According to provisional calculations made by the European Commission, seven countries -- Austria, Cyprus, Denmark, Italy, Germany, Luxembourg and the Netherlands -- face paying fines totalling €221m for exceeding their quotas for the year. These fines are individually broken down by each member state before then being imposed on farmers and dairy groups found to have contributed to any overproduction, according to the EU. The charges will create further cost pressures for processors and producers on the back of a dwindling global milk supply. Of the seven countries to be penalised, Italy accounted for 80 per cent of overproduction, exceeding the national quota set for its producers by six per cent. Austria was 3.3 per cent above quotas, while the remaining five members were each less than one per cent above their targets. Almost all the fines were in relation to levels of milk supplied commercially, with only Cyprus and Netherlands found to have overrun a separate quota for direct sales to consumers. The two nations face a combined levy of €120,000 for exceeding this quota. However, There was another issue in demand relating to milk under supply, with nine member states - Greece, Sweden, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Malta and Hungary - producing at least 5 per cent below their quotas, the EU stated. The levy reductions come amidst ongoing reforms to the Common Agricultural Policy (CAP) to phase out the EU's milk quota system in a bid to improve competitiveness for its dairy producers and processors in the world market. The aim of the reforms is to create a dairy industry that is not reliant on government protection to remain efficient, while also ensuring a balanced supply and demand for both farmers and processors. However, increasing global demand and declining supply have combined to drive record hikes in prices for conventional dairy commodities, hitting the margins of a number of processors. Total global milk production for 2008 is projected to rise to 188.6bn pounds (lbs) from 184.3bn lbs expected this year, according to findings by the US Department of Agriculture (USDA). Despite this expected growth, sustained high demand for dairy, both on a domestic and international basis, is expected to ensure milk prices remain high. In this market, the EU Commissioner for agriculture and rural development, Marianne Fischer Boel, believes there is even less reason to use a quota system. "Milk quotas have played an important role in the past in keeping supply and demand in balance," she stated. "But since the CAP reforms came into effect, farmers are free to produce for the market and quotas are increasingly an anachronism." With the quotas set to be fully phased out by 2015, Fischer Boel said that the dairy industry now needed to establish what sort of transitional measures would be required to remain profitable. She added that these measures would be one of the key topics in the upcoming CAP "Health Check".
