CAP expert and agricultural policy economist at Trinity College Dublin Alan Matthews has said the €150m from the EU Commission to incentivise reduced milk production as part of its new dairy aid package may bring about an increase in dairy incomes by €289m in the final quarter of this year.

The economist has predicted an average cost of 7c/kg for milk not delivered, which would lead to a net gain in farm incomes of €289m. He says this figure is the closest possible outcome of the programme.

However, if EU states were to add conditional assistance to the scheme, this would incentivise more applicants and increase the net gain even further.

Income transfer mechanism

According to Matthews, consumers, processors and retailers have a big role to play in the implementation of the programme, as its success will depend on the price they pay for milk. This income transfer mechanism will determine the resulting price for milk producers.

While the scheme could boost farm incomes at the end of this year, the European Milk Board maintains a lot of questions will remain unanswered until the package comes into effect.

Matthews further shares this view. He said a lot of applicants would be intending to reduce production anyway, and only view this package as “an additional bonus”. In order to entice other producers to the scheme, he says a payment of 14c/kg would be sufficient.

Matthews said that while the new package is a “financial incentive to farmers who voluntarily reduce production”, more details need to be disclosed to farmers before its introduction.

He also said that, as a whole, the new scheme is “not a good use of public funds” and will end up costing the economy money in the long run. He said the package is only “second best” and the EU needs to find other methods of managing income volatility.

This new experiment is crucial for the dairy industry, said Matthews. If it is a success, it will then be made a permanent scheme in the next round of CAP discussions.

The new package

The new EU dairy aid package was announced last week, including €150m in funding to incentivise a reduction in milk production across EU member states.

However, with milk collections reducing in Ireland, it remains to be seen whether the incentive to reduce milk production will be in much demand here. It is expected that the scheme will be much more in demand in Belgium, France and Germany, where milking takes place all year round.

Read the Irish Farmers Journal’s previous coverage of the dairy aid package here.

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