NI: Milk quota trading chaos

By James Campbell

Recent panic in the UK market for milk quota has seen dramatic rises in prices quoted by brokers. But there has been relatively little quota traded and there were signs this week of some reversal of prices.

Word has been filtering out that quota held on 31 March 2005 is likely to be the first possible basis for any future decoupled dairy compensation payments under the reformed CAP support system to be applied in England. And there is still the chance that the decoupled dairy support could be based on quota held on 31 March 2006 or 2007.

The lack of clarity on this makes the timing of quota purchase an even bigger gamble than it has been in past years. But by Wednesday this week, brokers suddenly seemed to have plenty of quota available for sale.

At the end of last week Derbyshire based broker Ian Potter wad indicating a sales price of 14.25 pence per litre for clean quota with 4% butterfat, a rise of 2.45 p/l on the previous week. This followed a jump in the price from 9.5p/l to 11p/l in late June as farmers in England were being advised of the government's intention to decouple future dairy compensation payments at the earliest opportunity and that quota held on 31 March 2004 would determine the level of that future compensation.

This also stoked up the market for quota to lease this year and Potter was indicating lease prices of 5.2p/l at the end of last week (up by 1.2p/l on the week before).

Given the proposed cuts in milk prices under the CAP reform and the need for UK non producing quota holders to dispose of almost 1000 million litres of quota before 1 April 2004, the recent rises in price are remarkable.

The level of compensation payments could not justify the current prices being paid for quota.

Co Tyrone broker Roy McCracken says that very little quota was being traded at the higher prices because the rising market always makes sellers reluctant to deal. Sales did take place at 12 to 14p/l and leases at 4 to 4.5p/l.

In Northern Ireland, the Minister favours full decoupling including the dairy compensation along the same lines as DEFRA if it is possible to obtain agreement on this. But agreement may not be forthcoming. The end result may be that we don't have decoupling of the dairy premium in NI preferring to make the compensation payable to those who produce the milk and suffer the price cuts during 2005 to 2008 and then decouple in 2008 on the basis of the quota then held.

An added complexity is that the NI Department has not ruled out a "flat rate" payment per hectare as its means of decoupled support to NI farmers. If this approach is adopted (highly unlikely on current thinking of UFU) it could involve lumping all of the dairy compensation entitlements in with the beef/sheep/arable entitlements in one big pot of money to be divided over all eligible hectares to produce a flat rate payment per hectare (possibly differing rates for lowland and LFA).

If this option is chosen for NI, the dairy farmers who try to acquire extra entitlements to future compensation by purchasing milk quota this year will be well and truly sickened. It makes quota trading an even bigger gamble than before.