Committee Reports::Report No. 45 - Milk Sector::09 December, 1976::Report


1. Situation in the Milk Market

For some time now there has been a serious and persistent imbalance in the Community milk market as between supply and demand. Community milk production has in the long term (1960-75) been increasing by about 1.7 per cent a year due to a steady growth in milk yields. On the other hand, human consumption of milk products, apart from cheese, having remained constant for a number of years has more recently begun to decline. Another important factor affecting consumption has been the change in recent years from liquid skimmed milk to manufactured powdered skimmed milk for which market outlets in the internal and international markets alike have been difficult to find.

This structural imbalance which is also to be found in the important milk producing countries outside the EEC has had serious financial implications for the Community. Between 1968 and 1975,10 per cent of the EEC’s butter production and 75 per cent of its liquid and powdered skimmed milk production have had to be marketed at reduced prices. In 1975, 24 per cent of expenditure from the Guarantee Section of EAGGF went on this sector. Stocks of skimmed milk powder in intervention rose from 763,000 to 1,352,000 tonnes between June, 1975 and June, 1976. In the same period, the Community’s stocks of butter rose from 232,000 to 353,000 tonnes.

2. Commission’s Proposals

On 14 July, 1976 the Commission submitted to the Council a programme of action aimed at achieving a balance in the milk market in the period 1977-80. A number of concrete proposals for Regulations and a Decision which are designed to achieve this balance are at present before the Council. The Joint Committee has examined these proposals which deal with the following matters:—

(i)Payment of premiums to dairy farmers who undertake to stop marketing milk or to convert to beef production [R/1742/76].

(ii)The suspension of all national and Community aids to investment in the milk sector except for investments to promote increased sales outlets for milk. The Disadvantaged Areas Scheme, however, is not to be affected and some investment aids under the Farm Modernisation Scheme may be continued in the case of farms which are self-sufficient in fodder [R/2388/76].

(iii)A co-responsibility levy, at a rate to be fixed annually, on all milk supplied to dairies and on direct sales of dairy products from farms except those in the disadvantages areas [R/2391/76].

(iv)Financial contribution by the Community towards the cost of providing milk at reduced prices to schools [R/2389/76].

(v)A tax on vegetable and marine oils and fats at a rate corresponding to the levy on milk [R/2390/76].

(vi)Measures prohibiting the marketing and use in manufacture of other products of certain milk products if they contain non-milk fats or non-milk protein [R/1991/75].

(vii)Measures involving Community financial participation to accelerate current national programmes for the eradication of brucellosis and tuberculosis and to provide for the introduction of harmonisation of procedures for the control and eradication of bovine enzootic leukosis [R/2387/76].

3. Acknowledgements

In the course of its examination of this matter the Joint Committee had an opportunity of studying memoranda received from the Irish Farmers’ Association and the Irish Creamery Milk Suppliers’ Association. In addition, members of the Joint Committee held meetings with delegations from both Associations at which all aspects of the problem were fully discussed.

The Joint Committee wishes to express its thanks to both Associations and to record its appreciation of the considerable assistance received from them.

4. General Views of the Joint Committee

In the Joint Committee’s opinion it cannot be contested that action is required to correct the present imbalance in the Community milk market. Moreover, it accepts that the problem cannot be solved by measures to increase consumption only and that some restriction of supply is also required. However, the Joint Committee does not agree that the problem can be equitably solved by blanket provisions applied uniformly throughout the Community nor does it consider that the Commission’s package adequately deals with the root causes of overproduction.

The Joint Committee’s view is that the overproduction is due to the fact that the price policy has had the effect of bringing poor or marginal land into milk production because of availability of heavily subsidised fertilisers in some countries and it notes that the Commission’s proposals for suspension of national aids do not extend to these subsidies. The position is otherwise in Ireland where grasslands eminently suitable for dairy production have not been developed to anything like full capacity. The Commission’s package, taken as a whole, would seriously damage the dairy industry in this country in the interests of solving a problem to the creation of which our contribution has been minimal. Largely because of the efforts of An Bord Bainne, Ireland has not sold butter into intervention since she joined the Community. Moreover, the Irish share of the skimmed milk powder mountain has been small. Of the 1.3 million tonnes held at the end of June, 1976 Ireland’s share was 110,000 tonnes and this has since been reduced to about 50,000 tonnes.

While, therefore, the Commission’s package contains some useful proposals, the Joint Committee does not believe that taken as a whole, it sufficiently recognises the Irish position and the Joint Committee’s comments on particular aspects of the package should be understood in the light of this general opinion.

5. Non-marketing and Conversion Premiums

The Commission’s scheme involves the payment of non-marketing premiums to dairy farmers who undertake to stop milk marketing and of conversion premiums to farmers who convert to beef or sheep production. The scheme would be mandatory on all Member States and would have to be financed as to 50 per cent from national funds. The detailed provisions are set out in the Appendix to this report.

Insofar as it involves the slaughter of cows the scheme is wholly unacceptable from an Irish viewpoint. At our stage of agricultural development we need more and not less cows if our natural resources are to be adequately utilised. The non-marketing premium in particular would be quite unsuitable in Irish conditions. If it has to be introduced, the condition that dairy cows can be sold only for slaughter should be removed. It should be permissible for cows to be sold to recipients of conversion premiums for cross breeding for beef production.

Without the same restriction on the sale of dairy cows the conversion premium scheme would not be as objectionable although both farming organisations have some reservations on matters of detail.

In the Joint Committee’s view the success of the conversion premium scheme may well depend on the stability of the beef market being protected. It is therefore with some disquiet that it learned of recent reports that restrictions on imports of beef from non-member countries are to be relaxed. The Joint Committee believes that if such imports have to be allowed at all there should be no general relaxation. Such imports should be permitted only under licence and licences should only be granted to meet deficiencies in specific areas of the Community market.

6. Co-responsibility Levy

The levy proposed is to be between 2 and 4 per cent of the target price, the rate for 1977/78 to be 2.5 per cent.

The Joint Committee finds it very difficult to accept that the proposed levy would establish, as the Commission claims, “a more direct link between the production and sale of milk”. Indeed it is to be feared that the net result will be an increase in price to the consumer. The Joint Committee is advised that all the present indications go to show that consumption in Great Britain is very sensitive to price changes. Granted the favourable position of New Zealand butter and cheese on the British market, any comparative deterioration in the competitiveness of Irish dairy products can only lead to a decreasing share of that market.

While the Joint Committee would therefore prefer to see the levy dropped, it urges that if it has to be accepted it should be fixed within the range of 0 to 4 per cent of the target price. It notes that the intention is to devote proceeds of the levy to sales promotion and research. This should be done by the creation of a special fund exclusively for the purpose and outside the intervention system.

7. Suspension of Aids

The Joint Committee is strongly opposed to the proposal for the suspension of national and Community aids. Having regard to the under-developed state of agriculture and the difficulty of increasing employment opportunities in this country, it is imperative that investment should be pursued as a long-term objective aimed at making the maximum use of our resources. Any cut back of investment in agriculture even in the short term is completely unacceptable in our circumstances.

The Joint Committee is informed that about four-fifths of the development plans accepted under the Farm Modernisation Scheme have a milk base and consequently a suspension of aid could have a disastrous effect on a scheme which has not been a striking success even as it is. Moreover, it would be a retrograde step to suspend IDA grants to processing plants when the need seems to be for new processes which might increase outlets for milk.

8. Measures to Promote Consumption

As measures directly aimed at promoting consumption the Commission are proposing a tax on vegetable and marine oil and fats, the prohibition of the use of non-milk fats and protein in milk products and the supply of subsidised milk to schools. From the information available to it, the Joint Committee believes that the tax on vegetable and marine oil and fats is most unlikely to be accepted. The Joint Committee has no objection to the other two proposals.

9. Eradication of Brucellosis, Tuberculosis and Leukosis in Bovines

If this proposal is accepted, Ireland could qualify for aid from the Guidance Section of EAGGF if it submits a plan for accelerating the eradiction of brucellosis and tuberculosis in cattle which is acceptable to the Commission. Ireland is virtually free of leukosis. The aid would work out at about £39 per cow and £19 per bovine animal other than cows slaughtered under the plan. The subvention would work out at 15%-20% of cost per reactor in Ireland.

The Joint Committee is advised that the acceleration could be difficult to demonstrate in the present period of financial restraint and, furthermore, that if acceleration resulted in large-scale slaughterings, our production and output of beef and dairy products would be affected and farmers could have to pay very high prices for replacement stock. Nevertheless, the Joint Committee welcomes this proposal and considers that it should be supported.

10. Monetary Compensation Amounts

It must now be obvious to everyone that the system of monetary compensation amounts, which was designed to neutralise the effect of currency fluctuations on the common pricing arrangements, is seriously imperilling the whole Common Agricultural Policy. It seems to the Joint Committee that when anything as fundamental as a cut in milk production is being mooted, Ireland should press for some definite assurance that action will be taken on the adoption of realistic representative conversion rates for CAP purposes before it accepts measures that will do nothing to promote the well-being of Irish agriculture and may well work to its detriment.


Chairman of the Joint Committee.

9th December, 1976.