MILK QUOTAS

When I was growing up, one of the big political talking points was the overproduction of food in the E.U. What had started as a sensible policy in the post-war world, namely that Europe's citizens should have enough to eat - had become a victim of its own success. Scarcity of product had been replaced with mountains of butter, and lakes of wine.

One of the biggest problem areas was milk. In 1984 a quota system was set up, with each Member State having a national quota, which was then divided up into quotas for individual dairy farmers. Production over and above the quota led to a fine. However, in order not to penalise efficient farmers, quotas were tradeable, allowing the good to buy up quotas from the poor.

This somewhat cumbersome system is now to go; from tomorrow, dairy farmers will be able to produce as much milk as they like. Milk production, particularly in the four northern countries of Ireland, England, Holland, and Denmark, is expected to soar. In Denmark, they expect to produce an extra billion litres of milk a year.

Good news for farmers? Well, the problem with extra production in a free market is that it inexorably leads to lower prices. In the case of milk, that will be exacerbated by the fact that only about 4-5% of production is traded internationally, so an extra 5% at the farm gate could easily lead to a doubling of the amount traded. It will take a couple of months for the new rules to filter through the whole system, but it would not surprise me if less efficient farmers were calling for the reimposition of quotas later this year.

Walter Blotscher