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Coughlan announces new Milk Quota Trading System

Speaking at the opening of the 75th National Ploughing Championship and the World Ploughing Contest in Carlow today, the Minister for Agriculture and Food, Mary Coughlan T.D., announced the establishment of a new Milk Quota Trading System to supersede the Milk Quota Restructuring Scheme. The new system will have two elements - a priority pool and a market pool, the latter to run as an Exchange. The Exchange will run later in the year and the Minister will announce the actual date when all valid transactions have been entered.

Market Pool/Exchange

Minister Coughlan will publish the detailed rules, including application procedures, for the operation of the system shortly. Applications by buyers and sellers to participate in the Trading System will be invited before 24th November 2006, which she has set as the closing date for applications. A second run of the Trading System will take place in Spring 2007 when the results of the first Exchange have been fully evaluated in consultation with stakeholders.

Last March, the Minister said that she intended to change the manner of transferring milk quota because the current scheme no longer matched the demands of milk producers throughout the country. Speaking today, she said.

"The new Milk Quota Trading System will create a more open market system of transferring quota and will allow farmers much greater freedom to make choices about how milk quota should be transferred, affording them far greater scope to decide the volume and price of quota they wish to buy".

Ring Fencing

Though the Department will run them initially, Exchanges will operate in each Coop area and the Minister emphasised her commitment to maintaining the principle of regional preference or ring fencing within current pools, which has sustained a balanced spread of milk production and processing throughout the country. Milk quota transacted through the Trading System will be available to purchasers for the 2007/2008-milk quota year.

Priority Pool

The Minister listened very carefully to the views of the farm organisations and has decided that a proportion of quota sold will be reserved for allocation to priority categories at a maximum price. She has decided to set the maximum price for the priority category pool at 12 cent per litre, similar to the price in the 2006/07 Milk Quota Restructuring Scheme. She said:

"I am anxious to maintain the maximum price for the priority category pool at 12 cent per litre though I may reduce this price in the next Exchange".

She has also decided to maintain the current priority categories in favour of farmers whose leases had expired and were not renewed, and young farmers. The remaining quota in the priority pool would be allocated to category 1 producers with quota of up to 350,000 litres. The National Reserve, which allocates quota to hardship and disease cases and the Temporary Leasing Scheme, are not affected by these changes.

The actual quantity of quota available to the priority categories would depend on the total amount offered into individual Coop Exchanges, but in any event shall be equivalent to 30% of the total amount of quota offered for sale. The Minister said that she had arrived at this percentage after detailed consideration and having the fullest regard for the balanced future development of the sector. The figure reflects a fair exchange between the interests of sellers, who will sell 30% of their quota into the priority category pool at a maximum price of 12 cent per litre, while fulfilling the needs of the priority categories. The remaining volume of quota, 70%, will be offered for sale into the market pool.

Market Cooling Measures

The Minister was concerned also to ensure that measures would be put in place to avoid overheating in the market pool. She is satisfied that the contribution of 30% for the priority category pool, irrespective of whether the market pool quota is sold, is sufficient to cool the market on the supply side. The percentage for sale into the priority pool will be taken only once in the quota year.

On the demand side, the Minister will introduce a 'price corridor' which she has decided to set at 40%, the effect of which is to remove from the Exchange, bids to purchase quota that exceed 40% of the initial equilibrium price. Once these bids are removed the definitive equilibrium or market-clearing price will be re-calculated at a lower level. In addition, the Minister has decided to set a maximum limit of 60,000 litres on individual quantities that may be purchased from the Exchange. This limit is set at a level that reflects the realities and logistics of dairy farm expansion needs in Ireland.

According to the Minister: "Key to the success of the Exchange is releasing larger quantities of quota at least cost to active and committed dairy farmers and I believe that these measures strike the right balance."

Transfer Arrangements

Mindful that the Exchange could lead to some quota trading activities that would not be in the best interests of the sector, the Minister has decided to restrict the transfer of quota purchased from the Exchange of one Coop into another Coop for a period of three years. This measure would curb unacceptable trading activities by a small few at the expense of the majority of progressive dairy farmers. In addition, quota may not be sold in one Coop and purchased in another in the same year because to allow such transactions would be to encourage speculation.

Conclusion

Concluding, the Minister said that the Quota Exchange signalled the beginning of a further phase in a renewed attempt to improve the efficiency and long-term competitiveness of the dairy sector.

"I have already shown my commitment to the industry with the Government assisted €300 million Dairy Investment Fund. Today's announcement reflects my determination to ensure that the Irish dairy sector at farm and processing levels will be better equipped to meet the future challenges and opportunities of a more liberalised world dairy market, as signalled in my Department's AgriVision 2015 Action Plan".

The Minister expressed her appreciation to the farm organisations and ICOS for their very constructive engagement in the six-month consultation process. She undertook to review the operation of the first Exchange before setting down the detailed arrangements for the second Exchange in Spring 2007.

27 September, 2006

Date Released: 27 September 2006