Milk is sold either through contract or cooperatives. The ratio of cooperatives in total milk production is different in the individual member countries of the EU because of differing systems of agriculture. The ratio of cooperatives is the lowest in Spain and Greece (18 and 20 percent), and is the highest, in Denmark, Ireland, Finland, Sweden and the United Kingdom (96-100 percent). Within the UK, milk and dairy products are mainly distributed through cooperatives.
The milk production scenario in the UK is not just limited to distribution factors but also to its production which seem to determine the general outlook of the milk sector4. The milk sector in UK is a large one and there are around 12 million cattle in the UK mainly reared for beef or milk production. Department of Environment, Food and Rural Affairs or Defra is responsible for UK milk production and marketing policy. Defra has the responsibility for sponsorship of the dairy industry in the UK and helps to sustain the industry. The Common Agricultural Policy5 and milk quotas and UK policy on dairy are controlled and implemented by the Defra. Defra thus upholds global Milk and dairy policies and also represents UK interests at the EU Management Committee for Milk and Milk Products6.
The pre-1984 scenario in the dairy sector showed higher production quantities and as there were no quota constraints, the more efficient producers could expand on a large scale whereas the least efficient ones had to leave milk production. Milk production quotas that were introduced by 1984 tend to thwart these market patterns and even allow the least efficient milk producing units to stay in business putting a check on the more efficient ones who have competitive advantages. There was an excess milk production in the pre-1984 scenario and the export facilities or even the disposal facilities were time consuming, expensive or even insufficient or unavailable7.
What made the EU reform'
The additional production quota, introduced in 1984, has been designed to reduce the imbalance between supply and demand for milk and milk products and consequently the resulting structural surpluses8. Thus with the quota system, excess production and surpluses could be handled more efficiently. Some of the factors responsible for introduction of quotas include budgetary pressures, over or excess supply of milk when productivity increased much more than the consumption and also external pressures.
According to the Defra, the milk quotas system was introduced by the European Community in April 1984 in which member EU states were allocated a national quota of milk production and supply. This was done to curb excess production of dairy products and also to reduce expenditure on the disposal of surplus milk and milk products9. Pre-1984, expenditure on support and removal in the dairy sector had reached 5.2 billion euro that was 30% of the total agriculture budget10.
Reform - The use of quotas/ super levies as the main instrument
The quota limits were in place for EU milk production since 1984, and individual milk producers were subject to these policy changes.