Federal Department of Economic Affairs, Education and Research EAER Federal Office for Agriculture FOAG Abolition of Swiss Milk Quotas Jacques Chavaz Deputy Director General, Federal Office for Agriculture, Bern 27 October 2013, Charmey

2 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Contents 1.History of Swiss milk quotas 2.Swiss milk market 2005 and Abolition of milk quotas 4.Milk policy instruments since 1 May 2009

3 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey 1 May 1977: Implementation of milk quotas  Goal: Stabilization of milk quanitity to maintain the milk price on a high level «Agricultural policy 2002»: Introduction of quota trading (purchase / leasing) in 1999  Flexibilisation, reduction of costs for the milk producers «Agricultural policy 2007»: Swiss Parliament decided in 2003 to abolish the milk quotas by 1 May May 2006 until 30 April 2009: transition period with the possibility of voluntarily opting out of the milk quota system 1 May 2009: Definitive abolition of milk quotas History of Swiss milk quotas

4 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Swiss milk market 2005 and Milk production3.18 million tonnes3.44 million tonnes Milk producers30’16324’369 Average delivery100’761 kg milk/farm137’800 kg milk/farm Dairy processing2.0 million tonnes2.3 million tonnes Ø raw milk price70.72 CHF/100kg57.88 CHF/100kg Cheese processing1.2 million tonnes1.1 million tonnes Ø raw milk price74.09 CHF/100kg70.84 CHF/100kg Source: Milchstatistik der Schweiz, Marktbeobachtung BLW

5 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Rationale for the abolition of quotas Rationale: Increased production costs, benefits for sellers/lessors of quotas Linear adjustment of quotas unusable for the real market segmentation (PDO-Products [GIs], innovative dairies) Free trade in cheese with the EU requires competitive production Export opportunities for milk products Goals: Competitivity of Swiss dairy industry Costs for quotas Development of structures and specialization Abolition of EU quota system: enough time for preparation

6 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey …1015 Milk quota system State-supervised transition period Volume management by organizations for producers without quota Free market, but with contract obligation Free market t milk producers without public milk quota 63% 100% Legal provisions (AgA) 82% 90% Article 36a of the Federal Agriculture Act (AgA; SR 910.1) gave dairy farmers and organisations the possibility of voluntarily opting out of the milk quota system on 1 May 2006, 2007 or 2008.

7 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Legal provisions (Ordinance) Producers who were members of a producers’ organisation (PO) or an organisation of producers and processors PPO) could opt out of the system. Decisions of opting out from the quota system had to be passed by at least a 2/3 majority. On request, the FOAG would recognise the organisations that opted out (statutes and volume management rules). Responsibility of managing the volumes was then transferred from the state to such organisations. Allowed volume for the organization equals sum of individual quotas of the preceding period. Role of FOAG was restrained to monitoring respect of global volume allowance of each organisation..

8 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey The quota allocated to producers (including “rented” quotas) for the previous year would be withdrawn and allocated as a basic quantity of the organisations that opted out. Applications for additional volumes could be submitted. This concerned almost exclusively export projects with expected additional demand. Additional allowances were valid for one year. 29 Producers‘ organisations (PO) 9 Organisations of producers and processors (PPO) P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P Processor P Producer P Recognized organisations

9 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Conclusions of the transition period 1 May 2006 – 30 April Cooperation in the value-added chain could be improved Better market orientation compared with „quota-period“ Experience with supply/demand management Mainly cheese export projects benefited from additional milk quantities Costs for milk delivery rights decreased - Too many organisations (total 39) Weak negotiating position of the organisations Partly poor implementation of quantity management. Less flexibility to adapt to reducing than to increasing demand. Some organisations had to pay high charges because of non-respect of overall allowances.

10 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Market support Milk policy instruments (under public law) from 1 May 2009 on Milk quota Border protection Direct payments Contractual obligation Market monitoring

11 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey The Federal Council can extend self-help measures of the inter-branch organisation to non-members of the organisation (e.g. standard contract or marketing levy), if the organisation is representative: > 50% production and > 60% producers/enterprises every branch in the inter-branch organisation accepts the self-help measure with a large majority (minimum 2/3 of the votes) different regions of Switzerland are represented in the organisation

12 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey The Federal council can extend self-help measures of the inter-branch organisation to non- members of the organisation (e.g. intervention levy), if it is an extraordinary situation (no structural problem; only: adjust supply to market needs) the extension is limited in time (max. 2 years) The aims of the extension to non-members of the organisation avoid “free riders” support the effectiveness of the measure

13 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Extension of BOM measures to non- members Rejected Levy to complement restitutions on exported processed products Granted, for limited period only Levy for intervention fund (10/2011 – 04/2013) Granted, and renewable Standard contract with segmentation scheme (10/2011 – 04/2013; 07/2013 – 06/2015)

14 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Standard contract (Art. 37 AgA) Three-stage process as of 1 January 2014 : 1. Formulation of a standard contract by an inter- branch organisation of the milk sector (for example BO Milch):  minimal requirements for duration, price and quantity arrangements, payment arrangements 2. The Federal Council can, on request of the inter- branch organisation, declare the standard contract obligatory for all milk purchasers and sellers.  the civil courts are competent for litigation 3. If there is no standard contract, the Federal Council can temporarily enact regulations for the trade with raw milk

15 Abolition of Swiss Milk Quotas, 27 October 2013, Charmey Thank you for your attention!