e d   t h a t   s p e c i f i c   m e a s u r e s   a r e 
r e q u i r e d   i n   l e s s   f a v o u r e d   a r e a s   ( 2 4   %   o f   t h e   e u' s   t e r r i t o r y,   a c -
count ing  fo r 57 % of its us ab l e  agr ic u ltural are a) ,  i n par ti cular  in 
m o u nt a i n o u s   re gi o n s.   fo l l ow i n g   t h e   2 0 0 8   h e a l t h   c h e c k ,   re s t r u c -
tur ing   t he  dair y  indu st r y  has  be come   on e   of  th e  n e w  c h alle n ges 
which the m ember states may include in their rural development 
programmes 68.

60.  

61.  

62.  

co mPe t i t i v e n e s s   o n  w o r l d   m Ar k e t s :  An  
o b j e c t i v e  w h i c h  w i l l   hA v e   A   s iGn i f i c An t  
i mPA c t   b ot h   o n   Pr o d u c e r s   An d   Pr o c e s s o r s

 t h e   o b j e c t i v e   o f   m a k i n g   e u r o p e a n   m i l k   p r o d u c e r s   c o m p e t i t i v e 
i s   a t   t h e   h e a r t   o f   t h e   re fo r m .   ac h i e ve m e n t   o f   t h i s   o b j e c t i ve   w i l l 
depe nd o n t he euro p ean  milk sec tor ’s c apac it y  to  adapt  to wor ld 
dem and in ter ms  of the p r ice an d q ua lit y  of  i ts  prod uc ts.

 for european prices to become competitive, they must be brought 
into  l ine  w ith   wor ld   pr ices,  wh ic h  a re  st r uc t ura lly  lowe r,   be ar in g 
in m ind t hat  since 2 00 3 direc t  aid  an d ad d it ion al pay me nt s  have 
p a r t i a l l y   c o m p e n s a t e d   fo r   t h e   f a l l   i n   p r i c e s .  t h e   r e s u l t   o f   l i b e r -
a l i s at i o n   i s   to   a cce nt u ate   t h e   i n f l u e n ce   o f   t h e   wo r l d   m a r k e t s   fo r 
butter and milk powder on the prices paid to producers in the eu. 
the convergence of these pr ices will render fur ther restruc tur ing 
inevitable, because european produc tion struc tures are still ver y 
differe nt   fro m  t ho se  o f  co mp eti tor s   outs id e  th e   commun it y   ( see 
paragraph 37). However, in the eu-15 there is no direct correlation 
b e t w e e n   d a i r y   f a r m s '   m a r g i n s   a n d   t h e   s i z e   o f   t h e i r   h e r d s 6 9.  t h e 
f a r m s   w i t h   p o s i t i ve   m a rg i n s   a re   n o t   n e c e s s a r i l y   t h e   b i g g e s t   b u t 
t h o s e   w i t h   a   h i g h e r   s t o c k i n g   d e n s i t y,   h i g h e r   y i e l d s   a n d   a   l o we r 
annu al  wor k u nit.

 a s   f o r   i t s   p r o d u c t s ,   a l t h o u g h   t h e   e u  i s   t h e   l e a d i n g   e x p o r t e r   o f 
che es es,   bas ic  p roduc t s   st il l   a ccount   for   t h e  m aj or it y  o f   it s  sal es 
o n   t h e   wo r l d   m a r k e t,   i . e.   m i l k   p owd e r   a n d   b u t te r   ( 2 0 0 8   d at a ) .   i n 
th e p ast, euro p ean  mak ers of  the se produc ts  we re  on ly compe t i-
t i ve   w h e n   wo r l d   p r i c e s   we re   h i g h .   r e t a i n i n g   s u b s t a n t i a l   m a r k e t 
s h a r e s   o n   t h e   w o r l d   m a r k e t   t h u s   r e q u i r e s   p r o d u c e r s   o f   c h e e s e s 
a n d   o t h e r   h i g h   a d d e d   v a l u e   p ro d u c t s   t o   p l ay   a   m o re   s i g n i f i c a n t 
role, in accordance with the objec tives of liberalisation, which are 
to b r ing  t he se c to r mo re into  line  w it h  th e m ar ket. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
 
conclusions and 
recommendations

45

63.  

64.  

65.  

66.  

 t h e   e u ’s   m i l k   p o l i c y   w a s   d e s i g n e d   t o   m e e t   a   c o m p l e x   r a n g e   o f 
o b j e c t i v e s ,   i n   p a r t i c u l a r   t o   r e a c h   a   s i t u a t i o n   o f   m a r k e t   e q u i l i b -
r ium,   to  st ab il ise  the  p r ices   of   m ilk   an d   m ilk   pro duc t s,   to  e ns ure 
a   f a i r   s t a n d a rd   o f   l i v i n g   fo r   p ro d u c e r s   a n d   t o   i m p ro ve   t h e   c o m-
petitiveness of european milk produc ts on inter national mar kets. 
the cour t ’s repor t analyses the degree to which these objec tives 
have been achieved and draws attention to those fac ts which are 
p ro v i n g   t o   b e   t h e   m o s t   c r i t i c a l   i n   t h e   p ro c e s s   n o w   u n d e r w a y   o f 
libe ra lis ing  t he e uro p ean  mil k sec tor.

M a r k e t  e q u i l i b r i u M

 sin ce 1984  mil k qu o tas have  been t h e ke ys ton e  of  european milk 
p o l i c y.   si n ce   t h e i r   i nt ro d u c t i o n   t h e y   h ave   i m p o s e d   s t r i c t   l i m i t a-
tions  on  p ro du c tio n b u t fo r a lon g  t im e th e y were to o h igh  in  re -
lation to the market's absorption capacit y. national ceilings were 
set on the basis of historical produc tion and a number of national 
quo tas, no t ab ly i t al y ’s,  have  been  syste matic ally excee de d. 

 subsidised struc tural sur pluses have thus been an attendant fea-
ture of the quota system for a ver y long time. following the surge 
in mar ket pr ices at the end of 2006 and in 2007, for the first time 
th e s ur pl u ses al mo st disap p eared  but  th is  s it uat io n coul d n ot  be 
considered a permanent achievement, as proved by the reappear-
ance  o f su r p lus es  in 2008 and  2 0 0 9.

 on   a   m a r k e t   l i b e r a l i s e d   b y   t h e   a b o l i t i o n   o f   q u o t a s ,   p r o d u c t i o n 
c a p a c i t i e s   w i l l   re m a i n   re l a t i ve l y   i n f l e x i b l e   a n d   p ro d u c e r s   m i g h t 
n o t   b e   i n   a   p o s i t i o n   to   a d a p t   ra p i d l y   to   f l u c t u at i o n s   i n   d e m a n d. 
the council has decided to retain public inter vention as a ‘safet y 
net ’.   neve r t he les s,   t his  s afet y  n et  is   so  t h i n  t hat   th e re  i s  a  r i sk  i t 
will be of only limited use in a major crisis and quite inadequate in 
relation to the r isks in respec t of the sur pluses that the eu might 
face.

re c o m m e n d At i o n   1

t h e co m missi o n mus t  co ntinu e to sup e r v is e  th e d eve l o p m e nt 
o f   t h e   m a r ke t   i n   m ilk   a n d   m ilk   p r o du c t s   by   i m p l e m e nt i n g   th e 
measures required to make sure deregulation of the sec tor does 
n o t   l e a d   to   th e   r e c u r re n ce   o f   ove r p r o du c ti o n .   failin g   th is   th e 
commission’s obje c tive of ke eping to a minimum level of re gu -
l at i o n ,   o f   t h e   s a f e t y   n e t   t y p e,   m i g ht   r a p i d l y   p r ove   im p ossib l e 
to f ul f il .

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special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
 
 
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t h e  p r i c e  o f  M i l k

67.  

 t h e   e s t a b l i s h m e n t   o f   r e fe r e n c e   p r i c e s   t o g e t h e r   w i t h   q u o t a s   h a s 
kept nominal prices par ticularly stable over the past 20 years. tak-
i n g   i n f l a t i o n   i n t o   a c c o u n t ,   h o w e v e r,   r e a l   p r i c e s   h a v e   b e e n   c o n-
siderably  eroded  over  this  same  per iod  and,  as  a  result,  producer 
margins have been significantly reduced. these margins have been 
squeezed by the constant pressure to improve efficienc y and pro -
duc tivit y,  forcing  less  efficient  producers  out  of  the  mar ket,  even 
though  the  effec ts  may  have  been  mitigated  in  some  cases  by  the 
capitalisation  of  quotas.  changes  in  consumer  pr ices  for  milk  and 
milk produc ts do not necessarily reflec t changes in the prices paid 
to producers.

re c o m m e n d At i o n   2

w hile ack nowle dging that price formation in the fo o d se c tor is 
p ar ti cul ar l y co mp l e x ,  th e co ur t  co nsi d e r s  th at i t  mus t b e sub -
je c t to re gular monitoring by the commission. t he commission 
an d  th e  m e m b e r st ate s  mus t  e nsure  th at  th e  co n ce ntr ati o n   o f 
p r o ce s s i n g   a n d   d i s t r i b u t i o n   co m p a n i e s   d o e s   n o t   r e d u ce   m i l k 
p ro du ce r s  to   m e re  p r i ce - t ake r s  an d  d o e s   n ot  re s t r i c t  th e  f in al 
co nsum e r ’s p ossib ili t y  o f e nj oy in g  an  e qui t ab l e  sh are  o f  p r i ce 
re du c ti o ns .

p r o d u c e r s '  i n c o M e s

68.  

 i n   t h e   co ntex t   o f   a n   ove ra l l   d e p re c i at i o n   o f   a gr i c u l t u ra l   i n co m e s, 
dair y farmers have retained incomes which, on average, are slightly 
a b o ve   t h o s e   o f   o t h e r   f a r m e r s.   i n   f a c t ,   i t   i s   s t r u c t u r a l   a d j u s t m e n t 
which has allowed the average statistical income of milk producers 
to remain steady. the eu-15 lost half its dair y far ms bet ween 1995 
and 2007.

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special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
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69.  

 this trend towards consolidation of produc tion is expec ted to con-
tinue, and even accelerate, with production declining or disappear -
i n g   i n   l e s s - f a v o u r e d   a r e a s   a n d   a   c o n c e n t r a t i o n   o f   p r o d u c t i o n   i n 
intensive areas. this development may prove to be negative for the 
environment  and  the  social  fabr ic  of  less-favoured  areas  in  which 
milk produc tion is one of the few far ming ac tivities possible. 

re c o m m e n d At i o n   3

as far as the dair y sec tor is concerned, in prac tice both the former 
p o l i c y   o f   p r i c e   s u p p o r t   a n d   t h e   c u r r e n t   p o l i c y   o f   d i r e c t   i n c o m e 
suppor t lack regional and social focus 70. i n view of the impor tance 
of milk produc tion i n  the  agr ic u lt ural   eco no my   a nd  i ts  i m p ac t   o n 
t h e   m a n a g e m e nt   o f   t h e   co u nt r ys i d e,   t h e   co u r t   re co m m e n d s   t h at 
t h e   co m m i s s i o n   s h o u l d   i n t e n s i f y   i t s   re f l e c t i o n   o n   t h e   s t r a t e g i e s 
to be applied to tack le:

-  the spe cific problems of  the regi o n s i n wh ic h  mi lk p ro du c ti o n  i s 

more  vulnerable, in par ti cular in   mo u nt ai n o us a re as;

-  the environmental consequences of the geographical concentra-

tion of milk  produc tion.

70  with the introduction in 2005 

of the single payment scheme 

the member states had greater 

possibilities to target direct aid 

at certain areas by applying the 

regional model. However, in practice, 

decoupling the milk premium and 

additional payments has not led 

to any redirection of aid towards 

producers in less-favoured areas. 

in all the eu-15 member states, the 

outcome of decoupling was the 

allocation of a special entitlement to 

holders of milk quotas or an increase 

in the unit value of the payment 

entitlements quota holders already 

had.

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

70.  

 the  eu's  share  in  wor ld  trade  in  milk  produc ts  has  been  in  steady 
decline since 1984. the objec tive of mak ing european milk produc-
ers  competitive  is  at  the  hear t  of  the  cur rent  trend  towards  liber -
alisation of the sec tor. i n line with w to agreements,  european aid 
to milk produc t expor ts has been considerably reduced in the past 
few years. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
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71.  

72.  

 i n ac tual fac t the wor ld mar ket in milk produc ts is mainly one for 
b a s i c   p r o d u c t s ,   s u c h   a s   m i l k   p o w d e r   a n d   b u t t e r.   e u r o p e a n   p r o -
d u c e r s   o f   t h e s e   p r o d u c t s   h a v e   o n l y   b e e n   c o m p e t i t i v e   o n   w o r l d 
mar ke t s wh en p r ices have b een h ig h .  o utside  t hese  per iods th ey 
can  onl y  expo r t w ith the ass ist an ce  of  t he  c ommun it y  bud get. 

 af te r   t h e   i n i t i a l   s t ro n g   grow t h   i n   re ce nt   ye a r s,   wo r l d   m a r k e t   d e -
m a n d   i s   c u r re nt l y   co nt ra c t i n g,   w h i c h   i s   w hy   t h e   co m m i s s i o n   re -
ac tivated the system of expor t refunds in 2009, although this had 
been set at zero in 2007. However, this option would no longer be 
ava il ab le  in the  mediu m ter m if t he  wor ld  trad e a gre em ents  now 
being negotiated were to lead to the abolition of expor t refunds. 
the future development of expor ts will depend on developments 
i n   wo r l d   d e m a n d   a n d   o n   t h e   c a p a c i t y   o f   t h e   e u ’s   d a i r y   i n d u s t r y 
to sat is fy t hat  demand. 

re c o m m e n d At i o n   4

f o r   t h e   e u r o p e a n   m i l k   s e c t o r,   t h e   w o r l d   m a r k e t   w i l l   r e m a i n 
a   s e c o n d a r y   m a r k e t   t o   w h i c h   i t   w i l l   o n l y   h a v e   a c c e s s   d u r i n g 
 p erio ds when world prices are high. o nly pro ducer s of che eses 
and other pro duc t s with high adde d value will b e able to claim 
sus t ainab le market shares . it is th ere fore indisp ens ab le for the 
co m missi o n  an d  th e  m e m b e r  st ate s  to  p ur su e   th e ir   e f f o r t s  to 
b r i n g   a b o u t   a   r e o r i e n t a t i o n   o f   m i l k   p r o d u c t i o n ,   p r i m a r i l y   t o -
w a r d s   s a t i s f y i n g   t h e   n e e d s   o f   t h e   eu r o p e a n   d o m e s t i c   m a r ke t 
and also towards the produc tion of cheeses and other produc ts 
of high adde d value which c an b e e xp or te d without budget ar y 
assis t an ce

this repor t was adopted by the cour t of auditors in luxembourg at 
the c our t meeting of 23 j uly 20 09.

Fo r  th e  Co u r t  o f  Au d ito r s

vítor m anuel da silva c aldeira 
Presi d e nt

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

 
 
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An n eX   i

Pr o d u c t i o n   An d   co n s u mPt i o n   o f   m i l k   i n  t h e   e u

Production of cows’ milk

Deliveries

Production of drinking milk

Production of butter
Industrial production
Total
Consumption of butter

Production of cheeses
From industrial production (cow)
Total
Consumption of cheeses

Production of milk powder
Skimmed
Semi-skimmed + whole
Buttermilk in powder form
Total
Consumption of skimmed milk powder

Production of condensed and concentrated milk 

Production of casein and caseinates

1984
EU-15
(1)

136 247

123 588
(91 %)

26 449

2 622
2 657
1 893

4 508
4 882
4 201

2 364
867
52
3 283
n.d.

1 645

127

1994
EU-15
(1)

120 179

111 515
(93 %)

30 320

1 799
1 817
n.d.

5 650
6 168
n.d.

1 232
1 001
52
2 285
n.d.

1 284

111

(in 1 000 tonnes)

2008
EU-27
(2)

150 647

134 346
(89 %)

32 120

2 072
2 167
1 882

8 163
9 547
7 748

928
864
70
1 862
660 (3)

1 138

137

2004
EU-25
(2)

136 752

124 928
(91 %)

31 942

1 979
2 015
1 973

7 399
8 341
8 024

891
870
73
1 834
n.d.

1 188

122

S o urces : (1) cronos, (2) european commission: replies by the member states to the quarterly ques-
tionnaire and (3) european commission: Dairy Monthly, january 2009.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

50

An n eX i i

b As i c   d AtA   o n   d Ai r y   fAr m i nG   i n  t h e   e u

Number of cows (1 000)

Number of cow holders (1 000)

Average herd size (cows per holder)

Yield per cow (kg)

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

1985

951,19

913,00

n.d.

218,91

1 880,20

6 506,10

1 495,20

2 804,00

70,29

1995

683,80

714,00

2005

549,33

564,27

2007

523,70

545,42

1985

44,58

31,77

5 229,40

4 235,96

4 076,38

369,00

185,00

1 281,00

4 700,40

1 220,79

2 080,00

47,75

167,92

1 001,92

3 883,84

1 081,96

1 860,18

39,34

150,00

903,00

3 758,50

1 058,21

1 890,91

40,04

2 333,00

1 777,00

1 433,20

1 468,30

n.d.

n.d.

n.d.

n.d.

706,49

384,00

402,30

481,70

535,79

287,29

318,76

393,26

521,68

272,66

296,07

369,65

73,42

n.d.

328,70

76,70

337,69

2,31

61,31

n.d.

n.d.

n.d.

n.d.

United Kindom

3 256,47

2 631,93

2 065,07

1 978,00

52,88

1995

22,05

16,39

209,42

28,00

114,60

158,57

42,10

113,19

1,42

40,06

90,73

86,00

32,36

17,74

36,68

2005

15,18

6,51

110,37

9,78

42,39

103,85

23,82

61,02

0,97

23,53

54,58

15,86

16,94

8,55

26,31

2007

13,32

5,38

101,07

n.d.

37,29

93,12

21,32

62,79

1,09

24,51

49,45

13,50

14,39

7,10

28,14

EU-15

Czech Republic

Estonia

Cyprus

Latvia

Lithuania

Hungary

Malta

Poland

Slovenia

Slovakia

EU-10

Bulgaria

Romania

EU-2

22 525,56

18 418,09

17 852,52

1 009,32

519,65

472,47

35,44

35,24

4 486,21

5 396,16

6 549,51

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

713,00

185,40

29,50

291,90

586,00

390,00

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

440,50

115,23

24,25

172,36

493,89

286,83

7,27

416,52

107,84

23,70

182,32

398,37

265,43

8,08

2 853,74

2 767,78

130,68

193,20

124,19

177,22

4 717,95

4 471,45

n.d.

n.d.

335,90

1 572,90

1 908,80

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

6,78

9,21

0,24

50,90

170,79

16,25

0,15

727,10

19,71

13,46

5,62

6,08

0,24

43,69

123,17

12,17

0,19

651,05

19,20

11,54

1 014,58

872,95

n.d.

n.d.

n.d.

1 012,40

S ource: european court of auditors based on eurostat data.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

1985

21,34

28,74

n.d.

2,98

n.d.

19,79

19,49

8,30

30,42

38,06

n.d.

n.d.

n.d.

n.d.

61,58

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

1995

31,02

43,56

24,97

6,61

11,18

29,64

29,00

18,38

33,63

44,36

7,79

4,47

12,43

27,15

71,76

22,32

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

2005

36,19

86,73

38,38

17,17

23,64

37,40

45,42

30,48

40,72

60,91

9,82

18,11

18,82

46,01

78,49

64,97

12,51

n.d.

3,39

2,89

17,65

49,12

3,92

6,63

14,35

4,63

n.d.

n.d.

2007

39,32

101,38

40,33

n.d.

24,22

40,36

49,63

30,11

36,73

59,91

10,55

20,20

20,57

52,06

70,29

74,11

17,74

98,75

4,17

3,23

21,81

42,53

4,25

6,47

15,36

5,10

n.d.

1,55

1985

3 990,79

5 584,88

3 499,34

3 894,13

4 278,84

5 379,34

4 956,41

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

1995

4 935,65

6 544,82

5 470,42

4 127,03

4 800,62

5 406,56

4 380,03

5 046,73

5 625,13

6 356,22

4 173,02

4 583,33

8 212,78

6 859,04

5 578,63

4 378,58

3 812,84

4 711,86

3 233,64

3 087,88

5 054,95

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

2005

5 622,55

8 218,64

6 833,09

5 000,00

6 445,73

6 334,43

4 631,79

5 958,20

6 567,08

7 298,47

5 826,32

6 361,56

7 775,04

8 206,20

7 073,20

6 434,91

5 927,50

5 990,65

4 356,37

4 450,42

6 767,51

5 296,30

4 328,07

5 479,59

5 538,47

2007

5 490,44

8 137,21

6 721,96

4 819,40

n.d.

6 344,43

6 111,47

5 581,96

6 450,25

7 247,40

5 074,15

n.d.

7 744,07

8 163,25

6 899,29

6 002,75

5 705,22

6 079,32

3 496,12

3 330,36

5 442,59

5 340,79

3 266,12

4 525,34

5 350,83

3 958,77

4 830,06

3 866,06

n.d.

n.d.

2 219,41

1 168,03

1 353,04

51

Number of cows (1 000)

Number of cow holders (1 000)

Average herd size (cows per holder)

Yield per cow (kg)

United Kindom

3 256,47

2 631,93

2 065,07

1 978,00

52,88

22 525,56

18 418,09

17 852,52

1 009,32

519,65

472,47

Luxembourg

Netherlands

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Austria

Portugal

Finland

Sweden

EU-15

Estonia

Cyprus

Latvia

Lithuania

Hungary

Malta

Poland

Slovenia

Slovakia

EU-10

Bulgaria

Romania

EU-2

Czech Republic

5 229,40

4 235,96

4 076,38

369,00

2 333,00

1 777,00

1 433,20

1 468,30

1985

951,19

913,00

n.d.

218,91

1 880,20

6 506,10

1 495,20

2 804,00

70,29

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

1995

683,80

714,00

185,00

1 281,00

4 700,40

1 220,79

2 080,00

47,75

706,49

384,00

402,30

481,70

713,00

185,40

29,50

291,90

586,00

390,00

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

2005

549,33

564,27

167,92

1 001,92

3 883,84

1 081,96

1 860,18

39,34

535,79

287,29

318,76

393,26

440,50

115,23

24,25

172,36

493,89

286,83

7,27

130,68

193,20

n.d.

n.d.

2007

523,70

545,42

150,00

903,00

3 758,50

1 058,21

1 890,91

40,04

521,68

272,66

296,07

369,65

416,52

107,84

23,70

182,32

398,37

265,43

8,08

124,19

177,22

335,90

1 572,90

1 908,80

2 853,74

2 767,78

1985

44,58

31,77

73,42

n.d.

328,70

76,70

337,69

2,31

61,31

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

1995

22,05

16,39

209,42

28,00

114,60

158,57

42,10

113,19

1,42

40,06

90,73

86,00

32,36

17,74

36,68

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

2005

15,18

6,51

110,37

9,78

42,39

103,85

23,82

61,02

0,97

23,53

54,58

15,86

16,94

8,55

26,31

6,78

9,21

0,24

50,90

170,79

16,25

0,15

727,10

19,71

13,46

2007

13,32

5,38

101,07

n.d.

37,29

93,12

21,32

62,79

1,09

24,51

49,45

13,50

14,39

7,10

28,14

5,62

6,08

0,24

43,69

123,17

12,17

0,19

651,05

19,20

11,54

4 717,95

4 471,45

1 014,58

872,95

n.d.

n.d.

n.d.

1 012,40

S ource: european court of auditors based on eurostat data.

1985

21,34

28,74

n.d.

2,98

n.d.

19,79

19,49

8,30

30,42

38,06

n.d.

n.d.

n.d.

n.d.

61,58

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

1995

31,02

43,56

24,97

6,61

11,18

29,64

29,00

18,38

33,63

44,36

7,79

4,47

12,43

27,15

71,76

22,32

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

2005

36,19

86,73

38,38

17,17

23,64

37,40

45,42

30,48

40,72

60,91

9,82

18,11

18,82

46,01

78,49

2007

39,32

101,38

40,33

n.d.

24,22

40,36

49,63

30,11

36,73

59,91

10,55

20,20

20,57

52,06

70,29

1985

3 990,79

5 584,88

n.d.

3 499,34

n.d.

n.d.

3 894,13

n.d.

4 278,84

5 379,34

n.d.

n.d.

n.d.

n.d.

4 956,41

1995

4 935,65

6 544,82

5 470,42

4 127,03

4 800,62

5 406,56

4 380,03

5 046,73

5 625,13

6 356,22

4 173,02

4 583,33

8 212,78

6 859,04

5 578,63

2005

5 622,55

8 218,64

6 833,09

5 000,00

6 445,73

6 334,43

4 631,79

5 958,20

6 567,08

7 298,47

5 826,32

6 361,56

7 775,04

8 206,20

7 073,20

2007

5 490,44

8 137,21

6 721,96

4 819,40

n.d.

6 344,43

6 111,47

5 581,96

6 450,25

7 247,40

5 074,15

n.d.

7 744,07

8 163,25

6 899,29

35,44

35,24

4 486,21

5 396,16

6 549,51

n.d.

64,97

12,51

n.d.

3,39

2,89

17,65

49,12

3,92

6,63

14,35

4,63

n.d.

n.d.

74,11

17,74

98,75

4,17

3,23

21,81

42,53

4,25

6,47

15,36

5,10

n.d.

1,55

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

n.d.

4 378,58

3 812,84

4 711,86

3 233,64

3 087,88

5 054,95

n.d.

n.d.

n.d.

n.d.

6 434,91

5 927,50

5 990,65

4 356,37

4 450,42

6 767,51

5 296,30

4 328,07

5 479,59

5 538,47

6 002,75

5 705,22

6 079,32

3 496,12

3 330,36

5 442,59

5 340,79

3 266,12

4 525,34

5 350,83

3 958,77

4 830,06

3 866,06

n.d.

n.d.

n.d.

n.d.

2 219,41

1 168,03

1 353,04

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

52

replies of tHe  
commission 

eXecutive  summAry

m i l k   q u o t a s   w i l l   e n d   o n   1   a p r i l   2 015   a s 
d e c i d e d   by   t h e   co u n c i l ,   a c t i n g   o n   pa r l i a -
ment 's opinion from 20 03. t his was based, 
i nte r   a li a ,   o n   t h e   co n clu si o ns   a n d   r e co m -
m e n dati o ns  in  th e  euro p e an  co ur t  o f  au -
d i t o r s ’   ( e c a )   s p e c i a l   r e p o r t   n o   6 / 2 0 01. 
t h e   p u r p o s e   o f   t h e   r e f o r m   o f   t h e   d a i r y 
s e c t o r,   i n   l i n e   w i t h   c a p  r e f o r m   i n   g e n -
e r a l ,   w a s   t o   m a k e   p r o d u c t i o n   m o r e   m a r-
ke t- o r i e nte d .   co ns e q u e nt l y,   i nte r ve nt i o n 
m e a s u r e s   w e r e   r e d e f i n e d   w i t h   l o w e r   i n -
t e r ve n t i o n   p r i ce s   g r a d u a l l y   b e i n g   i m p l e -
m e n te d .   a s   co m p e n s a t i o n ,   5   b i l l i o n   e u r o 
w a s   d i s t r i b u t e d   a m o n g   d a i r y   f a r m e r s   a s 
dire c t  sup p o r t  to  th e ir  reve nu e,  linke d  to 
p r o d u c t i o n .   t h i s   i s   n o w   f u l l y   d e c o u p l e d 
a n d   s u b j e c t   t o   p u b l i c   a n d   a n i m a l   h e a l t h 
an d e nv iro nm e nt al s t an dards (cross- co m -
p lian ce).  all  th es e  m easures  we re  inte n d -
e d   to   su p p o r t   i n c r e a s e d   co m p e t i t i ve n e s s 
a n d   h e l p   m i l k   p r o d u c e r s   p r e p a r e   f o r   f u -
ture  chall e n g es  o n  inte r nati o nal  mar ke t s , 
w h i l s t   p r o v i d i n g   i n co m e   s u p p o r t   b y   w ay 
of dire c t p ay m e nt s .

t h e   c o m m i s s i o n   w a s   a w a r e   o f   t h e   c h a l -
l e n g e s   i n v o l v e d   i n   i m p l e m e n t i n g   s u c h 
r e f o r m .   ru r a l   d e v e l o p m e n t   m e a s u r e s 
h av e   t h e r e f o r e   b e e n   a n d   c o n t i n u e   t o   b e 
av ail a b l e   to   h e lp   f a r m e r s   re s t r u c t u re   a n d 
a d a p t   t o   n e w   m a r ke t   co n d i t i o n s .   t h e   r e -
ce nt h ealth ch e ck as we ll as th e euro p ean 
e c o n o m i c   r e c o v e r y   p a c k a g e   o f f e r   a d d i -
t i o n a l   p o s s i b i l i t i e s   f o r   m e m b e r   st a t e s   t o 
s u p p o r t   t h e   d a i r y   s e c t o r   a n d   p r o v i d e   a 
s o f t   l a n d i n g   i n   l i g h t   o f   t h e   e x p i r y   o f   t h e 
qu ot a s y s te m .

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

5353

replies of tHe 
commission 

t h e  co mmissi o n  co nsi d e r s th at th e inte r-
n al disp os al m e asure s f o r b u t te r  we re  in -
disp e ns ab l e  in th e p as t an d p rove d to b e 
an   e f f i ci e nt   m e ans   o f  m aint ainin g   s t ab il -
i t y   a n d   avo i d i n g   m o r e   e x p e n s i ve   b u y i n g 
into p ub lic inte r ve nti o n . n eve r th e l ess , in 
l i n e   w i t h   t h e   r e d u c t i o n   o f   t h e   i n t e r v e n -
t i o n   p r i ce   f o r   b u t te r   a n d   t h e   co ns e q u e nt 
changes in market conditions, the aid was 
r e d u ce d   to   z e r o   i n   20 07.   t h e   co n f e c t i o n -
e r y   s e c t o r   c a n   n o w   b u y   b u t t e r   a t   p r i c e s 
similar to th e e ar li e r n e t p r ice (p r i ce s n e t 
o f ai d ).

t h e   d i s p o s a l   s c h e m e s   f o r   b u t t e r   h a v e 
b e e n   a b o l i s h e d   b y   t h e   h e a l t h   c h e c k , 
w h i l e   t h e   s c h e m e s   f o r   s k i m m e d   m i l k 
p o w d e r   h a v e   b e e n   m a d e   d i s c r e t i o n a r y, 
b ase d on the commission's assessm ent of 
w h e t h e r   t h e y   a r e   a p p r o p r i a t e   i n   p r e v a i l -
in g  co n di ti o ns .

v. 
t h e   s t a b i l i t y   o f   n o m i n a l   p r i c e s   a n d   t h e 
f a l l   i n   r e a l   p r i ce s   i s   a   p h e n o m e n o n   co m -
m o n   to   s e ve r a l   s e c to r s ,   n o t   j u s t   t h e   m i l k 
s e c t o r.   m i l k   p r o d u c e r s   h a v e   n o t   b e e n 
a l o n e   i n   e x p e r i e n c i n g   t h e   a b s e n c e   o f 
‘s t a b l e   p r i ce s   i n   r e a l   te r m s ’   a s   d e s c r i b e d 
by  th e  c o ur t .

m o r e ove r,   p r i ce   d e ve l o p m e nt s   m u s t   a l s o 
b e   a s s e s s e d   i n   t h e   l i g h t   o f   i n t e r n a t i o n a l 
m a r k e t   d e v e l o p m e n t s   a n d   t h e   p r i c e   d i f-
f e r e n t i a l   w i t h   t h e   w o r l d   m a r k e t   p r i c e 
mus t b e re du ce d .

fa r m e r s   h a v e   e x p e r i e n c e d   v o l a t i l e   m i l k 
p r i c e s   o v e r   t h e   p a s t   t w o   y e a r s   w i t h   a 
r a p i d   i n c r e a s e   i n   20 07   f o l l owe d   by   a   si g -
n i f i c a n t   d r o p   i n   2 0 0 8 .   c o n s u m e r   p r i c e s 
o f   d a i r y   p r o d u c t s   a l s o   i n c r e a s e d   i n   20 07 
b u t   d i d   n o t   f a l l   i n   2 0 0 8   t o   t h e   s a m e   e x -
t e n t .   t h i s   a s y m m e t r i c   d e v e l o p m e n t   i n 
p ro du ce r an d co nsu m e r p r i ce s h as  r ais e d 
concer n ab out th e f unc tioning of comp e -
t i t i o n   i n   t h e   c h a i n   f r o m   s t a b l e   t o   t a b l e . 
t h e   c o m m i s s i o n   i s   e x a m i n i n g   t h e   s i t u a -
ti o n cl os e l y.

ii. 
t h e   h e a l t h   c h e c k   w a s   a   f u r t h e r   s t e p   t o -
wards a more marke t- oriente d c ap where 
d e co u p l e d   d i r e c t   a i d   p l ay s   a n   i m p o r t a n t 
ro l e in  s e cur in g  f ar m reve nu e,  an d  w h e re 
t h e   m a r k e t- s u p p o r t   i n s t r u m e n t s   s h o u l d 
p lay a  l e ss e r ro l e.  af te r th e  h e al th  ch e ck , 
t h e   i m p o r t - s e c t o r   i n s t r u m e n t s   a r e   s t i l l 
a p p l i c a b l e   a s   i n t e r v e n t i o n   m e c h a n i s m s . 
t h e   d a i r y   p r e m i u m   a n d   a d d i t i o n a l   p a y -
m e n t   w e r e   a b o l i s h e d   f r o m   2 0 0 7   a t   t h e 
l ate s t .   t h e   r e l ate d   a m o u nt s   w e r e   i n c l u d -
e d   i n   t h e   s i n g l e   p a y m e n t   s c h e m e .   a s   a 
c o n s e q u e n c e ,   d a i r y   f a r m e r s   n o   l o n g e r 
r e ce i ve   a ny   su p p o r t   r e l ate d   to   t h e i r   m i l k 
p ro du c ti o n .

iv. 
i t   s h o u l d   b e   p o i n t e d   o u t ,   a s   t h e   c o m -
m i s s i o n   d i d   i n   r e s p o n s e   t o   t h e   e u r o p e -
a n   c o u r t   o f   a u d i t o r s ’   s p e c i a l   r e p o r t   n o 
6 / 2 0 01   o n   m i l k   q u o t a s ,   t h a t   a d a p t i n g 
m i l k   p r o d u c t i o n   t o   t h e   l e v e l   o f   i n t e r n a l 
co n s u m p t i o n   w a s   n e i t h e r   a   p o l i t i c a l   n o r 
an  e co n o mi c  o bj e c ti ve.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

v ii. 
a   v a r i e t y   o f   f a c t o r s   h a s   i n f l u e n c e d   t h e 
relative position of the eu as an expor ter, 
not least the enhanced produc tion capac-
i t y   o f   c e r t a i n   t h i r d   c o u n t r i e s .   H o w e v e r, 
together with the effec ts of the recent re -
fo r m s,   t h i s   h a s   e n co u ra g e d   e u   p ro d u ce r s 
t o   f o c u s   o n   d e v e l o p i n g   a n d   e x p a n d i n g 
h i g h - v a l u e   m a r k e t s   f o r   p r o d u c t s   w h e r e 
e u ro p e   h a s   a   m o re   s u s t a i n a b l e   c o m p e t i-
tive a d vant age, s uc h as  c hees e.

v iii.
•	 T h e 	 C o m m i s s i o n 	 n o t e s 	 t h a t 	 m a r k e t	
volat il it y c an l ead to s hor tag es as  well  as 
sur plu ses.

•	 T h e	 C A P	 h a s	 a	 r a n g e	 o f	 i n s t r u m e n t s ,	
i n   p a r t i c u l a r   i n   t h e   f i e l d   o f   r u r a l   d e v e l-
o p m e n t ,   t h a t ,   i n   a d d i t i o n   t o   p r o m o t i n g 
competitiveness, seek to prevent land be -
i n g   a b a n d o n e d,   to   p re s e r ve   a n d   i m p rove 
the environment, to better integrate agri -
c u l t u ra l   a c t i v i t y   i nto   t h e   s o c i o - e co n o m i c 
co n te x t   o f   r u ra l   a re a s   a n d   to   s u p p o r t   re -
s t r u c t u r i n g   i n   t h e   s e c t o r s   m o s t   e x p o s e d 
to cha ng e.

•	 T h e	 E U	 d a i r y	 s e c t o r	 f a c e s	 c o m p e t i t i o n	
f ro m   a   n u m b e r   o f   s o u rc e s ;   t h e   d a i r y   s e c -
tor  in  other  par ts  of  the  wor ld  in  par ticu-
l a r,   b u t   a l s o   f r o m   o t h e r   s i m i l a r   p r o d u c t s 
in europe. each par t of the hugely diverse 
sec tor must identify and develop an opti-
mal strategy to address these challenges.

54

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commission 

iX.
• 	 The	Commission	will	continue	to	moni-
tor developments in the sec tor closely. i n 
th is  reg ard  the  mar k et  repor t s  to  be  sub -
m i t t e d   t o   pa r l i a m e n t   a n d   t h e   c o u n c i l   i n 
2 01 0 an d 2 0 12 will provide  usefu l in di c a-
tion s on produc t ion  and mar ket  d eve lop -
m e n t s   a s   t h e   e x p i r y   o f   t h e   q u o t a   re g i m e 
in  20 15  approach es.

f o l l o w i n g   a   r e q u e s t   b y   t h e   e u r o p e a n 
co u n c i l,   o n   2 2   j u l y   2 0 0 9   t h e   co m m i s s i o n 
a d o p t e d   a   c o m m u n i c a t i o n   ' d a i r y   m a r k e t 
s i t u a t i o n   2 0 0 9 '   ( co m( 2 0 0 9 )   3 8 5 )   t h a t   i n-
c l u d e d   p o s s i b l e   o p t i o n s   t o   s t a b i l i s e   t h e 
m a r k e t ,   w h i l e   c o m p l y i n g   w i t h   t h e   o u t -
come of the heath check . the council will 
disc uss the  communication in  s eptember 
2 00 9.

• 	 A	 H i g h	 L e v e l	 G r o u p 1  o n   t h e   c o m p e t i-
t i v e n e s s   o f   t h e   a g r o -f o o d   i n d u s t r y   r e -
c e n t l y   p r o p o s e d   a   s e r i e s   o f   i n i t i a t i v e s 
t h a t   t h e   c o m m i s s i o n   i n t e n d s   t o   i m p l e -
ment  over   th e  comin g  mont hs. th ese  ini-
tiatives are par t of the implementation of 
t h e   ro a d m a p   to   i m p rove   t h e   f u n c t i o n i n g 
o f   t h e   f o o d   s u p p l y   c h a i n   t h a t   w a s   p r e -
s e n t e d   b y   t h e   co m m i s s i o n   a t   t h e   e n d   o f 
2 0 0 8   i n   i t s   c o m m u n i c a t i o n   ' fo o d   p r i c e s 
i n   eu ro p e '   (co m ( 2 0 0 8 )   8 2 1   f i n a l ) .   am o n g 
t h e   f i v e   m a i n   c o m p o n e n t s   o f   t h e   r o a d-
m a p   a g re e d   b y   t h e   co u n c i l   i n   d e c e m b e r 
2 0 0 8   w a s   p e r m a n e n t   e u r o p e a n   m o n i t o r -
i n g   o f   fo o d   p r i c e s   a n d   t h e   s u p p l y   c h a i n . 
th i s   m o n i to r i n g   to o l   s h o u l d   p rov i d e   b e t-
te r   i n fo r m a t i o n   to   co n s u m e r s,   p u b l i c   a u-
thorities and market operators and so ad-

1  the main role of the High level group (chaired by one 

of the commission vice-presidents with the participation 

of the commissioners responsible for agriculture and rural 

development, consumer protection and Health, was to provide 

advice to the european commission with a view to enhancing 

and promoting leadership of the european agro-food industry. 

it was designed to provide a political momentum for the 

process and a platform for discussion on sector-specific 

recommendations (but not to follow the dynamics between 

producer and consumer prices). the group aims to bring 

together key stakeholders in the food industry. representation 

was at the highest level. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

5555

replies of tHe 
commission 

w i t h   r e g a r d   t o   t h e   e n v i r o n m e n t a l   c o n -
s e q u e n c e s   o f   a n y   t e r r i t o r i a l   c o n c e n t r a-
t i o n   o f   p r o d u c t i o n ,   t h e   c o m m i s s i o n   i s 
convin ced  that  ac tion  sh ould  be  t aken   at 
t wo   l e ve l s :   ( i )   t h e   l e gi s l a t i ve   l e ve l,   w h i l e 
monitoring compliance with environmen-
t a l   p r o t e c t i o n   s t a n d a r d s   a n d   g o o d   a g r i-
cultural and environmental prac tices that 
a r e   r e q u i r e m e n t s   f o r   d i r e c t   a i d   a n d   a i d 
under the second rural development axis; 
(ii) the incentive level, through aid for in-
t ro d u c i n g   gre e n e r   a gr i c u l t u ra l   p ra c t i ce s, 
such as agro - environmental measures un-
der  rural deve lopment.

• 	 Th e	 Co m m is s i o n	 a gre e s	 t h at	 p rovi d i n g	
v a l u e   a n d   s a t i s f a c t i o n   t o   c o n s u m e r s   a n d 
u s e r s   o f   e u r o p e a n   d a i r y   p r o d u c t s   i s   e s-
s e n t i a l   t o   s e c u r i n g   a   s u s t a i n a b l e   i n c o m e 
f o r   p r o d u c e r s .   i t   r e c o g n i s e s   t h e   i m p o r -
t a n ce   o f   s a t i s f y i n g   co n s u m e r   n e e d s   fo r   a 
r a n g e   o f   h i g h - v a l u e   a n d   b a s i c   p r o d u c t s , 
t h e   n e e d   to   ex p l o i t   a l l   m i l k   co n s t i t u e nt s, 
i n c l u d i n g   p r o t e i n   a n d   f a t ,   a n d   t a k e s   a c -
co u nt   o f   t h e   d i ve r s i t y   o f   m i l k   p ro d u c t i o n 
con ditions t hrough out  t he c ommun it y

d r e s s   t h e   l a c k   o f   t r a n s p a r e n c y   o f   p r i c e s 
a n d   i m p r o v e   t h e   k n o w l e d g e   o f   t h e   i m-
p a c t   o f   re g u l at i o n   a l o n g   t h e   fo o d   s u p p l y 
chain. the   co mm issio n  w il l  p resent  a  fol-
low-up repor t on this roadmap at the end 
o f   2 0 0 9 .   i n   a d d i t i o n ,   a   f a s t - t r a c k   s u r v e y 
o f   d a i r y   m a r k e t s   w a s   r e c o m m e n d e d   t o 
t h e   eu ro p e a n   co m p e t i t i o n   n e t wo r k   fo o d 
su b - gro u p   m e e t i n g   i n   e a r l y   ju l y   2 0 0 9 ,   to 
s t i m u l a t e   a n d   c o o r d i n a t e   s i m u l t a n e o u s 
monitoring and data collec tion by nation -
a l   c o m p e t i t i o n   a u t h o r i t i e s.   fu r t h e r m o re, 
a s   p a r t   o f   t h e   r e t a i l   m a r k e t   m o n i t o r i n g 
exe rc i s e,   t h e   co m m i s s i o n   i s   a l s o   ex a m i n-
i n g   b e s t   p r a c t i c e s   a c ro s s   m e m b e r   s t a t e s 
in terms of contrac tual relations bet ween 
s u p p l i e r s   a n d   r e t a i l e r s.   t h e   w o r k   w i l l   b e 
compl ete d by t he en d of 2009.

a t   t h e   m o m e n t ,   c o n c e n t r a t i o n   i s   m u c h 
more imp or tant  at t he retail  l eve l th an  at 
th e pro cessing  l evel.

•	 T h e 	 C o m m i s s i o n 	 h a s 	 b e e n 	 l o o k i n g	
a t   t h e   p r o b l e m s   o f   l e s s - f a v o u r e d   a r e a s 
s i n c e   2 0 0 5 ,   t a k i n g   a c c o u n t   i n t e r   a l i a   o f 
t h e   co u r t   o f   au d i t o r s '   s p e c i a l   r e p o r t   n o 
4 / 2 0 0 3 .   t h e   d i s c u s s i o n   h a s   a l r e a d y   r e -
s u l t e d   i n   a m e n d m e n t s   t o   t h e   l e g i s l a t i v e 
f r a m e w o r k   f o r   t h e s e   a r e a s   a n d   i s   s t i l l 
o n g o i n g   ( s e e   t h e   r e c e n t   c o m m u n i c a t i o n 
f r o m   t h e   c o m m i s s i o n   c o m( 2 0 0 9 )   1 6 1 
o f   2 1   a p r i l   2 0 0 9 ) .   t h e   s p e c i f i c   s i t u a t i o n 
o f   m o u n t a i n   a r e a s   w i l l   b e   a d d r e s s e d   b y 
a   c o m m i s s i o n   w o r k i n g   p a p e r   t o   b e   p r e -
sented in nove mb er 2009.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

introduction

3.   
first i nde nt
i t  shoul d  b e  p o inted  o ut,  as   the  commis-
s i o n   d i d   i n   t h e   e u r o p e a n   c o u r t   o f   a u d i-
t o r s ’  s p e c i a l   r e p o r t   n o   6 / 2 0 0 1   o n   m i l k 
q u o t a s,   t h at   i t   i s   c l e a r   f ro m   t h e   co u n c i l ' s 
d e c i s i o n s   t h a t   a d a p t i n g   m i l k   p ro d u c t i o n 
to   t h e   l e ve l   o f   i n te r n a l   co n s u m p t i o n   w a s 
n e i t h e r   a   p o l i t i c a l   n o r   a n   e c o n o m i c   o b -
j e c t i v e   ( s e e   t h e   c o m m i s s i o n ' s   r e p l y   t o 
p a r a g r a p h s   6 8 – 6 9   o f   sp e c i a l   r e p o r t   no 
6/2 001).

third ind ent
i n   l i g h t   o f   t h e   e x p i r y   o f   m i l k   q u o t a s ,   t h e 
co mm issi o n  has  p ro p os e d  an d  th e  co un -
cil  an d   th e  euro p e an  par liam e nt   have  a c-
c e p t e d   a   g r a d u a l   a n d   p l a n n e d   i n c r e a s e 
i n   q u o t a s .   t h i s   w i l l   a l l o w   m i l k   p r o d u ce r s 
to   a d a p t   to   t h e   n e w   s i t u at i o n   d u r i n g   t h e 
t r a n s i t i o n a l   p e r i o d   i n   o r d e r   t o   e n s u r e   a 
s o f t  la n din g  by 1  ap r il  2015. 

in  a d diti o n ,  th e  a djus tm e nt  of  f ar m  s tr u c-
t u r e s   t o   n e w   m a r k e t   o p p o r t u n i t i e s   o r 
changes in p olicies is supp or te d to a great 
e x te nt v ia r ur al d eve l o p m e nt f un din g .

four th inde nt
p r i c e   i s   o n e   o f   t h e   f a c t o r s   t h a t   c a n   i m-
prove the competitiveness of eu produc ts 
o n   i n t e r n a t i o n a l   m a r k e t s ,   b u t   i n   m a n y 
p r o d u c t   s e g m e n t s   o t h e r   f a c t o r s ,   i n c l u d -
i n g   p ro d u c t   i n n ovat i o n   a n d   h i g h   q u a l i t y, 
a r e   c r i t i c a l   t o   s a t i s f y i n g   c o n s u m e r   a n d 
user  n eeds.

56

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commission 

8 . 
t h e   ch a n g e   in   p o li c y   n o t   o n l y   in f lu e n ce s 
t h e   e u  b u d g e t   a n d   t h e   f a r m e r s   r e c e i v -
i n g   d i r e c t   a i d .   a s   i n s t i t u t i o n a l   p r i c e s 
d e c r e a s e ,   m a r k e t   p r i c e s   w i l l   a l s o   a d j u s t , 
d e p e n d i n g   o n   s u p p l y   a n d   d e m a n d ,   a n d 
co nsum e r s   sh o ul d   als o  b e n e f i t  f ro m  l ow -
e r   m a r ke t   p r i ce s ,   d e p e n d e n t   o n   t h e   e f f i -
ci e n c y  o f p r i ce tr ansmissi o n .

fu r t h e r m o r e ,   t h i s   h a s   r e d u c e d   t h e   c o s t 
n o t   o n l y   f o r   m e m b e r   st a t e s   b u t   a l s o   f o r 
i n d u s t r i e s   s e l l i n g   t h e   p r o d u c t s   a n d /o r 
usin g th e sup p o r te d p ro du c t s . m o re ove r, 
t h e   p o l i c y   c h a n g e   o f f e r s   a   b e t t e r   n e g o -
t i a t i n g   p o s i t i o n   i n   t h e   m u l t i l a t e r a l   c o n -
te x t .

1 0.-11 . 
t h e   d a i r y   p r e m i u m   a n d   a d d i t i o n a l   p a y -
m e n t   w e r e   a b o l i s h e d   f r o m   2 0 0 7   a t   t h e 
l a t e s t .  th e   re l a t e d   a m o u n t s   we re   i n c l u d-
e d   i n   t h e   s i n g l e   p a y m e n t   s c h e m e .   a s   a 
c o n s e q u e n c e ,   d a i r y   f a r m e r s   n o   l o n g e r 
re ce i ve   a ny   s u p p o r t   re l a te d   to   t h e i r   m i l k 
produc tion.

t h e   c o m m i s s i o n   c o n s i d e r s   t h a t   a   c o m-
par ison   of  the  total  cost   of  th e  d air y   s e c -
to r   i n   2 0 0 5   a n d   2 0 0 7   s h o u l d   b e   b a s e d   o n 
to t a l   e x p e n d i t u re   i n c u r re d,   re g a rd l e s s   o f 
h o w   i t   w a s   f i n a n c e d   ( a n n u a l   a p p r o p r i a-
t i o n   f ro m   t h e   b u d g e t ,   n e g a t i ve   e x p e n d i-
ture or assigned revenue — changes were 
m a d e   t o   t h e   t r e a t m e n t   o f   a s s i g n e d   r e v -
e n u e   f r o m   b u d g e t   y e a r   2 0 0 7 ) .   b a s e d   o n 
tot al  expen diture  of  3 ,2 02   billion   euro  i n 
t h e   2 0 0 5   b u d g e t   ye a r   a n d   a n   e s t i m ate   o f 
4 , 8 7 5   b i l l i o n   e u r o   i n   2 0 0 7 ,   t h e   i n c r e a s e 
is 5 2 %.

t h e   i n c r e a s e   i n   b u d g e t   e x p e n d i t u r e   b e -
t w e e n   2 0 0 5   a n d   2 0 0 7   i s   a l s o   d u e   t o   t h e 
en largement of th e c ommun ities.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

observAtions

14 . 
a s alrea d y m e ntio n e d in re latio n to p ar a -
gr ap h 3, re ference should b e ma de to th e 
co m m i s s i o n's   r e p l i e s   to   t h e   co u r t   o f   au -
d i to r s'   s p e c i a l   r e p o r t   n o   6/ 20 01   o n   m i l k 
q u o t a s .   t h e   co m m i s s i o n   s t r e s s e d   t h at   ' i t 
is   cl e a r   f r o m   t h e   co u n ci l 's   d e cisi o ns   t h at 
a d a p t i n g   m i l k   p r o d u c t i o n   to   t h e   l e ve l   o f 
i n t e r n a l   c o n s u m p t i o n   w a s   n e i t h e r   a   p o -
l i t i c a l   n o r   a n   e c o n o m i c   o b j e c t i v e '   ( s e e 
t h e   c o m m i s s i o n' s   r e p l i e s   t o   p a r a g r a p h s 
6 8 – 69  o f s p e cial  r e p o r t  n o  6/ 20 01).

tex tb ox  2
s e co n d   b ox   :   s o   f a r   i t   h a s   b e e n   to o   e a r l y 
to  con duc t   a  com p rehens ive  stu d y  of  t h e 
i m p a c t   o f   d e c o u p l i n g   o n   t h e   a b a n d o n-
m e n t   o f   m i l k   p r o d u c t i o n ,   p a r t i c u l a r l y 
s i n ce   d e co u p l i n g   o n l y   e nte re d   i nto   fo rce 
in  ca le ndar  year  20 06   (b udg et  2 0 0 7 ) .  th e 
a g r i c u l t u r e   a n d   r u r a l   d e v e l o p m e n t   d g 
e va l u at i o n   p l a n   fo r   2 0 0 9 – 1 1   p rov i d e s   fo r 
a n   e v a l u a t i o n   o f   t h e   m a r k e t   e f f e c t s   o f 
par tial decoupling that was launched this 
year, wit h t he o bjec tive o f exam i n in g  th e 
m a r k e t   e f f e c t s   o f   t h e   a i d   s c h e m e s   t h a t 
r e m a i n e d   c o u p l e d   o r   p a r t i a l l y   c o u p l e d . 
t h e   c o n t r a c t   i s   e x p e c t e d   t o   b e   s i g n e d 
i n   a u t u m n   2 0 0 9 ,   a n d   t h e   e v a l u a t i o n   w i l l 
b e   c a r r i e d   o u t   i n   2 0 1 0 .   fu r t h e r m o re,   t wo 
e v a l u a t i o n s   a r e   p l a n n e d   i n   2 0 1 0 – 1 1   f o r 
t h e   i n co m e   e f fe c t s   o f   d i re c t   s u p p o r t   a n d 
for th e dair y sec tor  resp ec tivel y.

57

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commission 

1 6.
w h e n   t h e   m i l k   q u o t a   s c h e m e   w a s   i n t r o -
d u c e d ,   a   g u a r a n t e e d   t o t a l   q u a n t i t y   w a s 
s e t   f o r   m o s t   m e m b e r   st a t e s   co r r e s p o n d -
i n g   t o   m i l k   d e l i v e r e d   d u r i n g   19 81,   p l u s 
1  %   ( a r t i c l e   5 c (3)   o f   c o u n c i l   r e g u l a t i o n 
(eec )   n o   8 0 4/6 8   as   a m e n d e d   by   a r ti cl e   1 
o f   c o u n c i l   r e g u l a t i o n   ( e e c )   n o   8 5 6 / 8 4). 
i n   r e c o g n i t i o n   o f   t h e   p a r t i c u l a r   c i r c u m -
s t an ces of milk p ro du c ti o n in ire lan d an d 
i t a l y,   t h e   g u a r a nte e d   to t a l   q u a nt i t i e s   f o r 
th es e m e mb e r st ates we re b as e d o n 19 83 
d e l i v e r i e s   (w i t h   r e g a r d   t o   i t a l y,   s e e   r e -
ci t al  n o  9   o f  co un cil  r e gulati o n  (eec )   n o 
856/8 4). i t al y w as th e re f o re t re ate d m o re 
f a v o u r a b l y   t h a n   o t h e r   m e m b e r   s t a t e s . 
t h e   i n c r e a s i n g   q u o t a   u n d e r - u s e   i n   t h e 
u k , swe d e n an d fr an ce has di f f e re nt rea -
s o n s :   f o r   i n s t a n ce ,   t h e   fr e n c h   u n d e r- u s e 
i s   d u e   t o   t h e   s t r i c t   q u o t a   m a n a g e m e n t 
s y s te m  o f th e f re n ch a dm inis tr ati o n .

1 7. 
as already explained in the reply to para-
g r a p h   1 6 ,   i n   1 9 8 4   t h e   c o u n c i l   f i x e d   t h e 
l e v e l   o f   q u o t a s   f o r   m e m b e r   s t a t e s   w i t h 
referen ce to a common bas e.

subsequently, the commission received a 
m a n d a t e   t o   m a n a g e   t h e   q u a n t i t i e s   p r o -
duced with in t he quotas.

t h e   m a i n   a i m   o f   t h e   q u o t a s   w a s   t o   l i m i t 
p ro d u c t i o n   a n d   c o n s e q u e n t l y   p u t   a   s t o p 
t o   t h e   a c c u m u l a t i o n   o f   s t o c k s   o f   b u t t e r 
a n d   m i l k   p owd e r,   w h i c h   h a d   re a c h e d   e x-
cess ive  levels.  for  example,  at  th e  en d  of 
1 98 6,  total butter  stocks  were 1 .3  mi ll ion 
to n n e s,   w h i c h   re p re s e nt s   5 9   %   o f   t h e   2 . 2 
m i l l i o n   t o n n e s   p ro d u c e d   t h a t   ye a r,   c o m-
p a re d   w i t h   s to c k s   o f   s l i g ht l y   ove r   8 0   0 0 0 
to n n e s   o r   4   %   o f   e u   b u t te r   p ro d u c t i o n   i n 
2 00 7.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

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commission 

2 6. 
c o m p a r e d   w i t h   t h e   t r e n d   i n   m i l k   e q u i v -
a l e n t   p r i c e s   o n   t h e   g l o b a l   m a r k e t ,   t h e 
price of europ ean milk has b e e n ver y s t a -
b l e   t h a n k s   t o   t h e   d i f f e r e n t   m a n a g e m e n t 
ins t r um e nt s .

2 7. 
t h e   s t a b i l i t y   o f   n o m i n a l   p r i c e s   a n d   t h e 
f a l l   i n   r e a l   p r i ce s   i s   a   p h e n o m e n o n   co m -
m o n   to   s e ve r a l   s e c to r s ,   n o t   j u s t   t h e   m i l k 
s e c t o r.   m i l k   p r o d u c e r s   h a v e   n o t   b e e n 
a l o n e   i n   e x p e r i e n c i n g   t h e   a b s e n c e   o f 
‘s t a b l e   p r i ce s   i n   r e a l   te r m s ’   a s   d e s c r i b e d 
by  th e  c o ur t .

m o r e ove r,   p r i ce   d e ve l o p m e nt s   m u s t   a l s o 
b e   a s s e s s e d   i n   t h e   l i g h t   o f   i n t e r n a t i o n a l 
m a r k e t   d e v e l o p m e n t s   a n d   t h e   p r i c e   d i f-
f e r e n t i a l   w i t h   t h e   w o r l d   m a r k e t   p r i c e 
mus t b e re du ce d .

3 3. 
t h e   r e p o r t   b y   t h e   c o m m i s s i o n ' s   fa d n 
u n i t   e n t i t l e d   ' e u   d a i r y   f a r m   e c o n o m i c s ' 
( 2 0 0 9 )   s h o w s   t h a t   t h e   i n c o m e   o f   m i l k -
s p e c i a l i s e d   f a r m s   i n   t e r m s   o f   n e t   v a l -
u e   a d d e d   p e r   w o r k   u n i t   i n   r e a l   t e r m s   i s 
a b o v e   t h e   a v e r a g e   o f   a l l   f a r m s   f o r   t h e 
p e r i o d   ( 2 0 0 0 – 0 6 ) .   H o w e v e r,   p r o f i t   p e r 
w o r k   u n i t   ( a m o u n t   e s t i m a t e d   t o   r e m a i n 
a f t e r   t h e   re m u n e r a t i o n   o f   a l l   t h e   f a c t o r s 
o f   p ro d u c t i o n )   o f   e u - 1 5   m i l k- s p e c i a l i s e d 
f a r m s   h a s   b e e n   a b o v e   t h e   a v e r a g e   o n l y 
s i n c e   2 0 0 5 .   l a s t l y,   t h e   i n c o m e   p e r   w o r k 
u n i t   o f   e u - 1 5   m i l k- s p e c i a l i s e d   f a r m s   h a s 
increased at the same rate as the average 
o f   a l l   f a r m s   fo r   t h e   p e r i o d   1 9 9 8 / 2 0 0 5   ( i n 
r e a l   t e r m s,   s e e   t h e   r e p o r t   'm i l k   m a r g i n s ' 
e v o l u t i o n   i n   t h e   e u r o p e a n   un i o n   ( 1 9 9 8 –  
2 0 0 5 ) ' ) .   i n   t h e   e u- 1 0 ,   t h e   i n c re a s e   i s   l a r -
ge st for milk- spec ialised far m s.

t h e   o b j e c t i v e   o f   r e d u c i n g   s t o c k s   w a s 
a chi eve d an d a cco rd in gl y i t w as n o l o n g -
e r   p o s s i b l e   t o   t a l k   o f   m a j o r   s t r u c t u r a l 
sur p lus e s .

m o r e o v e r,   u n d e r   t h e   q u o t a   s y s t e m ,   p r o -
d u c t i o n   o f   b u t t e r   a n d   o f   s k i m m e d   m i l k 
p o w d e r   w a s   n e v e r   r e g a r d e d   a s   s u r p l u s 
p r o du c t i o n;   i t   is   a   w ay   o f   u si n g   m i lk   t h at 
is n e ce ss ar y f o r th e n e e ds  o f  th e  inte r n al 
m a r k e t   b u t   i s   n o n e t h e l e s s   m o r e   f r a g i l e , 
m o r e   e x p o s e d   t o   e x t e r n a l   c o m p e t i t i o n 
a n d   l e s s   p r o f i t a b l e .   t h i s   p r o d u c t i o n   w i l l 
n o t   d i s a p p e a r,   b u t   i t   m a y   b e   m a d e   l e s s 
ap p e a lin g by th e l a ck o f ai d .

18. 
s e e th e re p l y to p ar a gr ap h 14 .

21. 
the co mmis sio n co ns iders  th at the  inte r-
nal  disp os al  meas ures  for  b ut ter   were  in-
dispensab l e  in  t he  p ast   and  p rove d  to  be 
a n   e f f i c i e nt   m e a n s   o f   m a i nt a i n i n g   s t a b i l-
i t y   a n d   a vo i d i n g   m o re   e x p e n s i ve   b u y i n g 
into pub l ic  inter vention.  neve r th eless, in 
l i n e   w i t h   t h e   r e d u c t i o n   o f   t h e   i n t e r v e n-
t i o n   p r i ce   fo r   b u t te r   a n d   t h e   co n s e q u e n t 
changes in market conditions, the aid was 
re d u ce d   to   ze ro   i n   2 0 0 7 .  th e   co n fe c t i o n-
e r y   s e c t o r   c a n   n o w   b u y   b u t t e r   a t   p r i c e s 
similar  to  the  ear l ier net p r ice (p r i ce s ne t 
of a id) .

t h e   d i s p o s a l   s c h e m e s   f o r   b u t t e r   h a v e 
been abolished by the health check , while 
t h e   s c h e m e s   f o r   s k i m m e d   m i l k   p o w d e r 
h ave   b e e n   m a d e   d i s c re t i o n a r y,   b a s e d   o n 
t h e   co m m i s s i o n' s   a s s e s s m e nt   o f   w h e t h e r 
t h e y   a re   a p p ro p r i ate   i n   p re va i l i n g   co n d i-
tions.

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special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

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commission 

5 5.
st r u c t u r a l   a dj u s t m e nt   i n   t h e   a g r i c u l t u r a l 
s e c t o r   i n   t h e   e u r o p e a n   u n i o n   a n d   e l s e -
w h e r e   i s   a   s l o w   p r o c e s s   t h a t   h a s   b e e n 
un d e r   w ay   f o r  m any   ye ar s .  sin ce  th e  v as t 
m a j o r i t y   o f   l a n d   o n   f a r m s   t h a t   ce a s e   a g -
r i c u l t u r a l   p r o d u c t i o n   i s   g e n e r a l l y   t a k e n 
ove r  by   oth e r   f ar ms ,  th e  re du c ti o n  in  th e 
numb er of f arms is not in it s elf a prob lem 
f o r   t h e   p r o d u c t i o n   o f   p o s i t i ve   e x t e r n a l i -
ti es  f o r  a g r i culture. euros t at  sur vey s n ot-
e d  a  5   %  annual  re du c ti o n  in   th e   num b e r 
o f   eu -12   m i l k- s p e c i a l i s e d   f a r m s   b e t w e e n 
19 9 0   a n d   20 03.   t h e   su r vey s   a ls o   in d i c ate 
t h a t   t h e   r e d u c t i o n   b e t w e e n   2 0 0 3   a n d 
20 07   f o r   t h e   eu -27   i s   s o m e   2 . 3   %   p e r   a n -
num for all f ar ms , but only 1.0 % for milk-
sp e cialis e d f ar ms .

5 6. 
restruc turing the milk sec tor is a par ticu-
lar ly impor tant challenge in mountain ar -
e a s   a n d   o t h e r   l e s s - f a v o u r e d   a r e a s   s i n c e 
6 0   %   o f   e u - 2 5   d a i r y   f a r m s   a re   l o c a t e d   i n 
less-favoured areas. the cap health check 
identified additional resources as a result 
of  compulsor y   modulat ion  to  f in an ce,   in-
ter alia , flank ing measures for restruc tur -
i n g   t h e   s e c t o r   u n d e r   r u r a l   d e v e l o p m e n t 
p r o g r a m m e s .   t h e   s a m e   m e a s u r e s   m a y 
q u a l i f y   f o r   a i d   i n t e n s i t y   i n c r e a s e d   b y 
1 0   p e r c e n t a g e   p o i n t s.   t h e   m a x i m u m   a i d 
i n t e n s i t y   f o r   i n v e s t m e n t s   i n   f a r m i n g   i n 
l e s s - f avo u re d   a re a s   i s   a l re a d y   1 0   %   h i g h-
er  th an in  othe r areas.

thi rd  inde nt
i t   i s   n o r m a l   t h a t   t h e   s h a r e   o f   a i d   i n -
c r e a s e d   a s   a   p r o p o r t i o n   o f   d a i r y   f a r m s ' 
i n c o m e   b e t w e e n   2 0 0 0   a n d   2 0 0 6   g i v e n 
t h a t   t h e   m i l k   p r e m i u m   c o m p e n s a t e d   f o r 
l o w e r   i n t e r v e n t i o n   p r i c e s .   d i r e c t   a i d   i s 
c a l c u l a t e d   b y   k i l o g r a m   o f   m i l k   i n c l u d e d 
i n   t h e   q u o t a   o n   a   r e f e r e n c e   d a t e .   i t   i s 
l o g i c a l   t h a t   t h e r e   i s   v a r i a b i l i t y   b e t w e e n 
pro ducer s and m emb er st ates since th ere 
a r e   d i f f e r e n ce s   i n   s t r u c t u r e s ,   q u o t a   s i z e, 
e tc .

45. 
w h i l e   o u r   a n a l y s is   s h ow s   s o m e   a d d i t i o n -
a l   p r o d u c t i o n   a f te r   q u o t a s   h ave   e x p i r e d , 
this outcom e is b as e d on cer t ain assump -
t i o n s   a b o u t   eu   a n d   w o r l d   m a r k e t   p r i c e s 
an d th e  co n clusi o n o f th e d o ha d eve l o p -
m e nt a g re e m e nt .

54. 
t h e   g l o b a l   f i n a n c i a l   a n d   e co n o m i c   c r i s i s 
i n   2 0 0 8   a n d   2 0 0 9   i s   a   h i g h l y   s i g n i f i c a n t 
f a c t o r   i n   d e c l i n i n g   d e m a n d   o n   i n t e r n a l 
an d  e x te r nal  m ar ke t s .

t h e   i n t e r v e n t i o n   c e i l i n g s   (o n   i n t e r v e n -
t i o n   p r i ce s)   a r e   3 0   0 0 0   to n n e s   f o r   b u t t e r 
an d 10 9 0 0 0 to nn es f o r sm p. un d e r r e gu -
lation (ec ) n o 1234/20 07, the commission 
m ay   d e c i d e   t o   co n t i n u e   p u b l i c   i n t e r ve n -
t i o n   a b o v e   t h o s e   a m o u n t s   ( b y   t e n d e r)   i f 
j u s t i f i e d   b y   t h e   s i t u a t i o n   o n   t h e   m a r ke t , 
a n d   i n   p a r t i c u l a r   t h e   t r e n d   i n   m a r k e t 
p r i ce s .

that happ ened in 20 09. at the end of june 
20 0 9,   s t o c k s   co n t a i n e d   81   2 37   t o n n e s   o f 
b u t te r an d 202  914 to nn e s  o f sm p.

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5 9.
t h e   c o m m u n i t y   s t r a t e g i c   g u i d e l i n e s   a l -
l o w   r e g i o n a l   p r i o r i t i e s   t o   b e   t a k e n   i n t o 
a cco u nt ,   d e p e n d i n g   o n   t h e   s p e c i f i c   s i t u -
a t i o n ,   a n d   p r o v i d e   f o r   r e s t r u c t u r i n g   a n d 
m o d e r n i s a t i o n   o f   p r i o r i t y   s e c t o r s .   i n   r u -
r a l   d e v e l o p m e n t   p r o g r a m m e s ,   t h e   s p e -
c i f i c   s i t u a t i o n   c a n   b e   t a ke n   i n to   a cco u n t 
by   t wo   m e a ns .   fi r s t ,   by   t a r g e t i n g   i nve s t-
m e nt   m e asu r e s   o n   cl e a r l y   d e f in e d   o bj e c-
t i ve s   r e f l e c t i n g   i d e nt i f i e d   s t r u c t u r a l   a n d 
t e r r i t o r i a l   n e e d s   a n d   s t r u c t u r a l   d i s a d -
v a n t a g e s   ( a r t i c l e   4 3   o f   r e g u l a t i o n   ( e c ) 
n o   19 74 / 2 0 0 6 ) .   w h e n   i t   a p p r o v e d   t h e 
p ro gr amm es , th e co mmissi o n insis te d o n 
su ch  t arg e tin g .

s e c o n d ,   l e s s - f av o u r e d   a r e a s   c a n   b e n e f i t 
f r o m   a i d   i n t e n s i t y   t h a t   i s   10   p e r c e n t a g e 
p o i n t s   h i g h e r   f o r   m o d e r n i s a t i o n   o f   a g r i -
c u l t u r a l   h o l d i n g s   ( a n n e x   t o   r e g u l a t i o n 
(ec )  n o 169 8/ 20 05).

m o r e o v e r,   t h e   2 0 0 8   h e a l t h   c h e c k   l e d   t o 
t h e   s t r e n g t h e n i n g   o f   t h e   r e s t r u c t u r i n g 
i n s t r u m e nt s   a p p l i c a b l e   to   s t r u c t u r a l   a n d 
te r r i to r ial n e e ds .

6 2. 
t h e   e u  d a i r y   s e c t o r   i s   h i g h l y   c o m p e t i-
t i v e   i n   m a n y   m a r k e t   s e g m e n t s   b e c a u s e 
o f   t h e   q u a l i t y   a n d   i n n o v a t i v e n e s s   o f   i t s 
p r o d u c t s .   fo r   i n s t a n c e ,   c h e e s e   i s   t h e   e u 
d a i r y   s e c t o r ' s   b i g g e s t   e x p o r t   p r o d u c t , 
a n d   m o s t   e x p o r t s   d o   n o t   q u a l i f y   f o r   e x -
por t  refun ds.

i n   a d d i t i o n ,   a r t i c l e   6 8   o f   c o u n c i l   r e g u -
l a t i o n   ( e c )   n o   7 3 / 2 0 0 9   a l l o w s   m e m b e r 
s t a t e s   t o   g r a n t   a d d i t i o n a l   s u p p o r t   t o 
f a r m e r s   to   a d d r e s s   s p e c i f i c   d is a d v a nt a g -
e s   a f f e c t i n g   f a r m e r s   i n   t h e   d a i r y   s e c t o r 
(a m o n g   o t h e r s)   a n d   i n   a r e a s   s u b j e c t   t o 
r e s t r u c t u r i n g   a n d /o r   d e v e l o p m e n t   p r o -
g r a m m e s   i n   o r d e r   to   e nsu r e   a g a i ns t   l a n d 
b e in g   a b a n d o n e d   a n d /o r   to   a d d re ss   sp e -
c i f i c   d i s a d v a n t a g e s   f o r   f a r m e r s   i n   t h o s e 
are as .

57. 
t h e   q u o t a   s y s t e m   w a s   i n t r o d u c e d   i n 
19 8 4   t o   r e s p o n d   t o   t h e   o v e r - s u p p l y   o f 
m i l k   p r o d u c t s .   H o w e v e r,   t h e   s y s t e m   h a d 
to   f a c i l i t a t e   q u o t a   m o b i l i t y   w i t h i n   m e m -
b e r   st a te s   to   a l l ow   p r o d u ce r s   to   a c h i e ve 
s u f f i c i e n t   s c a l e   a s   p r o d u c t i o n   c o s t s   a n d 
i n c o m e   r e q u i r e m e n t s   i n c r e a s e d .   t h e 
m e m b e r   st a t e s   w e r e   f r e e   t o   c h o o s e   h o w 
t o   o r g a n i s e   t h e   q u o t a   s y s t e m ,   e i t h e r   a t 
n a t i o n a l   o r   r e g i o n a l   l e v e l .   c o m m u n i t y 
a n d   n a t i o n a l   a g r i - e nv i r o n m e nt a l   l e g i s l a -
t i o n   a n d   t h e   c r o s s - c o m p l i a n c e   r e q u i r e -
m e n t s   f o r   t h e   s i n g l e   f a r m   p ay m e n t   p r o -
v i d e   a p p r o p r i a t e   m e a n s   t o   e n s u r e   t h a t 
a ny   c h a n g e s   t o   p r o d u c t i v e   s t r u c t u r e s   o r 
f a r m i n g   p r a c t i ce s   d o   n o t   h a r m   t h e   e nv i -
ro nm e nt .

58. 
t h e   c o m m i s s i o n   t o o k   a c c o u n t   o f   t h e   i s-
s u e s   m e n t i o n e d   b y   t h e   co u r t   d u r i n g   t h e 
c ap heal t h chec k ( see rep l y to p oi nt 5 6) .

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

conclusions And  
recommendAtions

64 .
i t  sh oul d  be  po inted  out,   as  the  commis-
s i o n   d i d   i n   t h e   e u r o p e a n   c o u r t   o f   a u d i-
t o r s ’  s p e c i a l   r e p o r t   n o   6 / 2 0 0 1   o n   m i l k 
q u o t a s ,   t h a t   a d a p t i n g   m i l k   p r o d u c t i o n 
to   t h e   l e ve l   o f   i n te r n a l   co n s u m p t i o n   w a s 
n e i t h e r   a   p o l i t i c a l   n o r   a n   e c o n o m i c   o b -
jec tive.

w h e n   t h e   m i l k   q u o t a   s c h e m e   w a s   i n t r o -
d u c e d ,   a   g u a r a n t e e d   t o t a l   q u a n t i t y   w a s 
s e t   fo r   m o s t   m e m b e r   s t a t e s   c o r re s p o n d-
i n g   t o   d e l i v e r i e s   i n   1 9 8 1   p l u s   1   %   (a r t i-
c l e   5 c ( 3 )   o f   co u n c i l   r e g u l a t i o n   (e e c )   no 
8 0 4 / 6 8   a s   a m e n d e d   by   ar t i c l e   1   o f   co u n-
c i l   r e g u l a t i o n   (e e c )   no   8 5 6 / 8 4 ) .   i n   r e c -
o g n i t i o n   o f   t h e   p a r t i c u l a r   c i rc u m s t a n c e s 
o f   m i l k   p r o d u c t i o n   i n   i r e l a n d   a n d   i t a l y, 
th e  guaranteed  tot al   qu ant ities   for   th e se 
m ember states were based on 1983 deliv-
e r i e s   ( w i t h   re g a rd   to   i t a l y,   s e e   r e c i t a l   n o 
9 of council r egulation (eec ) no 856/84). 
i t a l y   w a s   t h e re fo re   t re a t e d   m o re   f a vo u r -
ably t han o the r m em be r s t ate s.

65 .
t h e   e xc e p t i o n a l   a n d   u n fo r e s e e a b l e   e c o -
n o m i c   c o n d i t i o n s   a re   a   h i g h l y   i m p o r t a n t 
f a c t o r   i n f l u e n c i n g   t h e   o p e r a t i o n   o f   t h e 
mar ket  measu res in 2 00 8 and 20 0 9 .

61

replies of tHe 
commission 

6 6.
t h e   f l e x i b i l i t y   p r o v i d e d   t o   t h e   c o m m i s -
s i o n   b y   t h e   s i n g l e   c m o   r e g u l a t i o n   i n 
r e l a t i o n   t o   t h e   o p e r a t i o n   o f   i n t e r v e n -
t i o n   m e a s u r e s   b y   t e n d e r   a f t e r   s p e c i f i e d 
q u a n t i t i e s   h a v e   b e e n   b o u g h t ,   a n d   t h e 
co m m i s s i o n's   u s e   o f   t h a t   f l e x i b i l i t y,   w a s 
re f e r re d  to  by   th e  co ur t  in  p ar a gr ap h   53. 
t h i s   h i g h l i g h t s   t h e   s c o p e   o f   t h e   m a r k e t 
m a n a g e m e n t   m e a s u r e s   t o   h e l p   p r o v i d e 
s t ab ili t y  eve n  in a m aj o r cr isis .

recommen dat io n n o  1
t h e   c o m m i s s i o n   w i l l   c o n t i n u e   t o   m o n i-
t o r   d e v e l o p m e n t s   i n   t h e   s e c t o r   c l o s e l y. 
i n   t h i s   r e g a r d   t h e   m a r k e t   r e p o r t s   t o   b e 
s u b m i t te d   to   pa r l i a m e n t   a n d   t h e   co u n c i l 
in 2010 and 2012 will provide useful indi-
c at i o n s   o n   p ro d u c t i o n   a n d   m a r k e t   d e ve l-
o p m e n t s   a s   t h e   2 0 1 5   e x p i r y   o f   t h e   q u o t a 
regime approach es.

following a request by the european coun-
cil, on 22 july 2009 the  commission adopt-
e d   a   c o m m u n i c a t i o n   'da i r y   m a r k e t   s i t u a-
t i o n   2 0 0 9 '   (co m( 2 0 0 9 )   3 8 5 )   t h a t   i n c l u d e d 
p o s s i b l e   o p t i o n s   t o   s t a b i l i s e   t h e   m a r k e t , 
w h i l e   co m p l y i n g   w i t h   t h e   o u tco m e   o f   t h e 
h e a t h   c h e c k .   t h e   co u n c i l   w i l l   d i s c u s s   t h e 
communication in s eptember 2009.

6 7. 
t h e   s t a b i l i t y   o f   n o m i n a l   p r i c e s   a n d   t h e 
f a l l   i n   re a l   p r i c e s   i s   a   p h e n o m e n o n   c o m-
m o n   t o   s e ve r a l   s e c to r s,   n o t   j u s t   t h e   m i l k 
s e c t o r.   m i l k   p r o d u c e r s   h a v e   n o t   b e e n 
alone in experiencing the absence of ‘sta-
b l e   p r i c e s   i n   r e a l   t e r m s’  a s   d e s c r i b e d   b y 
th e c our t.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

m o r e ove r,   p r i ce   d e ve l o p m e nt s   m u s t   a l s o 
b e   a s s e s s e d   i n   t h e   l i g h t   o f   i n t e r n a t i o n a l 
m a r k e t   d e v e l o p m e n t s   a n d   t h e   p r i c e   d i f-
f e r e n t i a l   w i t h   t h e   w o r l d   m a r k e t   p r i c e 
mus t b e  re du ce d .

t h e   s t r u c t u r a l   a d j u s t m e n t   o f   t h e   s e c t o r 
t o   n e w   m a r ke t   o p p o r t u n i t i e s   i s   s u p p o r t-
e d   b y   r u r a l   d e v e l o p m e n t   f u n d i n g ,   w h i l e 
d e c o u p l e d   d i r e c t   a i d   s h o u l d   h e l p   t o   s e -
cure  f ar m e r s' in co m e.

a s   p o i n t e d   o u t   b y   t h e   c o u r t   i n   r e c o m -
m e n d a t i o n   n o   2 ,   p r i c e   f o r m a t i o n   a t   t h e 
r e t a i l   l e v e l   i s   a   c o m p l e x   i s s u e ,   w i t h   t h e 
co s t   o f   r aw   m i l k   p l ay i n g   a   l i m i te d   r o l e   i n 
th e pro cess . H owever, in order to prov ide 
b e t t e r   i n f o r m a t i o n   t o   co n s u m e r s ,   p u b l i c 
authorities and marke t o p erato r s , p er ma -
n e nt  euro p e an  m o ni to r in g   o f  f o o d  p r i ce s 
and the supp ly chain was prop ose d in the 
co mm issi o n  co mmu ni c ati o n  ' fo o d  p r i ce s 
in e uro p e'  (co m(20 0 8) 821 f inal).

62

replies of tHe 
commission 

recommen dat io n n o  2
a  H i g h   le ve l   gro u p 2  o n   t h e   co m p e t i t i ve -
n e s s   o f   t h e   ag r o -f o o d   i n d u s t r y   r e c e n t l y 
p r o p o s e d   a   s e r i e s   o f   i n i t i a t i v e s   t h a t   t h e 
commission intends to implement dur ing 
t h e   co m i n g   m o n t h s.  th e s e   i n i t i a t i ve s   a re 
p a r t   o f   t h e   i m p l e m e n t a t i o n   o f   t h e   r o a d-
m a p   t o   i m p r o v e   t h e   f u n c t i o n i n g   o f   t h e 
fo o d   s u p p l y   c h a i n   t h at   wa s   p re s e nte d   by 
t h e   co m m i s s i o n   a t   t h e   e n d   o f   2 0 0 8   i n   i t s 
c o m m u n i c a t i o n   ' fo o d   p r i c e s   i n   e u r o p e ' 
( c o m( 2 0 0 8 )   8 2 1   f i n a l ) .   a m o n g   t h e   f i v e 
main components of the roadmap agreed 
b y   t h e   c o u n c i l   i n   d e c e m b e r   2 0 0 8   w a s 
p e r m a n e n t   eu ro p e a n   m o n i to r i n g   o f   fo o d 
prices and the supply chain. this monitor-
i n g   t o o l   s h o u l d   p r o v i d e   b e t t e r   i n f o r m a-
tion to consumers, public author ities and 
mar ket  operato rs an d so addres s th e  lack 
of transparenc y of prices and improve the 
k n o w l e d g e   o f   t h e   i m p a c t   o f   r e g u l a t i o n 
a l o n g   t h e   f o o d   s u p p l y   c h a i n .   t h e   c o m-
m i s s i o n   w i l l   p r e s e n t   a   f o l l o w - u p   r e p o r t 
o n   t h i s   r o a d m a p   a t   t h e   e n d   o f   2 0 0 9 .   i n 
addition, a fast-track sur vey of dair y mar-
k e t s   w a s   r e c o m m e n d e d   t o   t h e   e u r o p e a n 
c o m p e t i t i o n   ne t w o r k   f o o d   su b - g r o u p 
m e e t i n g   i n   e a r l y   ju l y   2 0 0 9 ,   t o   s t i m u l a t e 

2  the main role of the High level group (chaired by one 

of the commission vice-presidents with the participation 

of the commissioners responsible for agriculture and rural 

development, consumer protection and Health, was to provide 

advice to the european commission with a view to enhancing 

and promoting leadership of the european agro-food industry. 

it was designed to provide a political momentum for the 

process and a platform for discussion on sector-specific 

recommendations (but not to follow the dynamics between 

producer and consumer prices). the group aims to bring 

together key stakeholders in the food industry. representation 

was at the highest level. 

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

a n d   co o rd i n ate   s i m u l t a n e o u s   m o n i to r i n g 
a n d   d at a   co l l e c t i o n   by   n at i o n a l   co m p e t i-
t i o n   a u t h o r i t i e s.   fu r t h e r m o re,   a s   p a r t   o f 
the retail market monitoring exercise, the 
co m m i s s i o n   i s   a l s o   e x a m i n i n g   b e s t   p ra c -
t i c e s   a c r o s s   m e m b e r   s t a t e s   i n   t e r m s   o f 
c o n t r a c t u a l   r e l a t i o n s   b e t w e e n   s u p p l i e r s 
and retailers. the wor k will be completed 
by  the  end o f 2009.

a t   t h e   m o m e n t ,   c o n c e n t r a t i o n   i s   m u c h 
more impo r t ant  at the retail  l eve l  th an at 
th e pro cess ing  l evel.

69. 
t h e   c a p   h a s   a   r a n g e   o f   i n s t r u m e n t s ,   i n 
p a r t i c u l a r   i n   t h e   f i e l d   o f   r u r a l   d e v e l o p -
ment, that, in addition to promoting com-
p e t i t i ve n e s s,   s e e k   t o   p re ve n t   l a n d   b e i n g 
a b a n d o n e d,   to   p re s e r ve   a n d   i m p rove   t h e 
e n v i r o n m e n t ,   t o   b e t t e r   i n t e g r a t e   a g r i-
c u l t u ra l   a c t i v i t y   i nto   t h e   s o c i o - e co n o m i c 
co n te x t   o f   r u ra l   a re a s   a n d   to   s u p p o r t   re -
s t r u c t u r i n g   i n   t h e   s e c t o r s   m o s t   e x p o s e d 
to cha ng e.

63

replies of tHe 
commission 

recommen dat io n n o  3
• 	 T h e 	 C o m m i s s i o n 	 h a s 	 b e e n 	 l o o k i n g	
a t   t h e   p r o b l e m s   o f   l e s s - f a v o u r e d   a r e a s 
s i n c e   2 0 0 5 ,   t a k i n g   a c c o u n t   i n t e r   a l i a   o f 
t h e   co u r t   o f   au d i to r s '   s p e c i a l   r e p o r t   n o 
4 / 2 0 0 3 .   t h e   d i s c u s s i o n   h a s   a l r e a d y   r e -
s u l t e d   i n   a m e n d m e n t s   t o   t h e   l e g i s l a t i v e 
f r a m e w o r k   f o r   t h e s e   a r e a s   a n d   i s   s t i l l 
o n g o i n g   ( s e e   t h e   r e c e n t   c o m m u n i c a t i o n 
f r o m   t h e   c o m m i s s i o n   ( c o m( 2 0 0 9 )   1 6 1 
o f   2 1   a p r i l   2 0 0 9 ) ) .  t h e   s p e c i f i c   s i t u a t i o n 
o f   m o u n t a i n   a r e a s   w i l l   b e   a d d r e s s e d   b y 
a   c o m m i s s i o n   w o r k i n g   p a p e r   t o   b e   p r e -
sented in november 2009.  under both the 
f i r s t   a n d   s e c o n d   p i l l a r s ,   m e m b e r   s t a t e s 
m a y   a d a p t   t h e   i n s t r u m e n t s   a v a i l a b l e   t o 
t h e   s p e c i f i c   n e e d s   o f   r e g i o n s .   m e a s u r e s 
available  are   th e  possibilit ies  und er   ar t i-
c le  68   of   r eg ulation  (e c )   n o  73 /20 09   and 
t h e   p o s s i b i l i t y   t o   o f fe r   s p e c i f i c   r u r a l   d e -
velopment measures in regions according 
to t he ir ne eds.

• 	 T h e 	 e n v i r o n m e n t a l 	 a s p e c t 	 m u s t 	 b e	
t a k e n   i n t o   a c c o u n t   a t   t w o   l e v e l s :   ( i )   t h e 
l e g i s l a t i ve   l e ve l,   a t   t h e   s a m e   t i m e   m o n i -
t o r i n g   c o m p l i a n c e   w i t h   e n v i r o n m e n t a l 
p r o t e c t i o n   s t a n d a r d s   a n d   g o o d   a g r i c u l-
t u r a l   a n d   e n v i r o n m e n t a l   p r a c t i c e s   t h a t 
d e te r m i n e   d i re c t   a i d   a n d   a i d   u n d e r   r u r a l 
d evel op me nt   p r i or i t y   2 ;   ( ii )   t he   i ncenti ve 
level,  th roug h  aid  for   t he  int roduc t ion   of 
g r e e n e r   a g r i c u l t u r a l   p r a c t i c e s ,   s u c h   a s 
agro - environmental measures under rural 
development.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

64

replies of tHe 
commission 

71 . 
t h e   w o r l d   c h e e s e   m a r k e t   i s   v e r y   s i g n i f-
i c a n t   a n d   t h e   e u   i s   t h e   w o r l d   l e a d e r   i n 
t h i s   p ro d u c t   c a t e g o r y.   t h e   e u  d a i r y   s e c -
to r   i s   h i g h l y   co m p e t i t i ve   i n   m a ny   m a r k e t 
s e g m e n t s   b e c a u s e   o f   t h e   q u a l i t y   a n d   i n -
novati veness  o f its  p ro du c ts.

72. 
t h e   d o h a   d e v e l o p m e n t   a g r e e m e n t   h a s 
n o t   b e e n   r e a c h e d   a n d   f o r   t h e   m o m e n t 
t h e re   i s   n o   o b l i g at i o n   fo r   t h e   e u  to   a b o l-
ish its  exp or t su b sidies.

recom me ndatio n n o 4
the  co mm issio n  agre es  t hat  th e  e u  dair y 
s e c to r   m u s t   s t r i ve   to   o p t i m i s e   i t s   re t u r n s 
f ro m   va l u e - a d d e d   p ro d u c t s,   w h i l e   re co g-
n i s i n g   t h e   i m p o r t a n c e   o f   s a t i s f y i n g   c o n-
s u m e r   n e e d s   f o r   a   r a n g e   o f   h i g h - v a l u e 
a n d   b a s i c   p r o d u c t s ,   t h e   n e e d   t o   e x p l o i t 
a l l   m i l k   c o n s t i t u e n t s ,   i n c l u d i n g   p r o t e i n 
and  fat,   and  tak es  account  of  th e   di ve r si-
t y of milk produc tion conditions through-
ou t th e c o mm unit y.

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

special r eport no 14/2009 – Have the management instruments applied to the market in milk and milk products achieved their main objectives?

european court of auditors

special report no 14/2009

have the management instruments applied to the market in milk and milk products

achieved their main objectives? 

luxembourg: publications office of the european union

2009 — 64 pp. — 21 × 29.7 cm

isbn 978-92-9207-500-2

doi:10.2865/90382

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milk  Has  always  been  a  strategic  sec tor  of tHe  common 

agicultural  policy.  in tHis  special  report, tHe  european 

court  of  auditors  reviews tHe  operation  of tHe  marke t 

i n   m i l k   a n d   m i l k   p r o d u c t s   s i n c e   t H e   i n t r o d u c t i o n   o f 

milk  quotas  in 1984,  and  analyses  How tHe  commission  is 

managing tHe progressive deregulation of tHe milk sector 

initiated in 2003. 

b a s e d   o n   t H e   s i t uat i o n   at   t H e   e n d   o f   2008,  t H e   co u r t 

makes  recommendations to tHe  commission  on  a  number 

of  requirements: to  avoid  a  re turn to  overproduc tion, 

to  m o n i to r  p r i c e  f o r mat i o n  w i t H i n  t H e  f o o d  c H a i n,  to 

intensify reflection on tHe prospects for producers in less-

favoured regions and on tHe environmental consequences 

o f  a  g e o g r a p H i c a l  co n c e n t r at i o n  o f  p r o d u c t i o n,  a n d 

finally, to reorient milk production towards tHe needs of 

tHe  european  domestic  market  and towards  HigH  added 

value products wHicH can be eXported witHout budgetary 

assistance.

european court of auditors