The dairy sector is one of the most heavily supported agricultural sectors within the EU, both when it comes to level of support and to measures used to regulate the market. The same principles apply to dairy products as to other agricultural products, though. Prices are supported through tariffs, exports subsidies and intervention. In addition to these normally applied measures, the EU also applies a milk quota system, which sets a ceiling to the amount of milk every farmer is allowed to produce without penalty. The system was introduced nearly 20 years ago and was initially meant to be temporary, but has been prolonged three times.
The aim of the report is to clarify any consequences that may arise if the milk quotas were abolished. Using a sector model (CAPRI) the effects on the milk production in EU, including geographical aspects and farmer income, are studied. Also welfare effects for the consumers and the society are being analyzed.
The main findings are that a deregulation will redistribute the milk production between the EU countries, and will also affect for example the meat production. The farm gate milk price will decrease and will consequently affect farmer income negatively. Tax payers and consumers will gain from an abolished milk quota system.