The current low price of milk has undoubtedly reduced the income of many dairy farmers to levels that appear unsustainable in the long term. However, this low price has largely been caused by factors that are temporary in nature, most notably, oversupply of raw milk in the UK and the weakness of EU and world markets for dairy products.
For the longer term, it is likely that the next round of WTO agriculture negotiations will further restrict the use of export subsidies and the increasing exposure of EU markets to world markets. In addition, enlargement of the EU is likely to lead to pressure on the Community budget, if the CAP is not reformed.
In order to produce a sustainable dairy industry that can compete successfully on the growing world market for dairy products, the industry must be given the opportunity to trade free of artificial constraints imposed by the WTO, as well as by the EU dairy regime. The EU price support system is focused on butter and skimmed milk powder, both in clear surplus, hampering the development of the most efficient farmers and represent significant financial burden to most farmers.
The Government therefore favour the orderly phasing out of milk quotas in combination with a reduction in EU support prices to world prices, and direct but degressive aid to help farmers adjust to the new regime. During the forthcoming review of the milk quota system, due to start in June, the UK will be pressing to achieve confirmation that quotas will not continue after they lapse on