EU milk quota harming Polish dairy sector

EU milk quotas will be the "driving force"​ shaping Poland's dairy industry, says a report by the US-based Babcock Institute at the University of Wisconsin.

It warns that Poland's restrictive milk quota threatens to transform the country from a net exporter of dairy to a net importer within five to seven years.

Figures show the change would be drastic - export value was predicted at almost €650m in 2005, with imports at around €100m. Almost half of exports go to the old EU-15 nations.

"Poland's dairy industry is better equipped to export than it was before EU accession. However, the binding EU production quotas will prevent the industry from capitalising on this improved position,"​ says the report.

Most of the change will come as Poland cuts down production of skimmed milk powder, its biggest export product, and pumps milk into higher value goods such as cheese, yoghurt and fluid products.

The EU allocated Poland a milk quota of 8.96m metric tonnes when it joined the EU in May 2004 - by far the largest quota offered to any of the 10 accession countries and representative of Poland's position as the EU-25's fourth largest milk producer.

Poland's quota, nevertheless, is seen as small relative to the larger quotas of Europe's top three milk producers - Germany, France and Britain - and it had asked for 13.7m metric tonnes.

Britain, in third, has a milk quota of around 14bn litres, though production is currently around 276m litres short.

The Babcock report, however, says that it is unfair to solely blame the EU for Poland's restrictive quota.

Poland only handed over "limited records of direct milk sales"​ compared to more detailed records of farm sales to commercial dairies - leading the EU to believe a lot of milk was not sold but consumed on the farm.

The report says that one Polish negotiator involved in accession talks, Jersey Plewa, hoped that Poland might secure a larger quota if it could participate as a full member of the EU in 2007 or 2008.

The country, however, may expect fines if exceeds quota in the mean time. The EU fined nine member states a combined €364m for exceeding milk quotas in the year up to 31 March 2005.

Babcock says that Poland's dairy sector could help itself by doing more to rationalise and consolidate: "Stated bluntly, Poland has far too many dairy farms and dairy processing plants."​ There were 356 dairy plants in Poland at the start of 2005.

The report adds Poland is almost certain to ask for a higher quota in the coming years to help the country's industry take advantage of its good position.

Most of the country's dairy processors were operating below capacity in 2005 and benefiting from numerous modernisation grants from the EU.

The EU has agreed to keep the 20-year-old milk quota system until 2015, after the end of current Common Agricultural Policy reform, and the effects are expected to reduce Polish dairy cow numbers from 2.8m in 2004 to two million.