Dick Groves
Editor, Cheese Reporter


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A Whole New Era: The EU Without Milk Quotas

Thirty-one years ago next week, on April 2, 1984, the European Community introduced a new quota system to limit milk production increases. And next week, the global dairy industry enters a new era, when the European Union’s 31-year experiment with milk production quotas comes to an end.

How much has changed in those 31 years? Well, for one thing, the European Community back in 1984 consisted of just 10 countries, one of which was West Germany (it may be recalled that, in 1984, there was also an East Germany). Today’s European Union has a total of 28 member countries.

Also, when milk production quotas were implemented, the European Community was the world’s leading dairy exporter, and the EU continued to hold the top spot for a number of years thereafter.

Here’s how Bill Dobson, an agricultural economist at the University of Wisconsin-Madison, put it in a 1996 Babcock Institute Discussion Paper: “Collectively, EU firms are the world’s largest dairy exporters, accounting for about half of world dairy exports in recent years.”

Just for a bit of a US perspective on this point, back in 1984, US dairy exports were valued at $379 million. US dairy exports have been valued at more than $379 million every single month since February of 2011.

So what has happened in the years since the EU implemented its quota program? For one thing, it lost its standing as the world’s leading dairy exporter to New Zealand, despite the fact that the EU grew from 10 countries back in 1984 to 28 countries today.

According to the International Dairy Federation’s annual World Dairy Situation report, in 2013, New Zealand accounted for 29 percent of global dairy trade, followed by the EU at 24 percent and the US at 15 percent.

So strictly from a market share perspective, since it implemented its milk production quota scheme 31 years ago, the EU has gone from being by far the world’s leading dairy exporter to being the world’s number two dairy exporter.

What other impacts have we seen from the EU’s quota program? Certainly it’s impossible to ignore the “European-ization” of the US dairy industry over the past three decades.

More specifically, European companies have greatly expanded their presence (if they had a presence), or gotten a toehold, in the US dairy business over the past three decades.

There are a number of examples of this point, but we’ll mention just a couple. Back in 1982, a French dairy company then known as Besnier started producing Brie and Camembert at a cheese plant in Belmont, WI.

Today, that company is known as Lactalis, and at least according to one ranking (by the Wisconsin Cheese Makers Association, as detailed by John Umhoefer in his “WCMA Perspectives” column in our Aug. 8, 2014 issue), is the number seven US producer of natural cheeses, with plants in Wisconsin, New York, and Idaho.

Ireland’s Glanbia didn’t even exist back in 1984 (although two of its predecessors, Avonmore and Waterford, did). Today, Glanbia Foods ranks fourth in US natural cheese production (according to the WCMA’s rankings) and first in the production of American-type cheese (according to Glanbia itself).

What prompted Lactalis, Glanbia and many other European companies to expand in the US? No doubt the existence of production quotas in the EU, and its resulting negative impact on expansion and growth, was one of the key reasons.

This point can be further illustrated by noting that two other leading US cheese producers, Saputo and Agropur, are headquartered in Canada, which has also had a milk production quota system in place for many years.

So what does the future hold for the EU dairy industry, now that milk production quotas are about to be relegated to the scrap heap of dairy policy history? At the individual country level, the answer would appear to be: it depends.

In the 2013/14 quota year, which ended about a year ago, the majority of EU member countries were actually producing under their quota. Specifically, eight EU member countries exceeded their 2013/14 quotas by anywhere from 0.6 percent to 4.0 percent, while the other 20 EU member countries were under their quotas, and 14 countries were more than 10 percent under their quota. Total EU milk deliveries during 2013/14 were 4.6 percent below the total quota volume.

So in the coming years, it’s probably safe to predict that some EU countries aren’t going to be expanding their milk production all that much. By contrast, a few other EU countries can hardly wait until the quota scheme ends.

Ireland, for example, appears poised to greatly expand its milk production, and its dairy exports, in the years ahead. Evidence of this can be seen simply by visiting the website of Ireland’s Department of Food, Agriculture and the Marine, where the countdown to the end of quotas is posted prominently (“Milk Quota abolition in...”)

As the quota program comes to an end and milk production increases (at least in some EU countries), where will that additional milk end up? According to a December 2014 European Commission report, most of the EU dairy processing investment announced or finalized between 2012 and 2014 has been directed at increasing drying capacity (close to 50 percent of the investment) and improving cheese manufacturing (20 percent).

The end of EU milk production quotas guarantees that the global dairy landscape in the coming years will look different than does the current dairy landscape.DG

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