Committee Reports > List of Committees > Joint > 1990 > Committee on the Secondary Legislation of the European Communities (6th Committee) > Report No. 02 - Milk Quotas

A. INTRODUCTION

Recent Community Legislation

1.Since a previous Joint Committee issued its 7th report (PL. 2735) on the introduction of the system on 31 October, 1984 there have been several changes both at Community and national level in the operation of the milk quotas and super levy system. A number of further changes were affected by Council Regulations (EEC) Nos. 3879, 3880, 3881 and 3882 which were adopted on 11th December, 1989. In light of these developments the present Joint Committee has reviewed the operation of the system and has considered how it might be developed with advantage in the future.

Consideration by Sub-Committee

2.The review was carried out for the Joint Committee by its Agricultural Sub-Committee under the Chairmanship of Deputy John Ellis. The Joint Committee is indebted to Deputy Ellis and his colleagues for the substantial volume of work which they performed so pains-takingly on its behalf.

Acknowledgements

3.In carrying out its task the Joint Committee received considerable assistance from written and oral material supplied by the Department of Agriculture and Food, the Irish Co-operative Organisation Society (ICOS), an Bord Bainne, the Irish Creamery Milk Suppliers Association (ICMSA) and the Irish Farmers’ Association (IFA). In particular the Joint Committee wishes to express its appreciation of the assistance received from Mr. Tom O’Donnell and Mr. Dermot McCarthy of the Department, Mr. John Tyrrell, Director General of ICOS, Mr. Nicholas Simms, Market Research Manager of an Bord Bainne, Mr. Tom O’Dwyer, Mr. Con Scully and Mr. Ciaran Dolan, Chairman, Deputy Chairman and Economist, respectively of the ICMSA and Mr. Tom Tynan, Secretary, Dairy Committee and Liquid Milk Committee and Mr. Michael Slattery, Chairman, National Dairy Committee of the IFA, all of whom attended meetings of Deputy Ellis’s Sub-Committee and gave the Sub-Committee unstintingly the benefit of their knowledge and expertise.

B. COMMUNITY MILK QUOTAS/SUPERLEVY SYSTEM

Development of System

4.The milk quotas/superlevy system was introduced in April, 1984 when other methods to curb overproduction had failed. Originally it was to operate for five years but in 1988 it was extended to cover the eight year period ending in March, 1992. Under the system reference quantities are fixed for each Member State and, subject to these overall limits, individual quotas are allocated to individual producers or purchasers depending on whether the Member State has opted for Formula A or Formula B for the region concerned. Under Formula B purchasers distribute their quotas among their own producers. Deliveries and sales in excess of quotas are penalised by the imposition of a superlevy levy amounting to 100 per cent. of the target price. The superlevy is payable under Formula A by producers and under Formula B by purchasers who recovered it from producers in the prices paid.

5.The reference quantities for Member States were fixed originally on the basis of 1981 production (1983 in the case of Ireland and Italy) plus 0.5 per cent. When the market situation continued to deteriorate it was decided in 1986 to effect a 9.5 per cent. reduction in the supply of milk over a two year period. This was achieved by (a) a 3 per cent. reduction on the basis of a voluntary scheme for cessation of production by farmers who received aid over a seven year period, (b) a temporary suspension of 5.5 per cent. compensation at reducing rates being payable to producers for quantities so suspended and (c) a 1 per cent. reduction to be achieved by farmers not exceeding their quotas under a stricter system. When in 1988 it was decided to continue the quota system to 1992 it was decided to consolidate this reduction thereby continuing the 5.5 per cent. suspension to the end of the period.

Increase in Quotas

6.In a report which it made to the Council in August, 1988 the Commission stated that the situation had much improved in so far as restoring a better balance in the market was concerned. The report pointed to “the 7.4 million tonnes decline in deliveries, the drop in the manufacture of intervention products, the disappearance of public stocks and the virtual obsolescence of the intervention buying system”. The Commission also drew attention to an improvement in the international market situation effected by the operation of the Community system. Nevertheless export markets remain fragile. It seems that reduction in Community deliveries has been offset by increased production elsewhere, particularly in the United States, New Zealand and Australia. The Commission fears that, unless there is international agreement to restrict production, milk production in the OECD countries will increase by about 0.5 per cent. a year while milkfat consumption has levelled off.

7.Nevertheless though satisfied with the control of production the Commission expressed dissatisfaction with some of the mechanisms employed. In its view the dissuasive effect of the superlevy had been weakened by the payment of compensation in respect of quantities of quota currently suspended even in cases where the producer had exceeded his available quota. Accordingly the Commission proposed that the right to compensation should be confined to those who do not exceed their quotas.

8.The Community rules require Member States in the allocation of quotas to take account of producers who had been the victims of natural disasters in the reference year and also permits Member States to give quotas or additional quotas, subject to availability, to young farmers, new entrants, farmers with sub-viable quotas and developing farmers. In its report of August 1989 the Commission acknowledged that these special categories have not been adequately catered for in all Member States albeit the pattern of problems across the Member States has not been uniform. The Commission accordingly proposed allocating extra quota to those categories while maintaining deliveries in line with the level of actual deliveries and for this purpose to increase the global quantity allocated for each Member State by 1 per cent.

9.The Council accepted the Commission’s proposals and implemented them by the adoption in December, 1989 of the Regulations to which reference has already been made. Technically this has involved the conversion of 1 per cent of the 5.5 per cent. suspended quantities into a definitive reduction and a corresponding increase in the Community Reserve to enable the global quantities of the Member States to be increased by 1 per cent. The total compensation payable to producers in respect of suspended quantities is to be maintained by an increase in the prescribed rates of compensation.

Community Reserve

10.The Community Reserve was originally “constituted with a view to supplementing, at the beginning of each period of 12 months, the guaranteed quantities of the Member States in which implementation of the levy system raises particular difficulties liable to affect their supply or production”. One part of the Reserve as at present constituted is still devoted to this purpose and is used to benefit Ireland, Northern Ireland, Luxembourg and Spain. Council Regulation (EEC) No. 3881/89 fixed the allocation for this purpose for 1989/90 at 2,082,885.740 tonnes for the year 1989/90 of which Ireland’s share was 303,000 tonnes.

11.Two other allocations have been made to the Reserve from which all Member States benefit. An allocation of 600,000 tonnes was provided for 1989/90 to enable Member States to provide quotas for producers who made no deliveries in the reference year because they were participating at the time in schemes for the non-marketing of milk for limited periods in consideration of the payment to them of non-marketing and conversion premiums. In case 120/86, Mulder v Minister van Landouw en Visserij [1989] 2 CEC 138 the Court of Justice held that it was invalid to exclude such producers from quota entitlement on the expiry of those schemes and it was accordingly necessary to adopt new measures to cater for them. Under Council Regulation (EEC) No. 764/89 they can qualify for a quota amounting to 60 per cent. of deliveries during the twelve calendar months preceding the month in which application was made for non-marketing or conversion premium. Such quotas which are being provided from the Community Reserve may not be transferred by sale or leasing before the end of the current superlevy period but may be transferred by inheritance.

12.The third element of the Community Reserve is the provision to enable the global quantities of the Member States to be increased by 1 per cent. for the benefit in the first instance of special category producers. The allocation for 1989/90 is 1,039,885.740 tonnes.

Reference Quantities of Member States

13.Council Regulation (EEC) No. 3879/89 fixes for each of the three 12 month periods from 1st April, 1989 to 31st March, 1990 the guaranteed total quantity in thousands of tonnes for each Member State as follows:-

Community Rules on Transfer and Re-allocation of Quotas

14.Amendments made in 1985 enabled a producer with both a delivery and direct-sales quota to increase one at the expense of the other and provided generally for the reallocation of unused quotas. However the reallocation of quotas was restricted in 1987 when it was provided that quantities available for redistribution may be reallocated as a matter of priority to producers meeting certain objective criteria rather than proportionately among producers who have exceeded their quotas. Moreover Member States were permitted to impose the levy on producers who exceeded their quotas by more than 10 per cent. or 20,000 kilograms even if the overall deliveries to the purchaser did not exceed his quota. An amendment made in 1987 allows Member States to authorise the temporary transfer in advance for a period of twelve months of part of a quota which a producer does not intend to use so that reallocation need not always take place after the event.

15.Although there had been compensatory schemes for the discontinuance of milk production at national levels, from 1984 and at Community level from 1986 there was no specific Community legislation regulating the surrender of quotas by a producer giving up milk production. In Cases 201 and 202/85, Kipgen (nee Klensch) v Luxembourg State Secretary for Agriculture (1986) CCH 14382, the Court of Justice held that surrendered quotas should be allocated to the national reserve and not to the purchaser to whom the producer used to deliver. Council Regulation 1899/87 provided for compensation for those discontinuing production who had not availed of the national or Community schemes and for the released quotas to be added to the national reserve.

16.When land is sold, leased or transferred by inheritance all or part of the corresponding quota must be transferred to the purchaser, tenant or heir though, if the purchaser is a public authority, the vendor, if he intends to continue milk production, may be allowed to retain all or part of the quota. However, Member States are empowered to add to the national reserve part of the quota not transferred, or the whole quota in the case of a sale to a public authority.

Future of System

17.No decision has been taken to extend the milk quotas/superlevy system beyond 31st March, 1992. The Commission is due to submit a report before the end of the 1990/1 marketing year when an evaluation will be carried by the Council of Ministers. The general expectation is that a quota system will continue in some form. Some indications were given by the Commission in 1987 and 1988 as to its thoughts on the future of the system and while these may not reflect the views of the present Commission it is proposed to refer to them briefly.

18.In its report for 1988 the Commission stated:-

“Beyond that date (i.e. 31st March, 1992), the Commission believes that the quota system should continue in a form adapted to the development of the situation. Hence, once long-term market equilibrium has been reached, the flexibility which is at present lacking in the system should be introduced to allow for greater specialisation. However, given the productivity reserves in the sector, it is essential that a form of quantitative limitation should continue, but it should apply at purchaser or dairy level only”.

Here the Commission was repeating what it said in a report made to the Council on Milk Quotas in October, 1987 when it suggested that “the link between the quota and the holding, presently existing within the system, should be removed” and that “the value of the quota, as distinct from the land associated with the quota, generated at present within the system should be eroded”. In the Commission’s view the quota system would be continued after 1992 but “it would then only be applicable at the level of the milk purchaser/dairy and there would be no link between the quota and the holding”.

Market Situation

19.The raison d’etre of the milk quotas/superlevy system is the maintenance of a reasonable balance between supply and demand with consequent relief for the Community budget. As already indicated the Commission’s report of August 1989 disclosed a marked improvement in the general market situation. Intervention stocks had been run down to almost zero, intervention buying of skimmed milk had ceased, and there had been a large reduction in the quantities of butter bought in (25,000 tonnes in 1988 as compared with 380,000 tonnes in 1987 and 647,000 tonnes in 1988). High prices were recorded for milk and there had been increases in the prices for other milk products.

20. However the World Dairy Review of an Bord Bainne for 1989 reveals that a sharp decline in product prices occurred towards the end of that year which it attributes to cutbacks in EEC market support measures. The Review points out that these measures have had the effect of cutting EEC expenditure and bringing prices close to intervention levels. An Bord Bainne has forecast that there will be renewed sales to intervention in the near future in a number of Member States due to a rapid fall in prices.

Uruguay Round of GATT Negotiations

21.The current round of GATT negotiations which are due to be completed at the end of 1990 has as one of its principal objectives the greater liberalisation of agricultural trade through the improvement of market access and the introduction of increased discipline in the use of all subsidies. While the participating countries are apparently agreed on the long term aims of substantially reducing support and protection levels and ensuring that policies are more responsive to the market there is a wide difference between the negotiating position of the Community on the one hand and that of the USA and the Cairns group of non-subsiding countries (Australia, New Zealand, Brazil etc.) on the other. The latter propose full liberalisation and the elimination of practically all subsidies and support. Notwithstanding this position a US Farm Bill before Congress provides for increased subsidies on exports and a broader range of support for agricultural products. The Community favours a progressive approach towards achieving balanced markets without settling on a final level of support. It would accept tariffs to some extent if US deficiency payments were converted to tariffs. No doubt the outcome of these negotiations will influence the decisions to be taken on the operation of milk quotas after 1992. The Department of Agriculture believes that the outcome will bring tighter disciplines and controls in the operation of the common agricultural policy and its various support and protection arrangements.

C. MILK QUOTAS/SUPERLEVY SYSTEM IN IRELAND

National Quota

22.Ireland is a single region for the purposes of the super-levy system which is administered by the intervention agency, the Department of Agriculture and Food. Formula B has been adopted so that reference quantities or quotas have been fixed for each purchaser i.e. co-operative or dairy based on its purchases in 1983. There are about 65 purchasers, six of whom account for over 50 per cent. of all milk. The European Communities (Milk Levy) Regulations, 1985 obliged each purchaser to allocate a reference quantity or quota to each producer based on the quantity of milk delivered by him in 1983. The number of producers making deliveries has declined to 50,000 from 60,000 in 1984 and from 85,700 when Ireland joined the Community in 1973.

23.The guaranteed total quantity or national quota originally allocated to Ireland was 5,280,000 tonnes. All of the original quota was allocated, each co-operative/dairy obtaining a basic quota of 1983 purchases plus certain increases and the producers supplying them were allocated their appropriate quotas under the 1985 Regulations. Ireland’s present basic national quota is 5,068,500 tonnes and present individual quotas reflect the reductions effected at Community level which are referred to in paragraph 5 below.

Redistribution of Quotas among Producers

24.The fact that quotas are land-linked and based on deliveries in a particular reference year renders the system inherently inflexible. A major problem in the administration of the scheme has been to accommodate the needs of producers with small quotas or farmers with no quotas who seek quotas or additional quotas and who are deemed worthy of special treatment on policy grounds. Various schemes have been introduced in Ireland since the inception of the system to deal with this problem.

25.In November 1984 a national reserve of seven million gallons was set up by the purchase of quotas under a milk cessation scheme financed from public funds. This reserve was used to benefit farmers affected by animal disease problems or personal long term illness in 1983. In July 1985 a reserve of six millions was established by percentage deductions from the quotas of certain suppliers in order to provide additional quotas for those who commenced deliveries between 1st January, 1983 and 21st May, 1984.

26.In December, 1987 a national reserve was established by means of deductions or clawback from quotas being transferred with land sold or leased. Since 1st April, 1989 these arrangements apply only to leases of land with quotas in excess of 50,000 gallons. The rates of clawback are 10 per cent. between 50,000 and 75,000 gallons, 15 per cent. between 75,000 and 100,000 gallons and 25 per cent. above that figure. The special categories qualifying for reallocation of quotas are (a) young farmers under 35 years of age with no quota who satisfy certain criteria and (b) producers with quotas of less than 10,000 gallons.

27.A milk restructuring scheme was initiated following on the adoption of Council Regulation (EEC) 1899/87. Under the scheme it is open to cooperatives and dairies to buy up quotas from farmers in their area who want to cease milk production definitively. The rate of payment may vary from area to area but must be not less than the rate of compensation payable in respect of withdrawals from quotas by the Community. The quotas so freed may be resold at a price equivalent to the purchase price to priority categories of producers in order of priority. The priority categories and order of priority were recently revised in line with recommendations of the Milk Quota Review Group established by the Minister for Agriculture and Food and now are (i) producers with no quotas or whose quotas do not exceed 30,000 gallons with 10 per cent. of available pool being set aside for allocations of between 5,000 and 10,000 gallons to new qualified entrants to dairying and with a further 10 per cent. being set aside for producers of less than 30,000 gallons who have been following a development plan, the maximum allocation not to exceed the production target or the average allocation to suppliers in the general 0-30,000 gallons category by more than 5,000 gallons, (ii) producers whose deliveries in 1983 were abnormally low due to animal disease problems in the 1978-83 period and (iii) other producers with quotas of 30,000-50,000 gallons. Categories (ii) and (iii) can be considered only when category (i) has been satisfied in full. The maximum quota after allocation to a producer is set at 50,000 gallons and the minimum allocation (which may be varied by individual cooperatives or dairies) is set at 1,000 gallons. Another important change made in the scheme for 1989-1990 is aimed at redressing regional imbalances. Where quotas are available in excess of the needs of the priority categories, the surplus will be held as flexi-milk within the cooperative or dairy area for two years. Any quota still unsold after that period will be transferred to a national pool for sale to priority categories in other areas.

28.Flexi-milk consists of the unused quota within a cooperative/dairy which may under the Community Regulations be reallocated to producers in the same region. In Ireland this reallocation is made on the basis of priority categories of suppliers. Co-operatives and dairies are required to reallocate 80 per cent. of their flexi-milk to (i) producers with no quotas or quotas under 30,000 gallons (75 per cent.), (ii) producers whose deliveries in 1983 were abnormally low due to animal disease problems in period 1978 to 1983 (10 per cent.), (iii) producers with quotas of between 30,000 and 50,000 gallons (10 per cent.), (iv) producers with quotas of under 50,000 gallons following a development plan (5 per cent.) The remaining 20 per cent. of flexi-milk is distributed among all producers, whose requirements have not been satisfied, on the basis of an across the board flat-rate allocation.

29.A scheme for temporary leasing of quotas was introduced for the year 1988/89. Under the scheme as it operated for 1989/90 producers can offer to other producers within the same co-op or dairy, a portion of their quotas which they consider they will not use. As a general rule producers may lease up to 70 per cent. of their quotas. However, producers whose herds were depopulated under the Bovine Tuberculosis or Brucellosis eradication schemes in 1988 or prior to 31 July in 1989 may lease up to 99 per cent. of their quotas. Available quotas must be offered in the first instance to producers in the priority categories and only when their needs have been met can quotas be offered for leasing to other producers. The priority categories have been brought into line with those operating for the restructuring scheme and for the distribution of flexi-milk. Briefly the categories are: those with no quotas or quotas less than 30,000 gallons as the first priority; and those in the 30,000 to 50,000 gallon quota bracket as the second priority and within that bracket preference will be granted to producers whose deliveries in 1983 were abnormally low due to animal disease problems in the 1978-1983 period. The payment for leased quotas this year is 30 pence per gallon.

30.Amendments made to the national regulations (See S.I. Nos. 51 and 143 of 1987) provide that a producer may transfer his deliveries from one purchaser to another at the beginning of any quarter provided three months’ notice has been given to the purchasers involved. This amends the basic national regulation which provided for supplier transfers on an annual basis only. Where a supplier’s quota is transferred during the course of the year the amount of quota transferring to the new purchaser is the unused balance.

31.Quota transfer are also effected between purchasers on the basis of sales or leasing transactions. The national regulations provide that the lease of a milk quota and the lands to which it is attached must be a legal transaction drawn up for a minimum period of three years. The lessee is required to take full possession of the lands for that period. Where a quota is being transferred between areas by sale or lease, the Department’s approval must be obtained. Such approval is given only after thorough investigations in relation to the land transaction have been completed. In the case of quota transferring in this way from a date other than the beginning of a superlevy year, the amount of quota transferred for the balance of the year is in proportion to the quantity of milk deliveries in the corresponding period of 1983.

Allocation of Additional Quotas

32.The increase of 1 per cent in the global allocations of Member States has resulted in an additional 11 million gallons quota becoming available for allocation in Ireland in 1989/90. It has been decided that the following categories of producers will be given additional quotas from this allocation:-

(i)small scale producers whose available quotas do not exceed 12,800 gallons and who satisfy certain criteria regarding their milk production in either 1987/88 or 1988/89;

(ii)young farmers under 35 years of age with specified educational and training qualifications who have no quotas at present;

(iii)Other hardship cases eligible under Articles 3 and 4 of Council Regulation (EEC) No. 857/84 e.g. (a) producers whose milk production during the reference year was affected by animal disease (brucellosis or bovine tuberculosis) in all or part of the milk herd and who did not already obtain a quota allocation under previous national reserves and (b) producers who adopted milk production plans under the Farm Modernisation Scheme in the period 1981-1984 and whose quotas exceed 12,800 gallons but are less than 20,000 gallons.

33.Quotas amounting to eight million gallons have been allocated by the Department of Agriculture and Food to the small scale producers in category (i); it is understood that there were 22,000 applicants. The young farmers in category (ii) will receive two million gallons and quotas will be distributed by lottery. The distribution of the remaining one million gallons among the hardship cases in category (iii) will be determed by the Minister in consultation with the Milk Quota Appeals Tribunal which he established on 12th March, 1990 to assist individual producers who have suffered hardship under the quota system. It is intended that this Tribunal will also adjudicate on quota issues where disputes arise and will examine individual cases referred to it and make a recommendation to the Minister in each case.

34.To qualify for additional quotas small producers have had to comply with the following conditions:-

(a)they must have delivered a quantity of milk to a purchaser equivalent to 90 per cent. of their available quota in either of the previous two years i.e. 1987/88 or 1988/89;

(b)producers who have quota leased out to another producer (either by way of land lease or under the temporary leasing scheme) were not eligible for an allocation unless the leasing out of quota was due to herd depopulation as a result of animal disease (brucellosis, tuberculosis or leukosis);

(c)the first 2,000 gallons of milk quota purchased by the producer under the restructuring schemes was excluded in calculating his available quota, and

(d)any quota leased in by the producer was excluded in calculating his available quota.

35.Quotas allocated under this scheme are subject to the following conditions:-

(1)Such quotas may not be offered for sale under a Cessation Scheme or Restructuring Scheme and may not be leased under the Temporary Leasing Scheme;

(2)In cases where producers sell or lease their land the quota allocated will be returned to the national reserve for reallocation to other eligible producers in the relevant category; and

(3)Where producers do not continue in milk production the quotas allocated will revert to the national reserve for reallocation to other eligible producers.

36.In order to obtain a reasonable balance in the quota allocations to be made to the cooperatives and dairies, and the need to avoid hampering the restructuring of milk production, the Minister decided that in relation to the 10 million gallons to be allocated between small scale producers and young farmers no individual cooperative or dairy would receive quota allocations in excess of a limit of 1.25 per cent. of their quota level.

Mulder Quotas

37.Under the terms of this scheme, provisional quotas of about 20 million gallons have been allocated to some 1,800 Irish producers who participated in the Non-Marketing or Dairy Herd Conversion Schemes and who fulfilled the conditions of the scheme for the allocation of quotas on a provisional basis. Allocations will only be made definitive if the producer has in a twelve-month period prior to 29 March 1991 produced a quantity equal to at least 80 per cent of the quota provisionally allocated. In a recent High Court Decision (O’Brien v Minister for Agriculture and Food), Mr. Justice Murphy held, in line with a Commission ruling, that a producer who comes within this scheme must deliver the allotted gallonage from the original holding on which he ceased production under the premium scheme. Accordingly, any production of milk on other holdings held by the producer, or on combined holdings held under partnership arrangements between the ‘Mulder’ producer and another producer, cannot be taken into account in assessing whether the producer has fulfilled the 80 per cent. production requirement. The Commission has also ruled that in the event of milk deliveries being made by a ‘Mulder” producer from another holding (i.e. other than that held by him before the end of his non-marketing or dairy herd conversion period) and if no quota attaches to that particular holding, then all of the milk deliveries from that holding will be subject to the normal rules for the payment of the super levy.

D. VIEWS OF THE JOINT COMMITTEE

Policy

38.Since Ireland joined the Community the number of milk producers here has declined dramatically. Notwithstanding that decline the number of applicants for the small scale producers (under 12,800 gallons) additional quotas would indicate that many of the remaining producers do not enjoy what by any standards can be regarded as a viable quota. Granted the economic circumstances prevailing and the particular importance of the dairy sector in the Irish economy the Joint Committee believes that as many as possible of those able and wishing to do so should be afforded the opportunity of earning a livelihood in the dairying sector. The Joint Committee recognises that the present quota system necessarily imposes constraints on what can be achieved but subject to those constraints it believes that the objective should be that milk production should support the greater possible number. Accordingly it recommends that any quota that becomes available either through the flexi-milk, short term leasing or restructuring schemes should be used to benefit farmers with quotas of less than 30,000 gallons before becoming available to those with larger quotas.

Existing Schemes

39.The Joint Committee has received complaints that the present rules governing the transfer of quotas are not always observed with the result that less quota is available for those whom the schemes are intended to benefit. The Joint Committee received no hard evidence of such irregularities but it believes that the complaints are so widespread that something must be done to restore confidence. Accordingly it considers that action must be taken to exercise some supervision centrally over distribution of quotas.

It was suggested to the Joint Committee that a national register of quotas should be maintained on computer by the Department of Agriculture and Food and that cooperatives and dairies should be required to communicate details of quota transfers to the Department so as to maintain the national register up to date. It was represented to the Committee that this should not be unduly expensive to implement having regard to the fact that cooperatives and dairies already maintain computerised records. The Joint Committee was impressed by the argument that a national register would enable the Department to exercise a general supervision over the distribution of individual quotas and it recommends that such a register should be established.

Review of System

40.Presumably in preparing its report to the Council on the future of the milk quotas/superlevy system the Commission will be undertaking a fundamental review of the system. In the Joint Committee’s view this should afford the opportunity of questioning the basis of the allocation of quotas to Member States. Notwithstanding the concession allowed in the choice of the reference year it may be questioned whether in its treatment of Ireland the Community gave sufficient weight to the unique dependence of Ireland on milk production. The introduction of the quota system came at a time when Ireland was left with higher unit costs in terms of yield per cow and herd sizes relative to our Community competitors. In the Joint Committee’s view there is a case to be made for a higher quota in the case of Ireland. At the least the Joint Committee believes that the remaining 4.5 per cent. of the suspension of quota should be restored firstly to producers with quotas of less than 30,000 gallons and ultimately to all producers.

Tie with Land

41.One of the questions which the Commission will be addressing is the link between the quota and the land. Quotas have become very valuable and those who have them see them as a valuable right of property. Nevertheless it appears from the Kipgen (nee Klensch) case referred to in paragraph 15 above that as a matter of European law the rights a producer enjoys in respect of his quota are not equivalent to his rights over the land to which it is attached. This seems to be the case also in domestic law. The clawback arrangements applicable in Ireland in the case of leasing constitute a restriction of a producer’s right of disposition. Community legislation, however, does not attempt to deal exhaustively with the legal status of quotas in national law and as a matter of Irish law it has been recognised that “a milk quota is a valuable intangible asset [per Mr. Justice Murphy in Lawlor v Minister for Agriculture (1988) ILRM 400 at 414]”. Clearly any change that would have the effect of reducing the value of such an asset to a producer requires ample justification.

42.After careful consideration of the issues involved the Joint Committee has reached the conclusion that the link between quota and the land ought to be maintained. To break the link in Ireland would in the Committee’s view lead to a concentration of large quotas with the large producers and a complete liberalisation would almost certainly denude the more disadvantaged areas of quota altogether. Any such developments would in the Committee’s opinion result in fewer people obtaining a livelihood from milk production and so conflict with what it considers ought to be the policy objective of keeping as many as possible on the land.

43.The Joint Committee does however recognise that a rigid land-quota link can produce inequity and that there is need for some flexibility. Exceptions might be allowed in some cases of a producer moving to a new holding as for example a producer in an expanding urban area who wishes to move production to a new holding. Again there is a case for flexibility where members of the same family on holdings in the same locality wish to transfer quotas among themselves.

Trading in Quotas

44.One proposition put to the Joint Committee was that Ireland should favour international trading in quotas. While the extent to which support from other Member States may be forthcoming is in some doubt it was suggested that such trading would be in Ireland’s interest because national problems can never be dealt with adequately within the constraints of the present national quota. Moreover it was contended that such trading should work in the national interest because of the natural advantages Ireland enjoys for milk production compared with some other areas in the Community. On the other hand arguments were addressed to the Joint Committee against the proposition on the grounds that Ireland is not in an advantageous position vis-a-vis some other areas in the Community, Irish producers might find it difficult to compete for financial reasons and Irish quotas would be vulnerable to take-over. On the whole the Joint Committee considers that the proposition merits a detailed examination and to determine where the balance of advantages lies from an Irish point of view it recommends that an in-depth study be carried out by an Agricultural economist.

Exemptions from Quota System

45.Another proposition considered by the Joint Committee was that there should be a floor or minimum quantity up to which production would be permitted outside the quota system. The Joint Committee recognises that this suggestion seeks to deal with the situation obtaining in Ireland where many producers have quotas which are very small. It is, however, inescapable that the adoption of any such proposal would result in an overall increase in production and for that reason the Joint Committee concluded that it was not a practical proposition.

Taxation

46.The Joint Committee was strongly pressed by the ICMSA to support a proposal that small and medium scale producers should be assisted in purchasing additional quotas through a reform of the tax system. As such producers are unable to fund the purchase of quotas from low after-tax income the ICMSA urges that expenditure on such purchases should be allowed as a deductible expense in computing income for income tax purposes. The ICMSA would confine the relief to farmers whose quotas do not exceed 40,000 gallons and who purchase additional quotas through an approved milk quota restructuring scheme. It would be a condition of the relief that the farmer would continue to supply milk and that in the event of his disposing of his quota, say, within five years, there would be a clawback of any tax relief obtained. The Joint Committee has no reason to doubt that such a scheme would be technically feasible and it recommends that it be considered in light of whatever decisions are taken on the future of the milk quota/superlevy system after 1992.

Market Situation

47.Cuts in production could be accepted by producers if they produced price stability at a reasonable level. While the changes made in the quotas/superlevy system in 1987 and 1988 served to correct the imbalance in the market and resulted in increased prices for producers the market balance was not attributable to quotas alone. It has been calculated that in 1988 quotas exceeded unsubsidised consumption by over 21 per cent. Community support measures therefore play a significant part. The Joint Committee believes that some further remedial measures should be taken by the Community to counteract the decline in milk prices. In particular the Joint Committee considers that it was a retrograde step to cut export refunds at a time when quotas were being increased and it would urge that this decision be reviewed.

GATT Negotiations

48.The Joint Committee hopes that the Commission will be able successfully to defend the Community’s system of export refunds in the current round of GATT negotiations. If, as appears to be the case, the contribution of the milk quota/superlevy system to an improvement in the world market situation is being offset by production increases in other OECD countries the Commission’s position is these negotiations should be strengthened.

Consolidation of Regulations

49.It has been represented to the Joint Committee that the legal work involved in sale and leasing transactions has become much more complicated when transfer of quota is involved. It has been suggested that the performance of this work would be greatly facilitated if all relevant statutory instruments were consolidated and all relevant administrative decisions available in a comprehensive document. The Joint Committee considers that this is a worthwhile suggestion and recommends that it be implemented by the Department.

50.There are now a great many Community Regulations governing or impinging on the operation of the milk quotas/superlevy system most of which legislate by reference to other instruments. This situation may have been unavoidable while the system was evolving over the years but the fact remains that tracing relevant Community provisions has become extremely time-consuming. The Joint Committee hopes that from 1992 the primary rules governing whatever system is agreed upon will be contained in one comprehensive Council Regulation and that every effort will be made to keep these rules as simple as possible.

6 June, 1990.