The cut-price pinta ... cheap milk war looms

EU scraps quotas but farmers fear being driven out of business

A NEW milk price war is looming after a landmark decision by the EU to scrap rules restricting production.

The quota system was abolished yesterday after 30 years, allowing dairy farmers to produce as much milk as they like without financial penalty.

Production is now expected to rise sharply, particularly in countries such as Ireland, Germany and the Netherlands, which plan to boost exports of milk and other dairy products to the UK.

As a result, a price war over the cost of milk is likely to break out, cutting the cost for consumers.

However, British farmers are likely to find the amount they are paid by supermarkets is driven down even further, which will be particularly difficult for smaller family businesses.

Dairy farmers have been under severe pressure in the past year as the result of a global milk glut and a supermarket price war that saw stores selling a four-pint carton for only £1.

Some dairy processors have started to raise farm-gate prices recently, but farmers remain concerned that the end of quotas could bring enormous price swings and this week some protested outside the European Parliament in Brussels. The European Milk Board, a federation of dairy farmers in 13 countries, said it was likely that the market would not be able to cope with significantly expanded production.

Its president, Romuald Schaber, said the changes are a particular threat to small dairy farmers, who tend to have higher costs.

‘Chronic price collapses are inevitable, the next crisis is on its way,’ he said.

‘Prices will be rock-bottom, as Europe’s farmers will have even less market power.’

Maria Heubuch, a Green MEP, warned that small farmers will be pushed out by factory farms with herds of up to 5,000.

Milk quotas were introduced in 1984 to address the oversupply that had led to the infamous EU milk lakes and butter mountains.

Farmers who exceeded their quota were hit with heavy cash penalties. The new free-for-all will promote factory farms, capable of containing thousands of supersized Holstein cows each producing nearly 13,000 pints a year.

Industrialisation has seen the number of UK dairy farms fall from 50,000 to 14,116 over the past 30 years, with the average herd size rising from 64 cows to 134.

The average milk production from Holsteins, which have been described as ‘udders on legs’, has risen by 55 per cent.

In some cases this has been done through selective breeding to create bulked-up cows which are kept inside for much of the year in ‘zero grazing’ barns.

The European Dairy Association, which represents milk processors, backed the end of quotas, saying it will lower the administrative burden and enhance competitiveness.

The EU will provide a safety net for farms. Brussels will have the power to buy butter and skimmed milk powder at a guaranteed price if there is over-supply.

Irish dairy farmers have embarked on a massive expansion plan and will be looking to make big inroads into the British market.

A study by the Irish Farmers’ Association estimated that the ending of quotas would create 9,500 extra jobs in Ireland, and at least 1.3billion euros (£950million) in extra exports.

Rob Harrison, chairman of the dairy board at the National Farmers’ Union, has urged all EU countries to act responsibly and collectively to manage future volatility.

‘Farmers and dairy processors here do have some concerns about how other EU countries will react to the ending of quotas,’ he said.

‘Some are rapidly increasing their output without an end market for these goods. This could push farmgate milk prices down further.’

But the new freedom could allow British dairy farmers to win new sales, particularly in the Far East, he said, with the potential for new products such as sports drinks.

Coca-Cola has recently launched its own brand of milk in the US which contains 50 per cent more protein and half the sugar.

‘The next crisis is on its way’