Use it or lose it for milk quota

By James Campbell

The UK Department for Environment, Food and Rural Affairs (DEFRA) has confirmed that Non Producing Quota Holders (NPQH) will be allowed until 31 March 2004 to sell their milk quota or resume production of milk. If they have not done so by that date, the quota will be confiscated to the national reserve.

This announcement has come from DEFRA in the wake of the "Thompsen Case" judgment of the European Court and is in line with an interpretation reported by the Journal on the day of the Royal Ulster Winter Fair last December. Immediate reaction to the news that day saw some brokers drop the price of quota as low as 8 pence/litre but it subsequently steadied to around 10 p/l. Since then the price has risen to between 10.5 and 11.5 p/l depending on butterfat. This has been helped by the EU Commission proposals that future entitlements to direct aid for milk producers would be based on the volume of quota actively held at 31 March 2004.

But a look at the anticipated levels of compensation and more importantly the reduction in support prices for dairy products being proposed by the EU Commission suggests that the quota price trend should again be downwards, given the confirmation that NPQH must sell, use or lose their quota within the next year.

On the compensation front, it appears that even if the full compensation is payable, it could be around 2011 or 2012 before the milk quota holder will have received income of 10 pence per litre in respect of any quota held at 31 March 2004. This assumes a Member State national envelope contribution which the UK cannot be guaranteed to pay.

Meanwhile milk quotas will become cheap if not valueless, as a result of the Fischler mid-term review proposals, according to leading Irish agricultural economist Professor Seamus Sheehy.

The EU Commission is ignoring the meltdown of quotas inherent in their proposals, he has claimed.

Professor Sheehy said that the Commission proposed to cut milk prices by 25 per cent over five years from 2004 and to prolong a "reformed dairy quota system until 2014/15 at the same time."

However no mention was made by them of the interaction between price levels and quotas.

"The value of quotas is proportional to the level of prices prevailing under the quota regime," he said.

"The current value of a freely traded quota is the present value of its expected contribution to income over its lifetime. The proposed price reduction, if agreed will therefore devalue quotas."

While confirming the 31 March 2004 deadline for NPQH to sell quota or resume production, DEFRA also stated that those who have their quota confiscated will be able to have it restored if they resume production within a certain period (probably two years but it might be longer).

There may also be an opportunity for the NPQH to retain quota by becoming a landlord who rents out his land and quota to a tenant. DEFRA will shortly issue proposals for a 70 per cent usage rule for milk quota.