Phasing out the Milk Quota in the European Union
Submitting Institution
University of ManchesterUnit of Assessment
Economics and EconometricsSummary Impact Type
PoliticalResearch Subject Area(s)
Engineering: Food Sciences
Studies In Human Society: Policy and Administration
Summary of the impact
Research undertaken at the University of Manchester (UoM) has made an
important contribution to
the body of evidence that informed the decision in 2008 on non-renewal of
the milk quota in the
EU, and continues to inform this policy debate through research that both
demonstrates the
economic gains inherent in the removal of the milk quota system, alongside
a thorough evaluation
of different scenarios for the quota's eventual withdrawal. The insights
gained from this analysis
are also informing EU policy discussion on the environmental impacts of
milk quota elimination.
Underpinning research
From a position within the heart of these debates, David Colman OBE
(Professor of Agricultural
Economics, UoM, 1979-2006) has played an important role in establishing
the economic case for
the elimination of EU milk quotas.
Context: The European Union (EU) milk quota regime was introduced
in 1984 to restrict milk
production levels, and control the high budgetary cost of managing EU
dairy commodity surpluses.
The quota system will automatically expire in 2015 unless legislation is
passed to renew it. In 2008,
the EU Agriculture Commissioner announced the intention not to renew the
quota system beyond
2015. Nevertheless, there continues to be considerable debate within the
EU about whether or not
the quota system should be renewed, and if it is not to be renewed then
whether to eliminate the
quota with a soft or hard landing.
Research: In 1997, Colman (alongside Burton, Rigby and Franks)
undertook a study for the
Ministry
of Agriculture, Fisheries and Food (MAFF) that highlighted the very
high costs the quota
regime imposed upon UK dairy farmers [E]. This initial research leads to
the conclusion that it
would be in the UK's interest to abolish the scheme. This analysis both
informed and was extended
in two journal articles [C][D]. A key finding of this work concerned
the first estimates of the
very high costs more efficient producers — those wishing to expand
production or newly
enter production — had to pay to lease or buy additional quota. It
was estimated that the cost
in 1997/8 was equivalent to 12.5% of total sales revenue, much of which
was being paid to `sofa
farmers' who had quit milk production. These retired producers had not had
to buy quotas initially,
it was a capital right conferred for free by policy makers, but one that
could be used to create an
annual rental or capital sum at the cost of continuing producers. Ultimately,
these findings
demonstrated that the extant quota system was placing severe
restrictions on the
development of the dairy industry in the UK, with research outputs
strongly arguing that
milk quotas should be abolished.
On the basis of the research in [E] and an earlier version of [D], the
Department of Environment,
Food and Rural Affairs (DEFRA) commissioned a report on the potential
costs and benefits of
phasing out the milk quota system in the EU [B]. Colman was both the
coordinator and the editor of
this study, and an author or co-author on four of the nine chapters. Using
the models developed in
[C], this report demonstrated the economic benefits of milk quota
elimination. Synthesising the
analysis in the report, Colman (and Harvey) concluded that the total
annual benefit to the EU of
eliminating the milk quota system is €2.27 billion per year [Ch.9 in B]. A
further important
conclusion was that farmers (alongside the rest of the dairy product
processing and marketing
chain) were unnecessarily restricted by the milk quota system, reducing
the rate at which they are
innovating, adapting and expanding into new markets to meet new demands
[B]. Both these
findings confirmed that the economic arguments for quota elimination
established in [C] and [D] for
the UK applied also to the EU. These findings were subsequently revisited
and confirmed in [A].
References to the research
(all references available upon request — AUR)
The research was published in leading journals in the field, as well as
within several in-depth
Centre for Agricultural, Food and Resource Economics (CAFRE) reports,
produced for MAFF and
later DEFRA.
[A] (2004) Colman, D., Farrar, J. & Zhuang, Y. `Economics of Milk
Production: England and
Wales 2002/03 — Special Studies in Agricultural Economics Farm Business
Unit Report No.
58' CAFRE (January) (141pp.) (AUR)
[B] (2002) Colman, D. (ed.) `Phasing out the EU milk Quota' DEFRA/
SEERAD/ NAWAC/
DARDNI (especially Ch. 9: Harvey, D & Colman, D. "Political Economy
Assessment of
Reform Options") (234pp.)(AUR)
[C] (2002) Colman, D., Burton, M, Rigby, D. & Franks, J. "Structural
Change and Policy Reform
in the UK Dairy Sector" Journal of Agricultural Economics, 53(3)
645-663 (20 citations:
Google Scholar) doi: 10.1111/j.1477-9552.2002.tb00042.x
[D] (2000) Colman, D. "Inefficiencies in the UK Milk Quota System", Food
Policy 25(1) 1-16 (42
citations: Google Scholar) doi:10.1016/S0306-9192(99)00061-5
[E] (1998) Colman, D., Burton, M, Rigby, D. & Franks, J. `Economic
Evaluation of the UK Milk
Quota System: Report to MAFF', CAFRE, School of Economic Studies, UoM
(98pp.)(AUR)
Details of the impact
Pathways: Following the submission of the 2002 report `Phasing out
the EU milk Quota', DEFRA
organized a meeting in Brussels attended by around ninety key players from
across the EU, to put
the UK case for eliminating milk quotas to member countries. At this
meeting, Colman led the team
of four economists presenting the results from the 2002 report relating to
the UK dairy industry. In
2003, following a debate by the European Community authorities — the
European Commission
(EC) and the Council of Europe (COE) — it was decided to extend milk
quotas only up to 2015, (EC
reg. No.1788/2003). Additionally, the findings of the 2002 report also
influenced the UK
government's on milk pricing and milk quota being cited in reports from
the House of Commons
Environment, Food and Rural Affairs Committee in both 2004 (HC 335), and
2007 (HC 546-11).
In 2006, DEFRA commissioned a follow-up report from a team of economists
from Drew
Associates, led by Colman. This study used the models reported in [C] to
analyse the best process
and scenarios for the elimination of the milk quota. The analysis fully
supported the 2008 move to
"progressively increase national milk quotas before 2015 in order to
reduce quota rents, permit
adjustment and achieve a `soft landing.'" [1].
Reach and Significance: In 2008, the EU Agricultural Commissioner
announced the decision that
milk quotas in the EU were to be eliminated in 2015. Colman's work has
thus had impact on:
(i) EU policy discourse leading up to this decision by the Commissioner
(ii) The evaluation of various scenarios for phasing out the quota
(iii) Subsequent analyses of the impact of quota elimination on land use
and the
environment in the EU.
Evidence of Colman's impact is provided by EU policy documents,
supportive testimonials from
those involved in the policy process and the frequency of references to
his work and ideas in
studies commissioned by the EC. For instance, in 2009, the European
Parliament (Policy
Department B) published a report on the reform of market regulation
mechanisms in which it is
stated that in reference to the 2008 decision to eliminate milk quotas: "following
the same approach
as the analyses drawn up by some economists (Colman, 2002), this
decision was made in
consideration of the fact that milk quotas were undermining the sector's
competitiveness" [2]. The
influence of Colman's analysis is also evident in a 2008 study by the
European Parliament (Policy
Department B) analysing possible future scenarios for milk quota as it
references Colman's work
[B][D][E] twelve times in its assessment of both the regional and EU wide
impacts of alternative
quota elimination strategies [3]. Subsequent to these reports, the EU
decided in the 2008 Common
Agricultural Policy (CAP) `Health Check' to increase national quotas by 1%
per annum, a `soft
landing' that would slowly erode their value and prepare the way for the
quota to expire completely
in 2015.
This evidence of Colman's influence in European Parliament documents is
underscored by
testimony from Richard Ashworth (MEP), member of the Committee for
Agriculture and Rural
Development in the European Parliament, who confirmed that: "Professor
Colman's comments
greatly added to the discussions and were of immense value in the
debate...Professor Colman's
research remains valid with reference to the next round of discussions
around the CAP, with the
current consensus being that the quota will be removed in 2015, but
other controls may be
introduced" [4]. Similarly, Colman's work also impacted on the
response of DairyUK (an
organization representing the interests of the entire dairy supply chain)
to the stakeholder
questionnaire conducted as part of the 2008 CAP health check. The Policy
Director of DairyUK,
summarised DairyUK's position on the milk quota as follows:
- "[The] Milk quota should be eliminated as they were acting as an
effective constraint on the
total EU milk production, (response to Question 19 CAP Health Check
Stakeholder's
Questionnaire).
- It would be irresponsible simply to do nothing until 2015 and let
the quota regime expire as
all available studies indicated that his would impose a rapid and
disruptive price adjustment
on the industry. Instead, the EC should engineer a smooth landing by
manipulating quota
amounts and demand management tools, (response to Questions 20 &
21 CAP Health
Check Stakeholder's Questionnaire)."
He further notes that: "These positions were greatly informed by the
work of Professor David
Colman [references B-E in Section 3 above] in which he
demonstrated clear economic arguments
for both the elimination of milk quota and the gradual expansion of
quota from 2008 to 2015 to
ensure a smooth landing." [5]
Additionally, it was recognised that the elimination of milk quotas had
implications not only for the
dairy industry but also for both land use and landscapes in the EU. In
2008, Alliance
Environnement submitted a wide-ranging report to the European
Commission, commissioned by
DGARD, on the wider environmental impacts of milk quotas. Again Colman was
at the centre of
this work, alongside six other leading agricultural economists from across
the EU [6]. Four years
later, in 2012, the EC (Joint Research Centre) brought a number of strands
together in more
general assessment of the impact of the CAP on agricultural landscape.
Within the final report,
Colman's research was cited, with insights from both [B] and [6] used to
analyse the impacts of
changes in the dairy industry on landscapes in the EU [7].
Timeline & Legacy: Following the 2008 CAP decision, the EU has
continued to commission
studies re-evaluating the impacts of quota removal on the dairy industry.
Colman's work is still
clearly influential in these recent debates.
Firstly, in 2010 the EU Commissioner for Agriculture and Rural
Development "adopted a proposal
on `contractual relations in the milk sector'... to help the sector
prepare for a `soft landing' when
quotas come to an end in 2015." This proposal was outlined in the EU
report `Evolution of the
Market Situation...' which report sought to synthesise three reports
submitted to the Directorate-General
for Agriculture and Rural Development (DGARD). One of these reports
(Tonini &
Domínguez) contained a review of six suitable econometric approaches for
the quantification of the
economic effects of the European milk quota scheme. It suggested that all
of these approaches
have merit, and one of these six approaches was the method presented by
Colman et al in [C][8].
Secondly, in 2011, DGARD commissioned a further re-evaluation of the milk
quota system by LEI
(Netherlands). This report identifies nine key objectives of EU policy
towards milk, one of which is
the structural evolution of the milk sector, again placing the insights
from [C] at the heart of the
narrative, in order to argue for the negative impact of milk quotas on the
structural evolution of the
dairy sector. On 14th March 2012 EU Regulation 261/2012
(amending EC reg. No. 1234/2007), put
in place the pathway for a `soft landing', with the update to the
`Evolution of the Market Situation...'
report subsequently noting:
Both the evolution of milk production versus milk quotas, and the
downward trend in quota
prices show that "soft landing" is on track. In the vast majority of
Member States, quotas are
no longer relevant to limiting production and the quota price has
already reached zero or is
approaching it. Against this analysis, the Commission is of the view
that no change is
required in the existing framework, which has been providing certainty
to milk producers
since 2008 and is proving its efficiency in securing a smooth
phasing-out towards a quota
free environment. [9]
Finally, the issue of supply controls remains salient, with the director
general of Dairy UK recently
arguing — in response to European Parliament proposals to retain a `strong
element of supply
management' after the 2015 quota abolition — that "the removal of milk
quotas presented the
European dairy industry with `enormous opportunities for growth that
will provide a strong
foundation for the future... The EU must continue the evolution of CAP
dairy sector policy towards
greater market orientation. The industry has been building its plans for
the future based on this
expectation" [10].
Sources to corroborate the impact
(all claims referenced in the text)
[1] (2008) Drew Associates `Phasing out the EU Milk Quota: Final Report'
DEFRA et al (April) p.2
[2] (2009) `Agriculture and Rural Development: The Reform of Market
Regulation Mechanisms',
Policy Department (B), European Parliament (November) p.29
[3] (2008) `The Future of Milk Quota: Different Scenarios', Policy
Department (B), European
Parliament (16th January)
[4] Testimonial from South East England MEP (27th June 2013)
[5] Testimonial from Policy Director, DairyUK (9th April 2013)
[6] (2008) Alliance Environnement `Evaluation of the
Environmental Impacts of Milk Quotas: Final
report delivered to Directorate-General for Agriculture and Rural
Development' (July)
[7] (2012) Lefebvre, L. et al `The Influence of the Common
Agricultural Policy on Agricultural
Landscapes' JRC Scientific and Policy Report, European Commission pp.5,58
[8] (2010) `Commission Proposes New Measures to Improve Future Stability
in the Dairy Sector,
Europa Press Releases (IP/10/1691) (9th December); (2010) COE
`Evolution of the Market
Situation and the Consequent Conditions for Smoothly Phasing out the Milk
Quota System'
EC (8th December); (2009) Tonini, A. & Pérez Domínguez, I.
`Review of Main Methodological
Approaches Quantifying the Economic Effects of the European Milk Quota
Scheme',
European Commission, Joint Research Centre, Institute of Prospective
Technological Studies
(p.7,11,20,32)
[9] (2011) `Evaluation of CAP Measures Applied to the Dairy Sector: Final
Report', DGARD/ LEI,
Wageningen University, Netherlands (November); (2012) COE `Evolution of
the Market
Situation and the Consequent Conditions for Smoothly Phasing out the Milk
Quota System:
Second `Soft Landing' Report' EC (11th December) p.7
[10] (2013) `UK Dairy Industry urges EU to Reject Milk Supply Controls'
Farmers Guardian (15th
May)