Inefficiencies in the UK milk quota system

Given that the Common Agricultural Policy (CAP) of the European Union has imposed milk marketing quota on producers, the fact that they are tradeable in the UK increases economic efficiency. Nevertheless, significant inefficiencies remain. Modelling work reported here suggests that significantly more quota needed to be transferred from less to more efficient producers in 1996/97 for industry efficiency to be maximised, and that a large number of vulnerable inefficient producers remained in milk production. It is also shown that, despite tradeable quotas, a significant number of dairy farmers still achieve a poor match between available quota and production. It is argued that the rules on quota trading could be changed to increase efficiency. Finally, it is argued that UK milk producers are incurring costs for acquiring quota which add at least 12.5% to production costs: a high price to pay for the market stability which quotas have brought.