Production Rights in European Agriculture

Production Rights in

European Agriculture

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Production Rights in European Agriculture Edited by:

Denis B arth61emy and Jacques David

EDITIONS

2001 ELSEVIER A m s t e r d a m - L o n d o n - New Y o r k - O x f o r d - Paris - S h a n n o n - Tokyo

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Original French Language Edition L'Agriculture Europ6enne et les Droits ~ Produire Published by INRA-I~ditions ISBN: 2-7380-0899-2

Production Rights in European Agriculture English Translation of an Abridged and Updated Version of L'Agriculture Europ6enne et les Droits ~ Produire Published by Elsevier Science B.V. ISBN: 0-444-50823-6

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Preface Denis Barth~lemy, Jacques David

In the course of the 1980s, a series of instruments collectively termed 'production rights' assumed growing importance in European agriculture. These may be described as forms of rights or authorisations allowing farmers to realise a particular type of production (sugar beet quotas, milk quotas, vine planting rights, etc.) or to receive financial support or compensation to make farming activities economically viable (beef special premium rights, suckler cow premium rights, sheep premium rights, cereal, oil crop and protein crop compensation aids, etc.). All these rights heralded the arrival of a new era in which the farmer is no longer solely concerned with working the land and delivering his produce to the market. In this new scheme of things, he must also hold what have come to be known as 'production rights'. The origins of these instruments are, for the most part, to be found in the European regulations governing common organisations of the market; and the instruments take the form of mechanisms for managing agricultural production markets by means of quantitative limitations (quotas), or compensatory premiums, or aids allocated to producers in return for a reduction in support price levels. But, at the same time, these production rights have made a significant change to farm operating conditions. At the outset, the common organisations of the market were essentially geared to sustaining prices on the agricultural product markets; in other words, they took effect outside the farms themselves. But the introduction of quotas and production rights on an individual level gave the farmer access to a particular market or allowed him to obtain additional revenue. In the economic sense, these rights are now to be seen as business assets, that is to say as specific instruments providing scope for production and/or the creation of revenue. From a legal standpoint, too, they introduce a new element, of varying degrees of complexity, into traditional property law. Despite the fact that they spring from the same European source, production rights assume a wide variety of guises from one Member State to another, and it is fair to say that each country seeks to interpret them to its own advantage. In some countries, regulatory implementation has been liberal, designed to organise or creme a favourable climate for markets on which production rights can be exchanged, while other countries reject or limit such a possibility. In relations between producers, milk quotas are v i e w e d - depending on the country under consideration- as all but part of the land or, by contrast, as assets belonging to the farming enterprise and thus, potentially, to the tenant farmer. The economic repercussions are clearly of the first importance, not only in terms of the rate of farm development at national level and in terms of relative competitiveness, but also in terms of deciding who eventually benefits most from the advantages associated with production rights. The study of production rights in European agriculture could easily take the form of a somewhat tedious catalogue of the various interpretations of European regulations by the

vi

Preface

Member States. We have preferred to adopt an analytical approach. Of course, a thorough knowledge of the facts and rules is essential, especially in a field so rich in detail and so compartmentalised both from one right to another and one Member State to another. Nonetheless, the overall objective is to understand and illuminate the economic priorities, the legal bases, the social norms and cultural patterns which come into play within each Member State; and to provide a specifically national expression to shared European principles. At heart, the purpose is to reveal the salient features of what might be called 'national agriculture projects' from the study of how these principles are put into practice. Indeed, these projects provide the key to a true understanding of the actions of each country, not only now but also as new instruments emerge from future reforms of the CAP. A European team, consisting chiefly of British, Dutch, French and German members, was constituted for the purposes of this work. The team includes researchers, university teachers, economists and legal experts who, for several years, have been studying and comparing the way the instruments of the Common Agricultural Policy are transcribed and operated at national level. 1 Contributions have also been solicited from officials working in professional and administrative organisations and responsible at various levels for developing and implementing these policies. The decision to favour analytical depth rather than a purely descriptive account has led us to narrow the scope of the study. We have retained two production rights as being essential, though mention is occasionally made of others. Similarly, our analysis focuses on four countries, but references are made to other states from time to time. Priority is given to milk quotas as they display all the obvious characteristics of production rights: they are allocated to individuals holdings, can be transferred with (or exceptionally without) the land and are indispensable for the production of milk. They concern a crucial sector of agricultural production involving many producers and were established in 1984. This means that they can be studied over a significant period of time - - from their implementation up to the present day w in the course of which there have been changes to the European regulations and their national adaptations, disputes have been settled by legal precedent, and farmers themselves have come to terms with the changing circumstances. It is now possible to stand back and review the situation, pointing out the forces which have prompted particular solutions in different countries and indicating their economic and legal repercussions. Next come suckler cow and sheep premium rights. These are more recent instruments and provide an instructive comparison with milk quotas in that they are linked to the producer and not the land. The way in which they are managed has an important bearing on the distribution of livestock farming over farmland. The four countries referred to above are Germany, France, the Netherlands and the United Kingdom. Not only are they the main producing or exporting countries in the production fields under consideration, they also provide a very contrasting sample of economic and legal approaches. The two extremes are set by France (the European country in which the administrative management of agriculture is at its most pronounced) and the United Kingdom (where the liberal approach is particularly entrenched). Germany and the Netherlands occupy an intermediate position, depending on the period and the sphere in question. Although the 1 The corresponding research programmewas funded as part of an Action Incitative Programmde of the Institut National de la Recherche Agronomique (France), with the additional aid of a support programme of the Direction G~n~rale de l'Enseignement et de la Recherche, Ministryof Agriculture (France).

Preface

vii

analysis of these four countries forms the core of our study, we also refer to several other countries both within and outside Europe when this gives new depth to, or casts a new light on, a particular aspect. The work is divided into five parts. The first part consists of systematic studies on milk quotas in the four countries m e n t i o n e d - the four leading milk producers in the European Union. The aim, in each case, is to explore the national context, the relevant economic and social issues, implementation and its attendant difficulties, the consequences for the economy of the choices made, and the legal relations in the sector considered. By way of conclusion, there is a comparison of changes in the size and location of dairy farms in the light of fifteen years of specific management of milk quotas in the four countries under review. Part 2 focuses more specifically on the legal ramifications of milk quotas. In each country the interpretation of the European regulatory system and the consequences on the respective rights of producers and landowners have given rise to impassioned debate. The comparison of these national interpretations is extremely effective in revealing the gulf which separates the Member States concemed in terms of legal conceptions. The third part consists of two parallel studies, in France and the United Kingdom, of the application of suckler cow premium as reformed in 1992. By virtue of the number of suckler cows, these are the two European countries most concerned by the reform, each interpreting the European regulatory system in widely divergent ways. Part 4 takes a closer look at the contrast between the liberal and 'controlled' methods of managing production rights. Here we look at the position in Quebec, where milk quotas have existed since the end of the 1960s and which has set up an increasingly liberal exchange market this is particularly interesting since first Denmark and now Germany have introduced a similar system. We then contrast this with the strictly administrative management of all production rights exemplified by France, and necessitating principles of equivalence between these different rights (milk quotas, sugar beet quotas, suckler cow premium rights, sheep premium rights, arable land eligible for cereal premiums, etc.), which are devoid of market value, in order to ensure that such management remains consistent. The fifth part looks back on the conditions leading to the birth of quotas and premium rights within the CAP, offers an opportunity to compare these with analogous though less substantial instruments existing in the USA, and places them in the context of European and intemational law. The last of these points is of particular interest in the light of the current renegotiation of the WTO agreements. In view of the wide and constantly changing subject matter of this book, and in order to give a clear framework to the studies developed in its different parts, the introduction pursues two themes. Firstly, it traces the emergence and the economic and legal content of the different income support tools for agricultural producers, collectively termed 'production rights'. Secondly, it looks at the foundations of the specific national conceptions underlying the methods of organising agricultural activity. This work is intended for a varied readership: farmers themselves, of course, but also economic, legal and tax consultants, experts, lawyers, notaries, etc., not to mention students, teachers and researchers. It has been set out in such a way as to allow readers to move freely from One subject of another, depending on whether their interest lies in economic aspects or legal developments, or whether they are more concerned by certain production rights or by certain features of their own organisation.

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Preface

Finally, we hope that the book will enable the reader to grasp the special features and the significance of the forces which have shaped the current income support instruments for producers in the various Member States of the EU m and which will unquestionably continue to influence the measures which flow from reforms to the CAP in the years to come.

Contents Preface B a r t h d l e m y - David List o f Contributors

xi

Introduction B a r t h d l e m y - David

Milk Quota Implementations and their Effects in the Four Main Milk-Producing Countries Three Successive Trends in Germany

15 19

Barth~lemy

Administrative Management in Favour of Medium-Sized Farms in France

35

Barthdlemy

The Costly Process of Intensification in the Milk Sector in the Netherlands

55

Hoetjes - Boinon

The Liberal Approach in the United Kingdom

65

Boinon - Perkins

The Effects of National Implementations on Dairy Farm Structures

83

B a r t h d l e m y - Boinon - Wavresky

2

The Legal Basis for Milk Quotas: Widely Divergent National Interpretations

An Interpretation favouring Landowners in Germany

105 107

Gehrke

Ever Tighter Administrative Control of Milk Quotas in France

117

Gilardeau

Blurred Legal Characteristics work in Favour of a Competitive Dairy Industry in the United Kingdom

127

Cardwell

Milk Quotas belong to the Dairy Holding in Italy Germand - Rook-Basile

137

x

Contents

Suckler Cow and Sheep Premium Rights: a Comparative Study of France and the United Kingdom

Suckler Cow Premium Rights: an Issue of Regional Importance in France

145 151

Barthdlemy- Leseigneur

A Moderately Liberal Approach in the United Kingdom

163

Boinon - Perkins

4

A Centralised Market in Quebec versus Administrative Equivalences in France

Market-Based Regulation of Milk Quota Transfer in Qu6bec

175 177

Gouin

Non-Market Equivalence between Production Rights in France

185

Roussel

5

Rights to Produce in the Light of European Law and WTO Negotiations

Rights not Anticipated in the European Union

197 199

Priebe

Quotas in Agricultural Policy of the United States

205

Looney

The Future of Production Rights from the Viewpoint of Community Law and International Law

211

Lorvellec

Conclusion Barth61emy- David

227

Abbreviations and Acronyms

239

Bibliography

241

Contributors Denis BARTHI~LEMY

Directeur de Recherche, Unit~ Mixte de Recherches INRA-ENESADen Economie et Sociologie Rurales, Director of Research, INRA-ENESAD Research Unit in Agricultural Economics and Sociology, DIJON - France Jean-Pierre BOINON Professeur, Unit~ Mixte de Recherches INRA-ENESADen Economie et Sociologie Rurales, Professor, INRA-ENESADResearch Unit in Agricultural Economics and Sociology, DIJON- France Michael CARDWELL Senior Lecturer, Department of Law, University of Leeds, LEEDS - United Kingdom

Jacques DAVID Professeur, Facultd de Droit et Sciences Sociales, Universitd de Poitiers, Professor, Law and Social Sciences Department, University of Poitiers, POITIERS - France Heike GEHRKE Doktor, Regierungsrgitin, Milchreferat, Bundesministerium f~r Erngihrung, Landwirtschafi und Forsten, Doctor-Law Adviser, Department of Milk, Federal Ministry of Agriculture, BONN - Deutschland Alberto GERMANO Professore, Dipartimento di Scienza Politica, Universith di Roma, Istituto eli Diritto Agrario lnternazionale e Comparato, Firenze, Professor, Politics Department, University of Rome, Institute of International and Comparative Agricultural Law, FIRENZE- Italia

xii

List of Contributors

Jean-Marie GILARDEAU

Maitre de Confdrence, Facultd de Droit et Sciences Sociales, Universit~ de Poitiers, Lecturer, Law and Social Sciences Department, University of Poitiers, POITIERS- France Daniel-Mercier GOUIN

Professeur, Groupe de Recherche en Economie et Politique Agricole, Universitd Laval, Professor, Agricultural Economics and Policies Research Group, Laval University, SAINTE FOY (QUEBEC) - Canada Bernard J.S. HOETJES

Professor, Nederlands Instituut voor Internationale Betrekkingen Clingendael, Professor, Netherlands Institute of International Relations Clingendael, LEIDEN - Nederlands Andr6 LESEIGNEUR

Ingdnieur de Recherche, Unitd Mixte de Recherches INRA-ENESADen Economie et Sociologie Rurales, Research Engineer, INRA-ENESADResearch Unit in Agricultural Economics and Sociology, DIJON - France Jake W. LOONEY

Professor, School of Law, University of Arkansas, FAYETTEVILLE- USA Louis LORVELLEC

Professeur, Facultd de Droit et Sciences Politiques, Universitd de Nantes, Professor, Law and Political Sciences Department, University of Nantes, NANTES - France Edward H. PERKINS

Former Chairman of Agricultural Department, Royal Institute of Chartered Surveyors, LONDON - United Kingdom Reinhard PRIEBE

Head of VIBI U n i t - Agricultural Law, Directorate of Agricultural Economic Law, European Commission- DG VI, BRUXELLES- Belgique

List of Contributors

xiii

Eva ROOK-BASILE Professore, Dipartimento di Diritto, Universith di Siena, Istituto di Diritto Agrario Internazionale e Comparato, Firenze,

Professor, Law Department, University of Siena, Institute of International and Comparative Agricultural Law, FIRENZE- Italia Pierre-Alain ROUSSEL Conseiller de Gestion, Centre d'Economie Rurale,

Management Consultant, Agricultural Economics Centre, NANCY- France Pierre WAVRESKY Ing~nieur de Recherche, Unitd Mixte de Recherches INRA-ENESADen Economie et Sociologie Rurales,

Research Engineer, INRA-ENESADResearch Unit in Agricultural Economics and Sociology, DIJON - France Translation by Barnaby CAPEL-I)UNN (Preface, Introduction, Part 1, Part 3, Conclusion) Christopher SUTCLIFFE (Part 2, Part 4, Part 5)

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Introduction Denis Barthdlemy, Jacques David

Two questions are integral to any study of production rights in European agriculture: firstly, what exactly is a production right and, secondly, why is it that the various Member States have fashioned these instruments providing direct or indirect income support for agricultural producers in such widely different ways?

1. What is a production right? The expression 'production rights' (Produktionsrechte, droits ~ produire, etc.) was originally coined by farmers and practitioners in the various European countries in an effort to provide a blanket term for a series of legal creations which they perceived to be of growing importance and which they considered to obey the same rationale. In other words, it is difficult to pin down the exact meaning and scope of the term 'production rights', born of practical experience rather than of an initial theoretical classification. We shall seek to define it more precisely by listing the different elements of the CAP for which this term is used and by examining its features in the light of economic and legal analysis.

1.1. Multiplicity of production rights Agricultural production rights are usually divided into two broad categories, a distinction being drawn between quota systems and financial support.

Planting, production or marketing quota This category includes a certain number of production rights mainly characterised by the fact that they involve a limitation in the quantities produced, either directly or indirectly through ceilings imposed on planted areas or through marketing quotas.

-Sugar beet quotas: these are in fact sugar quotas allocated by the European Union to the various Member States and shared between the refineries on the condition that they are converted into sugar beet quotas for the benefit of their planter-suppliers. In practical terms, these quotas take the form of contracts between the refineries and the farmers based on planted areas calculated from the annual sugar yield. This regulatory system was introduced by the EEC in 1968 but it had already existed in some Member States. The refineries possess A quota and B quota (an adjustable fraction of 20% of A quota) for which both price and sales are guaranteed. There is also what is incorrectly referred to as C quota covering production for third countries at world rates (part of which may be transferred to A quota of the following year).

2

Barthdlemy- David

- M i l k quotas: these were created in 1984 and signalled a major change in the Common

Organisations of the Market in Europe inasmuch as price support without limitation of quantity gave way to quotas or support through premiums. Global guaranteed milk quantities were allocated to the Member States, which then distributed them among producers (Formula A) or dairies (Formula B) depending on historic levels of production in a reference period, t These are marketing quotas, meaning that surplus milk quantities are subject to a levy, initially 75% of the target price of milk under formula A and 100% under formula B (it being calculated that dairies tend to have fewer surpluses than individual producers by virtue of their ability to offset over-production by some producers against under-production by others). In 1992 this mechanism was replaced by a general individual quota system with a levy of 115%. In 1999 it was decided to extend the existence of these quotas up to the year 2006, subject to review in 2003. As from 2005, and in order to make allowances for a planned 15% drop in intervention prices for milk products, a dairy premium will be paid to producers according to the reference amount in their possession on 31 March of the year in question. Until 1999 the transfer of milk quotas had, with few exceptions, to be linked to the transfer of farming land, but the latest reform has allowed Member States to abolish the need for any link between the two. - Vineyard p l a n t i n g a n d replanting rights: the wine sector has long been subject to national

regulations. Anxious to curb the excessive amount of wine on the market, the EEC, as from 1987, banned new vineyard plantings of vines intended for table wine while reserving the possibility of allocating new planting rights to Member States. Wine-growers retain the right to replant an area of land equal to that where vines have been grubbed up - - or an area of land where vines have been grubbed up acquired from other producers. This is a particularly complex subject in large part due to the parallel existence of 'appellation d ' o r i g i n e ' rules which weigh heavily in this sector and, in particular, include conditions concerning the maximum amount of grapes to be harvested. There is, nevertheless, quite clearly a planting fight in respect of (rare) areas of land allocated free of charge by the EU, and, more importantly, a replanting fight. The latter gives rise to a genuine market without which wine-growers would be unable to expand their vineyards; and, since the 1999 reforms, recourse may be had to a national reserve. - T o b a c c o quotas" until 1992 the tobacco market in Europe was organised according to a

principle of relatively high intervention prices. This has since given way to a system of production limitation and premiums. Each Member State has a national average, according to tobacco category and quality, which is spread among first-processor companies on the basis of their previous production. Within quantitative limits, these companies negotiate contracts with the tobacco planters. Parallel to this they receive premiums to be distributed in proportion to the size of the contracts. - Potato starch quotas: a potato starch production quota system, similar to that set up for the

tobacco sector and ensuring a minimum price and financial aid, has been in existence since 1

In other words according to the amount of milk delivered in the course of the three previous years. In the rest of this part we shall use such terminology without further qualification since it consistently denotes the same mechanism for allocating rights (according to quantities delivered, areas farmed, number of animals, etc.) in the course of certain years prior to the introduction of the measures under consideration, with definition criteria of varying degrees of complexity.

Introduction

3

1994. The national quotas are distributed among starch industry companies based on the quantities for which they had received premiums in previous years. The companies in turn pass on these quotas in the form of contracts with the producers (reflecting areas and starch content). The starch companies receive premiums and the potato planters also receive additional payments. This regulation was renewed in 1999.

Premium rights This category of production rights covers the allocation to producers of premiums or aids to compensate for the fall in support prices, depending on the category of animal or the cultivated land area. - S u c k l e r cow premium rights: introduced in 1980. The 1992 CAP reform established premium right quotas per cattle farmer corresponding to the quantities of premiums previously received. The premiums are available for suckler cows on farms with a milk yield of no more than 120,000 kg (although the latter restriction was lifted for Member States by the 1999 reforms). These annual premiums work in favour of extensive livestock farming: they are limited to two livestock units (LU) per hectare of forage area; 2 and there are extensification premiums for lower stocking densities. - Sheep compensatory premiums: these have also existed since 1980. Quotas per livestock farmer were set in 1992 based on historic levels. The premiums are awarded to farmers with at least 10 ewes (or goats in mountain areas) retained on the land for at least 100 days per year. The actual amount of the premium varies from one year to another, since it reflects the difference between the average market price and the basic price fixed by the European Union. - B e e f special premiums: these are paid to producers of male bovine animals intended for fattening, with an upper limit of 90 male bovine animals per year. The 1992 CAP reform attributed national ceilings (redefined in 1999) with the result that the premium amount may diminish if national ceilings are exceeded. Member States have the right to distribute their premium quotas at regional level. To this is added a seasonal adjustment premium when a significant proportion of steers are slaughtered between September and November in a Member State. The stocking density rules and extensification premiums applicable to sheep premiums also apply for beef special premiums. - Slaughter premiums: these were introduced by the reforms of 1999 and are paid to producers when bovine animals (bulls, steers, cows and heifers aged over eight months, calves aged between one and six months) are slaughtered or exported to another country. National premium ceilings are fixed according to slaughters and exports outside the EU carried out in each of the Member States in 1995. - Direct payments for cereal, oilseed andprotein crops: these payments were created in 1992 in order to offset falls in support prices and are paid in respect of cropping area. National ceilings have been fixed for producers with eligible land, i.e. land which was not permanent

2 The ratio is calculated by counting as numerator all cattle, sheep and goats for which premium applications are submitted, plus the number of dairy cows needed to produce any milk quota, and as denominator the area required for raising the cattle, sheep or goats.

4

Barth~lemy- David

pasture, under permanent crops, wood or forest on 31 December 1991. The land in question must be sown with cereal crops (except rice), oilseed crops (soya, rape, sunflower) or protein crops (peas, field beans, sweet lupin). Moreover, in order to reap the benefit of the compensatory payments, producers must agree to set aside a certain percentage of the land for which they receive aid (the rate is fixed on an annual basis). The set-aside land is itself eligible for the direct payment. The 1999 reforms provided for a basic 10% set-aside rate and also extended the direct payment scheme for arable crop land to grass silage in the case of Member States in which maize silage is not a traditional crop. - D u r u m w h e a t p r e m i u m : durum wheat producers have enjoyed a premium fight since 1992 in

addition to the direct payments for cereal, oilseed and protein crops. This premium right was, and still is, allocated to producers according to a historic number of hectares of eligible land.

1.2. Assets capable of ownership and transfer In reviewing this list of the more common production rights, one is immediately struck by its extreme diversity. The rights impact on a farm in a wide variety of ways, sometimes in several ways at the same time, as is the case with the direct payments for cereal, oilseed and protein crops. These provide financial support while limiting production through a set-aside scheme. Or again, tobacco quotas combine a production quota system with premiums for producers. In terms of shared features, production rights are above all distinguished by the fact that they are all designed to increase the income derived from the farming enterprise. If there were no limitations on quantities produced, market prices would be lower; the role of premiums and direct aids is, in most cases, to offset the decline of support prices and to contribute additional income. In the light of the above, production rights may thus be seen as instruments implemented under the common organisation of markets in order to provide income support for farmers. Viewed from this angle, they are a reflection of an agricultural policy or of a global economic approach for the sector. But production rights also play a part in the functioning of agricultural holdings and as such intervene in farm organisation, particularly in the sphere of property relations. Production rights represent a new category of economic asset. One of the characteristics of a farm ---- as indeed of any business - - lies in the fact that its assets are defined on the basis of the revenue that it expects to generate. For example, the value of an orchard as an economic asset is not linked to the expenditure involved in setting up the business but to the income expected to accrue from its use. If this use ceases to be profitable, the value falls back, not to the cost of setting up the business, but to its resale price, which may be much lower, or even nil. The same holds true for production rights. As soon as they can be associated with the expectation of future income - - and this is after all their common characteristic w they must be considered as farm assets. If this notion of economic asset is to acquire substance, it must be applied to an object which is capable of both ownership and transfer. As to the first of these two conditions, it implies that the production fight can be owned or possessed exclusively. This is not the case with the beef special premium, for example, inasmuch as the Member States do not distribute the rights individually: any farmer with male bovine animals is eligible for the premium to an upper limit of 90 head of cattle. It follows that these rights are not privately appropriated in the sense that their use by one producer does not mean that they cannot be used by others.

Introduction

5

On the other hand, this characteristic of exclusivity certainly does apply to most of the other production rights already mentioned. For instance, one needs to possess a milk quota before one can sell milk without incurring a penalty, and one needs a suckler cow premium right if one is to receive the corresponding premium. If these rights are not possessed, they must be obtained by means of a transfer from another producer, or possibly via distribution from the national reserve. The second condition implies that, in order for a production right to qualify fully as an asset, it must be possible to transfer it independently. In our list of various production rights we have already given a brief description of the direct payment rights for cereal, oilseed and protein crops. These rights are allocated for strictly defined arable land from which they cannot be disassociated. They are exclusively transferred with the right to farm the land. They are thus devoid of all autonomy, and the financial aids are strictly subordinate to the right to farm the land in question. The financial advantage is inseparable from the land itself. The fact that a plot of land is eligible for cereal, oilseed and protein crop aids gives it added value compared with another, ineligible, plot. If one is to speak of production rights as specific forms of p r o p e r t y - and such is the main thrust of this w o r k - this type of right has to be discarded. The same goes for the durum wheat premium right which obeys the same sort of rules. Leaving aside these cases where there is a strict link between the right to financial aid and the area of arable land, matters tend to be rather more complex. There is a whole series of rights linked to the land to a greater or lesser degree. 3 Others are totally separated from the land, such as suckler cow and sheep premium rights, directly attributed to and freely transferable by the producer with minimum transfer formalities. In these last two cases, we are obviously dealing with assets in the sense of items of property or goods possessing a specific value. But, in most cases, the position is not as clearly defined. The Community regulation governing sugar beet quotas does not specify that the quotas are attached to the land, but such an attachment may result from commercial agreements between the sugar refineries and the planters. It should be noted that, in this case the link remains weak: the farmer cedes the sugar beet quotas at the same time as he transmits the right to farm the land; he is obliged to transfer quota and land in equal proportions, in other words the quantity of quota transferred is dependent on the area of land farmed at the time. This being the case, we cannot say that a defined quantity of sugar beet quotas is irrevocably associated with a plot of land. Besides, matters are in a state of flux, as for example in Germany, where commercial agreements, which initially imposed a strict link between sugar beet quotas and cropping areas, are now beginning to allow the transfer of quotas independently of land. At first sight, milk quotas might seem to be linked to the land since in theory they are transferred along with the right to farm the land. This question will be covered in considerable detail at a later stage, but we may note at this point that quotas may be transferred under repurchase plans financed by public funds, or siphoned to reserves, with a view to being cancelled or redistributed to other producers (not to mention the position in those Member States where there are arrangements for direct transfers between farmers without a land transaction). From this it emerges that the link between milk quotas and land cannot properly be 3 Here we are analysing the link between the production right and the land. But the situation would be exactly the same if there were a link with another asset, for example a premium right linked to, and inseparable from, each individual animal.

6

Barthdlemy- David

described as intrinsic but rather as a condition which is applied with varying degrees of strictness. Formal proof of this statement is provided by the 1999 reform of the milk quota system, since Member States may now abolish the link entirely if they so wish. Vineyard planting and replanting rights are only linked to the land while the vine is in the ground; otherwise they may circulate. Planting rights, when they are not yet allocated by the administrative authorities, cannot be considered as farming assets. However, as soon as they are used by a wine-grower for planting, they can become such an a s s e t - as a future replanting right available for transfer when the corresponding vine is grubbed up. As far as tobacco quotas are concerned, the European regulations remain silent on the question of their attachment to the land, as indeed on any condition which might prevent their direct transfer between farmers. This being the case, everything hinges on the agreements signed by and binding on conditioners and producers. Since such agreements are in the realm of private law, they are free to include or exclude the possibility of transfer. Thus, none of these production rights - - sugar beet and milk quotas, replanting rights or tobacco q u o t a s - are, strictly speaking, attached to the land. There is sufficient autonomy for them to be considered as assets capable of ownership and transfer. They represent items of property whose formation and economic and legal means of functioning need to be analysed. 1.3. Rights which arose by accident The difficulties involved in discerning the legal and economic nature of production rights may unquestionably be traced back to their o r i g i n - to the collision between two levels of institution. As one of the architects of the European regulations explains later in this work, production rights were, so to speak, born by accident. They were designed as instruments of market management and income support for producers. They thus emerged alongside the creation or reform of the Common Market Organisations without any attention being paid to the other dimension of the problem, namely their standing as property items. The fact is that, as 'rights' or 'authorisations', production rights go beyond the sphere of European regulations (which are neither intended nor able to encompass them entirely) and enter the realm of national law, more specifically the law relating to property rights. In a recent document, the OECD subjected agricultural aid policies to a thorough critique, 4 observing that the instruments of income support for producers are systematically invested with a financial value, either through the increased price of farmland or autonomously through the marketing of production rights. The OECD notes that this leads to a situation in which financial transfers also work in favour of retired farmers and people who are not farmers at all, in the guise of rents or purchases paid by active farmers, and uses this observation as ammunition for attacking the principle of support itself. It argues that the policy is inefficient inasmuch as the final beneficiaries of the system are the land or quota owners rather than the agricultural producers. This criticism levelled by the OECD echoes a concern voiced by many EU Member States over the financial burden represented by the acquisition of production rights for new or expanding farmers. But the focus of the debate cannot be narrowed in this way, excluding as a matter of principle, the possibility that the beneficiary of support might be the landowner or the person possessing the means of production for the farm. Generally speaking, these public policies are pursued for the benefit of the 'farmer'. But how could the farmer exist without a 40ECD (1998), Adjustment in OECD Agriculture - Reforming Farmland Policy, 88 p.

Introduction

7

defined relation to the ownership of the means of production? He either needs to own these means himself or to be contractually or financially tied to the person who owns them. In short, conducting a policy in favour of the 'producer', the 'supplier' or the 'farmer' implies that the relation is established in terms not only of activity but also of property. Once the CAP starts to take initiatives which are no longer limited to price support for agricultural products but are also intended to supplement farmers' income through production quotas or direct aids, one is inevitably brought face to face with property relations. Property is a particularly important component in both the law and the economy of each of the Member States. Thus, when the European regulations advance such notions as 'farm holding' or 'producer', they tend to trigger bitter controversy and widely divergent solutions, depending on the territory and the Member States, over what exactly is meant by 'farm holding' or 'producer', or over relations between landowners and tenant farmers. As we shall see throughout this w o r k - and quite apart from the question of the differing aims of national agricultural p o l i c i e s - this is one of the keys to understanding why the European regulations are applied in different ways in different Member States.

2. C o m m o n

policy and national divergences

It is hard to imagine the extent to which the economic and legal environment can var-y from one country to another. Where the European Union is concerned, we all tend to assume that our personal point of view reflects the global European reality, remaining blithely oblivious to the diversity of conceptions within each Member State. The EU itself is inclined to present itself in a monolithic way, recently, for example, advancing the idea of a 'European Model of Agriculture' with the following characteristics: - a competitive agriculture at national level without excessive recourse to subsidies, - an agriculture embodying healthy, environment-friendly methods and providing quality products, - an agriculture rich in diversity and traditions, intent on preserving the countryside, a living rural world and employment, - a simple, comprehensible agricultural policy, giving clear indications of the scope of subsidiarity, - an agricultural policy showing clearly how its expenditure corresponds to the societal functions of farmers. Such a model relies heavily on the notion of multi-functionality, signifying that the mission of agriculture is not simply to supply agricultural products but also to fulfil environmental, rural and social functions. The emphasis placed on this model takes place against the background of preparations for the forthcoming round of WTO negotiations, i.e. with the object of asserting a peculiarly European agriculture in the face of other parties more inclined to strip the agricultural sector of its privileged status. In this sense, it may be taken as a measure of the joint commitment of the EU Member States in relation to the outside world. But if we focus our gaze inside the Union, the model assumes the shape of a lowest common denominator between the Member States, and is quite clearly the result of a compromise. The reality is that each Member State has its own conception of agriculture, or rather (for this reality is rarely couched in such bald terms) is prey to tendencies informing its action in ways which hardly ever converge with those of its partners. These divergent forces

8

Barthdlemy- David

do not vanish once the compromise has been reached and the European regulatory system established. Thus these dominant features, or national agricultural projects, play a crucial role in the application of the CAP and, by the same token, of production rights. As soon as each Member State found itself in such an intrinsically 'national' sphere as that of the ownership and organisation of production, the main lines of its identity at agricultural level could hardly fail to express themselves. Each Member State was w and still is - - at pains to implement European regulations on its own territory in a way which best serves its economic interests, its legal principles and its cultural and social values.

2.1. Different national projects The four countries submitted to special scrutiny in this work therefore possess a number of salient features contributing to the national characteristics which have shaped production rights. A German agriculture characterised by small farmer-owners German farming families are typically landowners. As a special dispensation from the egalitarian rules of the Civil Code, there is an agricultural inheritance law allowing the transmission in full of farm property (land and goods) to one of the children and characterised by an indemnity which works to the detriment of the 'departing' co-heirs. This farmland property is of crucial economic importance. Such is the demographic pressure in Germany that farmland prices are, along with those in the Netherlands, the highest in the European Union. The very high value of farm estates is undeniably a factor in promoting security but also in encouraging immobility. German farming families have little reason to leave their farms, apart, of course, in response to lack of income; but this tends to prompt them to seek complementary external activities rather than to abandon farming. It is true that there has been some change over the years: a number of small farms have disappeared and the corresponding land has been rented out to larger farmers, with the result that the average farm size has increased. Nevertheless, the family farm form is still the model and continues to play a dominant economic and social role. In Germany, therefore, the whole question of milk quotas and their application is inevitably coloured and marked by the importance of land ownership to the family enterprise. The small family farm, which a policy of modernisation is striving to render competitive in world markets, ruled unchallenged in Germany until the 1990s, when the combination of two phenomena introduced a period of uncertainty" the first of these was the financial crisis sweeping through the CAP and leading to the reform of 1992; the second was German reunification which made Germany the leading agricultural producer in several sectors and, at the same time, introduced the very large farms of the former East Germany. It was felt at the time that the competition between the two types of farm, exacerbated by development in Europe and globally, would sound the death knell of the small family farm. Eight years on, we can say that this prediction has not come true. Despite its difficulties, the CAP continues to provide substantial support for farms, while, in the L~inder of former East Germany, the property and financial situation is not yet as stabilised as the productive system. Political discourse is characterised by two carefully cultivated messages: on the one hand, the need for a competitive German agriculture capable of deriving the bulk of its revenue from the marketing of its products, and, on the other, the need to preserve the

Introduction

9

farming tradition and presence as guarantors of the survival and quality of the rural heritage. In the debates concerning Agenda 2000 and the Berlin negotiations, Germany has stuck to its traditional position on the need to retain farm income supports, although it has not been slow in seeking to reduce the level of its net contribution to the European budget.

A French agriculture characterised by a united farming community In the sphere which concerns us here, the individual nature of French agriculture is founded on two pillars: its relation to land ownership and its method of managing the right to farm. France is a country in which land rentals play an important role. In 1946 legislation was introduced to encourage the development of agricultural production, granting substantial advantages to tenants (automatic and indefinite right to renew leases, administrative fixing of rent levels, etc.). Thus the tenant has to a large degree freed himself from the constraint of control by the landowner. At the same time, the tenant farmer does not obtain true ownership, inasmuch as the lease agreement cannot be freely transferred by the tenant outside his family, and, as a matter of law, is devoid of market value. This characteristic - - the absence of legal value in a lease which none the less provides an array of guarantees similar to ownership - - turns out to be particularly useful in a country where inheritance law is egalitarian. The farm is transmitted to a single successor by renting out to him the family land and transferring to him the leases relating to third party land. In this way, the successor enjoys, without payment, the benefit of what may be considered 'quasiproperty', thanks to laws designed to protect the tenant farmer, while his joint heirs receive a share of the property whose availability is drastically reduced by the lease agreed to by the parents. This situation, in which the farming enterprise remains very independent from the ownership of the land, was consolidated in 1960 by the introduction of a 'politique des structures', a policy seeking to modemise French agriculture on the basis of an average family farm reaching a certain standard of productivity. The transfer of small farms was encouraged and the right to farm was submitted to controls designed to discourage the dismemberment of medium-sized farms and the expansion of the largest holdings. This policy was implemented at the level of the French ddpartement, the third administrative level after the state and the region. A 'commission des structures' was set up, consisting of members representing the farmers and the administrative authorities. On paper, decisions were taken by the state's representative, i.e. the prefect. In practice, however, the Commission's opinion weighed heavily in the balance and the system was, in fact, characterised by joint management between the authorities and the farmers. At local level, this joint management cemented the social legitimacy of the system and ensured the efficiency of decisions. For a time in the mid-1980s this policy was shrouded in uncertainty. The prospect of a fall in agricultural prices and the introduction of a milk quota system seemed to argue in favour of an unconditional increase in the size of farms and thus to herald the end of the objective of the medium-sized farm. Contrary to expectations, however, the decision to include milk quotas in the jointly managed control had the effect of breathing new life into the system introduced in the 1960s. The 'commission mixte' (joint commission), hitherto in charge of distributing aids for setting up and developing farms, now worked alongside the 'commission des structures' with responsibility for managing milk quota transfers and, as from 1993, for suckler cow and sheep premium rights. This system was rationalised in 1995 when these

10

Barthdlemy - David

commissions were merged into a single Departmental Agricultural Guidance Commission (Commission d@artementale d'orientation agricole ~ CDOA) invested with great power. At the same time, and true to the logic of this controlled form of management, the principle of a 'free farming right', enshrined in the prohibition on attributing a value to land leases, was extended to embrace production rights: a variety of means were used to ensure that these rights could not be given a monetary value. The fact that French farmers are so closely involved in the distribution of the means of agricultural production has lent great cohesion to the farming community in France. Instead of looking upon themselves as a business sector like any other, farmers tend to see themselves as a separate social group able to negotiate collectively with society as a whole. During the postwar years culminating with the creation of the European Economic Community, French farming marched to the tune of 'Feeding France'. The formation of a common agricultural market, including the principle of Community preference, was both an opportunity to transpose this theme to Europe and a condition of French membership. A Dutch agriculture characterised by small farm units and a commercial outlook Dutch agriculture has succeeded in reconciling two usually contradictory characteristics: it is built around small and medium-sized farms, but at the same time, and like the rest of the economy, it is resolutely business-orientated and geared to export markets. These two seemingly incompatible features - - one calling for administrative restrictions on moves to increase farm sizes and the other necessitating a liberal economic project - - have been brought together successfully through the creation of a powerful co-operative movement. This collective approach to the marketing of agricultural products has secured success in both fields. With an agricultural area which is fifteen times smaller than that of France, the Netherlands nevertheless vies with France for the position of the world's second largest exporter of agricultural and agrifood products. At the same time, this high level of productivity has been achieved by the speedy modernisation of farms, which nevertheless remain essentially family units. These family units are, for the most part, owners of the land they farm. In the country where population density and the resulting pressure on land have given rise to the highest land prices in Europe, this factor has helped to safeguard the family farm, but not in the same way as in Germany. The Netherlands has an egalitarian law of succession, not having introduced a specific system of agricultural inheritance. Family arrangements designed to favour transmission to a single heir are, of course, made, but the cost remains high. High productivity ensures a substantial income for Dutch farmers, but much of this revenue is set aside in order to ensure the continued financing of the production unit down the generations or the acquisition of a few additional acres obtained at a very high price. At the same time, the Dutch farmer is forced to seek ever greater productivity by the need to secure the survival of the family farm through the financing of the production unit. The twin characteristics of Dutch agriculture w a family-based farming structure and the quest for greater p r o d u c t i v i t y - are reflected in a law endeavouring to establish a balance between the interests of the landowner and the tenant farmer through a farm tenancy statute which is more measured than that pertaining in France. For example, the Netherlands has had no qualms in allowing a system of milk quota sales to grow up leading to the de f a c t o abolition of the link between quota and land, even if this means managing the costs incurred by producers in acquiring quotas through a favourable tax regime.

Introduction

11

For many years the family-based agricultural system represented the ideal solution for the Dutch people: the numerous small-scale farms contributed not only to national production but also to the quality of rural life. This situation is now changing as a result of the environmental problems thrown up by what has turned out to be excessive agricultural intensification. New production rights, such as first liquid manure and then pig quotas, are making their appearance. These are no longer considered as income support aids but as contributions to the health of the rural environment. So far these have been managed, like milk quotas, in a very liberal manner but it is by no means certain that this approach can be maintained in the face of extensive damage to the environment. British agriculture: an industry like any other In the United Kingdom, small farmers have never enjoyed the status of their counterparts in continental Europe. They fell victim to the enclosure movements of the 16th and 18th centuries which by the 19th century allowed the large British farm to become the intensive agriculture model for the whole of Europe. During the great crisis of 1880-1900, when improvements in transport opened up European markets to American and Russian producers, British agriculture was abandoned to the laws of the market. In the 30 years leading up to 1900, the agricultural community, as a percentage of the total working population, fell from 18 to 8% and the amount of land sown with cereals was halved. This was quite the opposite of what was happening in Denmark and the Netherlands, for example, where the small and medium-sized farmer was encouraged to face up to the crisis by setting up a series of farm cooperatives. Faced with food shortage during the First World War, the British Government introduced a system of guaranteed agricultural prices in 1917, which succeeded in boosting production. However, this guarantee was abolished in 1921, and the amount of arable land, which had started to climb, fell back to below the level of 1914. It was not until the depression years of the 1930s that a policy of tariff protection and marketing boards for various agricultural products made their appearance ~ and then later in the day and with less conviction than elsewhere. Mindful of what had happened during the previous war, farmers during the Second World War insisted on price support guarantees for a long period. In 1951 this system was replaced by payments compensating farmers for the difference between the level of guaranteed prices and that of actual prices on a market stripped of most of its protections. What would have become of this particular agricultural system and of British agricultural production if the United Kingdom had not joined the EEC in 1973, thereby giving its farmers the chance to take advantage of the system currently applied by the CAP? We shall never know the answer to that question, of course, but this brief historical recapitulation emphasises the overriding tendency in the United Kingdom to consider agriculture like any other industry. Most continental countries extol the virtues of family-based farming as, first, a guarantee of the production of foodstuffs and, secondly, a means of maintaining a balanced spread of the population throughout the land and a rural quality necessary to the well-being of all. The British tend to make a distinction between these two functions, abandoning the former to the laws of the market, whilst, so far as the latter is concerned, they are more prepared to countenance or, indeed, implement rural planning or heritage legislation. It comes as no surprise, therefore, to learn that (with this exception) the British are among the most liberal of the European partners in the management of production rights.

12

Barthdlemy - David

2.2. Divergent interpretations These numerous, widely divergent and sometimes conflicting approaches illustrate the difficulty of devising a common agricultural policy. They also go a long way towards explaining why centrifugal tendencies linked to differences in national projects always resurface when each reform brings in a fresh set of objectives and measures, with each country making its own interpretation. Throughout this work we shall have ample opportunity to observe the effect of these divergent approaches, as, for example, in the case of milk quotas. Here, the United Kingdom and the Netherlands have established a liberal form of management, even going so far as to turn a blind eye when it became practice for farmers openly to circumvent the principle of milk quota attachment to the land in defiance of Community legislation (until amended in 1999). The outcome was that British and Dutch dairy farms, already the largest in Europe, continued to expand. Germany, for its part, has evolved from an initial position marked by strict adherence to the spirit of the texts, coupled with a policy in favour of the small farm, towards a far more liberal stance. As for France, the government has preferred the strict application of the 'link with land', associated with a very active localised and controlled system of management in favour of the medium-sized farm. Here, production has been concentrated in this kind of farm and, in fact, the result has been much the same in Germany, despite the phase of liberalisation, doubtless due to the small farmers' special capacity to dig in their heels. We shall also have occasion to see the effect that the methods of managing milk quotas and suckler cow premium rights has had on the local complexion of farming in the light of the planning objectives of the countries concerned. In the strictly legal sphere, i.e. the comparison of the way that the milk quota regulations are interpreted in the different Member States, the extent of the divergences can be measured by the discussions taking place within each country. In Germany, legal precedent attached milk quota so firmly to land ownership that, during the debates leading up to the reforms of 1999, the German Government insisted that the new regulation should make provision for breaking the link between quotas and farmland in order to combat what it considered to be a harmful restriction. In a more complex way, the British interpretation has tended to attach particular importance to land ownership. For its part, France has linked milk quota to the farm holding, a notion which the national legal machinery views as relatively independent from actual ownership of the land. In this context, it seems particularly opportune to introduce the case of Italy, where milk quota, to all intents and purposes, belongs to the tenant farmer by virtue of the farm's legal autonomy with regard to the ownership of the land farmed. The same themes are pursued in the course of our examination of the application of suckler cow premium rights in the United Kingdom and France, in the parallel review of the highly liberal milk quota market system prevailing in Quebec and the tightly controlled management of production rights in France, and in the appraisal of these instruments against an international background, notably in the context of the new WTO. Thus, the study of the various national interpretations of the European regulatory system governing production rights throws into sharp relief the differences of constructions, themselves based on the different economic, legal and cultural conceptions peculiar to each country. In the jungle of diversity, however, it is possible to discern the presence of two dominating currents, serving not only to separate the Member States but also often the source of conflict and debate within each of them. One of these currents espouses a liberal vision in

Introduction

13

which agriculture, while taking into account specific national characteristics, should essentially be organised around the principles of the market economy. The other current views production rights rather as ideal instruments for managing agriculture according to rules other than those of the market, with a view to maintaining the specific nature of the agricultural population and territory.

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Part 1 Milk Quota Implementations and their Effects in the Four Main Milk-Producing Countries

In 1984 milk was by far the leading agricultural product in the European Community, accounting for 19% of final agricultural production, well ahem of beef and cereals (14% each). France and Germany, with 24.7% and 24.0% respectively of European milk production in 1983, held the lion' s share, ahead of the United Kingdom (14.5%) and the Netherlands (11%). Between 1973 and 1983 European milk production had increased at the rate of 1.6% per year (3.0% in the Netherlands, 1.6% in Germany, 1.4% in the United Kingdom, 1.1% in France), while consumption of dairy products rose by only 0.5% per year over the same period. The market support machinery for dairy products had come to weigh very heavily in the Community's Agricultural budget, swallowing 40% of its resources. The system was ripe for reform. In 1984 one third of European farms were involved in milk production, over half of them with herds of fewer than 10 dairy cows, together representing no more than 10% of the total cattle population. At the other end of the scale, the 6% of farms with over 50 dairy cows possessed 24% of the entire European dairy herd. Milk production was of vital economic importance for many farms and a sharp cut in the intervention price of dairy products would have had dire consequences for the less productive farms, would have disrupted the production sector and would have had repercussions on the beef sector. The situation pertaining in 1984, when milk quotas were introduced, varied considerably in the different countries of the European Community. Among the four leading producers, France, the Netherlands and Germany were net exporters of dairy products whereas, in the United Kingdom, production was not sufficient to cover its own requirements (Table 1). Table 1 also brings out a pronounced difference between Germany and France, on the one hand, and the United Kingdom and the Netherlands on the other. Milk exports from the former were 6 to 7 times higher than from the latter, whereas German and French producers only delivered twice as much milk as their British and Dutch counterparts despite their greater number. From this it may be deduced that there were considerable differences of size and productivity between these two groups of countries (Table 2): in 1984 the Netherlands and the United Kingdom possessed large dairy farms characterised by substantial production whereas production units were far smaller in France and Germany. A comparison between the latter two countries reveals that average production per dairy cow was higher in Germany than in France.

16 Table 1 Milk production in 1984

Germany Yield (million tonnes) Number of producers

Netherlands

24.3

26.0

15.7

12.4

397,200

427,400

58,400

63,500

53

40

24

51

61,000

Dairy farms as percentageof all farms Yield per producer(kg)

UK

France

61,000

269,000

195,000

Milk as percentageof f'mal agricultural production Dairy products" exports (million ECUs)

25.4

17.2

19.8

26.5

2,319.5

2,135.0

385.3

2,725.2

Dairy products: imports (million ECUs)

1,501.4

438.1

973.5

1,098.1

Balance (million ECUs)

+ 818.1

+ 1,696.9

- 588.2

+ 1,627.1

17.6

10.2

4.3

13.8

Dairy products as percentageof agrifood exports '

Source: CNIEL, 1986.

Table 2 Milk production units in 1984

France

"UK

Netherlands

46

37

' 12

17

52

59

42

50

Dairy cows by herd size categories (% of total)

Germany

Less than 10

"

_

10

-

50

More than 50 Average number of dairy cows per farm Average yield per dairy cow (litres per annum)

2

4

46

33

14

17

56

40

4,530

3,850

4,721

5,063

_

,,

Source: CNIEL, 1985.

The income of milk producers was closely related to labour output and milk prices (Table 3). In the period between 1984 and 1986, Dutch producers enjoyed the highest income (three times as much as their French counterparts), thanks to good family labour output and a relatively high milk price. Production costs were lowest, and production per family work unit highest, in the United Kingdom (three times higher than in France or Germany) but the incomes of British dairy farmers fell well below Dutch levels on account of the very low price of milk. Family labour output on French and German farms was comparable, but given the fact that milk prices in Germany were 17% above French levels (and despite higher production costs), incomes per family worker in Germany were on average 25% higher than those oJ their French counterparts.

17

Table 3 Price of milk and family income on dairy farms (average 1984-86) . . . . . . . . .

German~

France.......

UK

Netherlands

Price of milk (ECU/hl)

30.7

26.2

23.6

29.9

Cost of milk production excluding family labour (ECU/hl)

24.1

21.1

20.6

21.4

Milk production per family labour unit (hi)

1,210

1,250

3,630

2,300

Income per family labour unit (ECU)

7,970

6,390

10,878

19,539

Source: Butault, pp. 182-184. In 1984 the dairy industry was most concentrated in the Netherlands (49 processing companies treating an annual average of 253,000 tonnes of milk). Next came the milk processing companies of Germany and the United Kingdom, treating an average of 44,000 tonnes of milk per year, but the British milk sector was organised in a very special way" five offices, known as Milk Marketing Boards, held a monopoly of milk purchases from producers inside their respective zones; they then resold the milk to the processors. Lastly, France possessed almost three times as many processing units as Germany for a roughly equivalent yield (1,497 companies treating an average of 17,300 tonnes of milk per annum). Thus, when the organisation of the Community' s milk market was reformed in 1984 and milk quotas introduced, the situations pertaining in the various milk-producing countries differed sharply. The differences between the four countries reviewed here form the economic backcloth to the national policies adopted for implementing and managing milk quotas which are set out in the following pages. Finally, a comparative study will assess the specific effects of these different policies on the situation with regard to dairy farms for each of the four countries.

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19

Three Successive Trends in Germany Denis BarthOlemy

In 1984 milk production was an important element of German agriculture, with almost half of all farms involved in this activity. Milk production was spread unevenly among the various Lander or regions, both in terms of the number and size of farms. In the south, Bavaria accounted for 40% of milk producers and 30% of the national yield, with an average herd of 13.1 dairy cows. Bavaria was thus the country's leading dairy producer, with a production unit structure notable for its lack of concentration. In marked contrast, production in the northern part of Germany was far more concentrated. Lower Saxony, with only 12% of producers, provided 22% of the national yield (average herd of 21.1 cows), while Schleswig Holstein (5% of producers, 10% of national yield) possessed an average herd of 34.4 dairy cows, i.e. almost three times as large as that of Bavaria. In 1984, therefore, Germany could be considered as a Member State of major importance for milk production but one handicapped by an unfavourable structural situation. In that year it was allocated a reference quantity of 23.5 million tonnes, putting it in second place immediately behind France. From an economic standpoint, the introduction of quotas was at once an advantage (since it guaranteed a substantial production capacity) and a danger in that it ran the risk of perpetuating an uncompetitive production system. This dilemma was to be reflected and expressed in three successive and very different approaches. There was thus a move away from a controlled management tilted in favour of the family farm unit (1984-93) towards a more liberal situation encouraging the development of markets for the lease and sale of quotas independently of the farm areas (1993-2000) and culminating in a system of exclusive transfers through sales on the exchange market.

1. Priority for the family farm unit and the reduction of surpluses 1984-93 Faced with the choice between system A (attribution of quotas to farms) and system B (attribution of quotas to dairies), Germany opted for system A. This option was the result of a joint decision by farmers' federations and the administration, anxious not to surrender this power to the dairies and keen to implement a system favourable to the family f a r m - the reference unit in German agriculture for several decades. With regard to the latter point, a differentiated attribution of quotas was applied: each farmer's reference was determined on the basis of his yields in 1983 minus a percentage varying between 2 and 15% inversely proportional to this quantity (maximum reduction reached beyond a reference production corresponding to 80 dairy cows) and to the increase in production between 1981 and 1983. However, the choice of system A was, amongst other things, to give rise to 'difficult cases'. It had been agreed that supplementary quantities should be made available to farmers having made investments designed to increase production, and 1 million tonnes had been

20

Barth~lemy

estimated as necessary for this purpose. In actual fact, one farmer in three put in a claim for these supplementary quantities, numerous lawsuits were brought against the administration, and in the end 2.2 million tonnes of additional reference quotas had to be allocated. In the event, Germany exceeded its quota by almost 10%, a situation aggravated by the fact that the 1% reduction of references imposed by Brussels during the 1985/86 production year was not passed on to the producers (as a result of strong pressure from farmers' unions). This surplus was to weigh heavily over the ensuing ten years. The Government set up a series of deductions, freezes and quota buyouts in an effort to cope with the situation and at the same time to comply with the reductions ordered by Brussels. With regard to the outgoers schemes designed to help those wishing to give up their activity, a first operation, launched in 1984-85 and providing compensation at 0.1 DM per kg per year over 10 years, released 1 million tonnes. The scheme covering the next three years (immediate compensation at 0.7 DM per kg or 0.16 DM per kg per year over 5 years), released only 500,000 tonnes. It was not until March 1990 that the problem was finally solved thanks to a plan covering 400,000 tonnes at 1.6 DM per kg, prompting an offer of double that amount from the farmers. At the same time, quantities were deducted in the event of reference transfers between farmers. In 1984 a 20% deduction rate was slapped on partial transfers, and extended to cover all transfers in 1985 with the exception of farm transfers within the family. In 1987, an 80% deduction was imposed on transferred quantities when the beneficiary's total quota exceeded 350,000 kg. 1 In 1989 the 20% rate on transferred quantities was increased to 30% in cases when the transfer took place after cessation of the milk production activity. I.I. The quota/land link and the landowner/farmer relationship During this period, Germany made every effort to see that the milk quotas were, in fact, linked to the land used for farm purposes. This commitment sprang from a concern to protect the family farm unit and to ensure an equitable distribution of milk production throughout the country. According to the European regulatory system, milk quotas were supposed to be equally spread over the areas used for milk production. Thus, when land was transferred, the reference quantities were proportionally divided over the entire area farmed at that time so as to determine the share of quotas to be included in the transfer. Inevitably, the question of how to define the land devoted to milk production, and as such associated with the quotas, was a source of controversy and gave rise to a large number of legal disputes, with solutions differing according to particular circumstances and from one Land to another. Nevertheless, a broad definition gradually began to emerge, embracing all areas directly or indirectly required for milk production (in other words, taking into account rotations and complementarity between crops, the interdependence of different kinds of livestock farming, the need for farm tracks, etc.). In practical terms, until the reform of 1 April 2000, the only way to render farmland ineligible for quotas was to prove that it had never been, nor could ever be, related to milk production. By the same token, it may be noted that a decree of 18 June 1986 explicitly banned the practice then prevailing in the United Kingdom and the Netherlands according to which land

1 In 1998 the Mtinster Administrative Court of Appeal ruled that this measure was unconstitutional: its application to rents without fixing the duration, i.e. without the prospect of restitution, was tantamount to depriving the landowner of the possibility of recovering the full amount of the quotas at the end of the lease.

Three Successive Trends in Germany

21

was rented out with quotas and then returned one year later without q u o t a s - a roundabout way of creating a quota market divorced from land. Another element which weighed indirectly in the attachment of quotas to land and to their distribution over the areas was a stocking density upper limit of 5,000 kg per hectare imposed during transfers. Created in 1984, this ceiling was raised to 12,000 kg per hectare in 1990 and was eventually withdrawn in 1993 following a ruling by the Federal Administrative Court. The close link with land was not to be imerpreted as meaning that the quotas were considered as an indissoluble attribute of landed property. Both the administration and the farmers' union always insisted that quotas were first and foremost intended to bolster the flow of farm products, and hence the farmer's income, and not to defend the landowner' s position. This thinking is illustrated most clearly in the decree of November 1984 stipulating that, in the event of the owner taking back the land rented out, the tenant retained possession of the milk quotas acquired provided that the area involved was less than 5 hectares. In a country where 80% of rented property fell below this threshold, the implicit aim was to penalise landowners in favour of farmers. The decree was therefore challenged in the courts and condemned in November 1993 by the Federal Administrative Court, which ruled that it constituted an attack on property guarantees and therefore took the decision to reduce the threshold to 1 hectare (smaller areas were not deemed to constitute a significant economic unit as far as milk production was concerned). The decree of 11 September 1985, motivated by a similar restrictive intent, limited the reference quantity which could be returned to a landowner recovering rented land to 2,500 kg per hectare. This measure was overturned by the Federal Administrative Court on 21 December 1992. Apart from these attempts to weaken the position of landowners, their rights concerning quotas linked to their land remained relatively intact. A tenant farmer could not enjoy the benefit of an outgoer scheme without the lessor's authorisation. When taking back his land, the lessor usually had the right to recover the milk quotas associated with this land. However, a distinction must be made between several different cases. Firstly, when the lease was taken out after 1 April 1984, that is to say after the quota system came into effect, the lease agreement specified the reference quantity included in the lease and the machinery may be summarised by the principle 'what is put in is taken back'. The situation was quite different, however, for 'old contracts' concluded prior to this date. If the contract concerned a farm in its entirety (an economic unit which is viable at the time of signature of the contract), the lessor recovered all quotas proportionally linked to the land in question (theoretically according to the share-out of 1984, but in actual fact very often according to the current distribution of quotas and land, unless there was a deliberate attempt on the part of the lessee to 'strip' the lessor's land of the quotas which should normally be associated with it). If the contract concerned parts of land only (as opposed to the entire farm unit), the lessor recovered all proportionally attached quotas when this was the result of the normal termination of a fixed term lease. On the other hand, when a permanent lease was terminated at the lessor's initiative (and when the said lessor did not recover the land with a view to farming it himself), he only retrieved half of the quota, within a limit of 2,500 kg per hectare, the rest being kept by the lessee. This provision should be seen less as a restriction on the lessor's right to recover q u o t a s - although such inevitably was the r e s u l t - than as an extension of the regulations governing rural leases, seeking to preserve a certain stability in

22

Barthdlemy

tenant farming and to prevent speculation on the part of landowners. 2 This doubtless explains why the ruling was not overturned by the Federal Administrative Court.

1.2. The winds of change The whole of this period between 1984 and 1990 was overshadowed by the pressing need to re-absorb the quota surpluses distributed during the opening up of unlimited quantities concerning rights for 'difficult cases'. The quantities collected during outgoer schemes and transfers were not redistributed but cancelled. Compensations between under-producing and surplus-producing farmers delivering to the same dairy were not authorised. The European regulation of 5 October 1987 allowed Member States to organise annual exchanges. Germany waited until July 1990, that is to say until all quota surpluses had disappeared, until availing itself of this latitude. Producers anticipating under-production could temporarily transfer the available reference quantity to another producer, irrespective of the area involved and in return for payment. The contracts were annual and had to be concluded outside the last three months of the milk production year (known as 'leasing'). 3 Similarly, balancing between producers supplying the same dairy was authorised as from December 1990 (along with a franchise system benefiting small suppliers). In March 1992 balancing was authorised at regional level. In July 1990, all deductions on reference quantities were removed, apart from a 30% levy when the beneficiary's final quantity exceeded 350,000 kg. Even this exception was lifted in December 1991. A change of major proportions now loomed on the horizon: on 3 October 1990 German re-unification came into effect, and on 25 March 1991 the European Community allocated a quota of 6.25 million tonnes for the new Lander. However, these quotas were submitted to a special system supposedly lasting until 1998 (but in actual fact extended to 1 April 2000). In view of the disruption to production in the regions of the former East Germany, a pool was set up to make quotas freely available to farmers applying for them, 4 within limits of quantity for individual farms and the former socialist co-operatives (LPG) and with different applications for each of the five new Lander. This free availability has not so far caused any difficulty, for the reference utilisation rate in these Lander was 90% for the first production year only, rising very gradually to full utilisation today. In 1993, the under-utilisation in former East Germany induced the Government to authorise balancing for under- and over-production nationwide. This decision gave a strong impetus to production in the western part of the country which in turn resulted in penalties for the producers concerned in the years 1996-97, when production levels in the new Lander increased and the scope for balancing narrowed. Thus, in the period between 1990 and 1992, a series of factors combined to change the situation. Whatever the immediate difficulties, there was no disguising the fact that agriculture in the new Li~nder was based on exceedingly large farm units. As such, it constituted a threat to the family holdings of the West whose development had been held back by strict regulations. Moreover, the price of milk, which had risen sharply between 1984 and 1989, fell 2 This concept is part of the German regulation on protectionof the tenant farmer (Pdichterschutz). 3 In Germany annual loans are known as 'leasing'. As we shall see, between 1992 and 2000 producers were entitled to lease milk quotas by contracts for several years. For reason's of clarity, we distinguish between the two forms of contract by referringto them respectivelyas 'annual leasing' and 'leasing'. 4 Thus they are neither the property of the farmers nor linked to the land. They can therefore only be transferred through the pool.

Three Successive Trends in Germany

23

by more than 10% between 1989 and 1991, with the result that the ability of the quota system to support prices was called into question. Lastly, the discussions paving the way for the renegotiation of the CAP in 1992 created a climate of uncertainty characterised by a greater interest in a more liberal approach. In conclusion, we may draw attention to the following aspects of the period under review. For the German Government, the application of the milk quota system was quite clearly seen as part of a wider concern to support family agriculture and to encourage the occupation of the land. In pursuing this policy, it received relatively little help from the farmers' unions and the dairies, who were content to leave the implementation of the system to the administration, and who put pressure on it to obtain quota supplements. The administration had to contend with a veritable tide of lawsuits, and the quota surpluses which it was obliged to allocate left it with no room for manoeuvre over the ensuing eight years. The Government emerged bruised and battered from this period, little inclined to adopt an interventionist attitude in the future. At the same time, action was taken to favour farmers at the expense of landowners. Here the administration's efforts were viewed in a positive light by the farmers' unions, less so by the courts and in particular the Federal Administrative Court which took the view that quotas were an attribute of real estate rather a resource for farm operation. 5 In reality, farmers found that the scope for development was extremely limited. The link between quotas and land forced them to increase their area and this was often deemed to run counter to rational farm management. For this reason it is difficult to provide figures concerning the volumes and prices of the quotas exchanged. It may, however, be noted that the buyback plans (offering 70 pfennigs per kilo) for the 1986-90 period had a limited success, and that the price of 1.6 DM per kg (which had guaranteed the success of the 1990-91 plan) had been established, in the view of observers, as a 'halfway house' between the price of 1 to 1.2 DM per kg practised in the south of the country and the price of 2 DM per kg in force in the n o r t h - all this at a time when the average national price of milk was approximately 62 pfennigs per kg. 2. Liberalisation within limits after 1993 A crucial change took place on 30 September 1993. Directive 3950/92 of 28 December 1992 of the Council of the European Communities upheld the principle of the link between milk quotas and farming land. But in article 8, it stipulated that Member States could designate regions 'in which the transfer of quotas without land was authorised for the purposes of improving the structure of milk production'. The German Government took advantage of this latitude to allow the rent or sale of quotas without the concomitant transfer of land. 2.1. A territorialised policy The Federal Government originally hoped to extend this new concession to include the entire country with a view to concentrating production in particular dairies. But in Germany the L a n d e r enjoyed and enjoy wide-ranging powers, especially in the sphere of agricultural policy. Each of them tended to look upon milk quotas, originally reflecting a local production situation, as part of its ownagricultural productive inheritance. Inasmuch as the decision to 5 On this point, cf. the contribution by Dr H. Gehrke (Part 2 of this volume).

24

Barthdlemy

liberalise the transfer of quotas implied the possibility of de-localisation, most of the Lander were bound to react. The L a n d e r have always been extremely active in the field of milk production. Confronted with the small size and the lack of concentration of milk processing units, most of them embarked on programmes designed to merge and concentrate dairies, adding their own contributions to European support. They intervened to facilitate the restructuring of dairy farms: in the course of the 1990-91 milk transfer plan, when the Federal Government offered 1.6 DM per kg to buy up 400,000 tonnes of reference quantities and producers offered twice as much, the governments of the Lander seized the opportunity to buy up the surplus 442,000 tonnes themselves at the same price - - in certain cases they borrowed funds from the dairies and to resell them at cost price to farmers wishing to increase their reference quantities. The criteria adopted for this redistribution were mostly geared to encouraging farmers newly set up in business or those in relatively weak positions. This prompted certain Lander to pursue their own restructuring plans. The result was that a collective move to transfer quotas independently of land received, so to speak, the official sanction of a few Lander 6 who were active in the purchase and resale of quotas. In short, in the context of the liberalisation of 1993, each Land was well aware of the advantages to be derived from the transfer of quotas without land. But most of them insisted on exercising control over their quotas, so much so that this kind of transfer was confined to the boundaries of the Land. 7 Two Lander, Baden-Wtirttemberg and Bavaria, anxious to maintain a balance within their territory, even imposed narrower limits at the level of the Bezirke 8 (four in Baden-Wtirttemberg, seven in Bavaria). There were two aspects to the policy of liberalising transfers: firstly the opportunity for farmers to increase their production capacity without the burden of an obligatory and often incoherent extension of areas, and secondly the tendency for production to be de-localised since quota prices were higher in areas where farmers could produce at the lowest cost, in other words in places where production was already highly concentrated. In facing up to this situation, the Lander could choose between imposing limits on de-localisation (as we have seen above) and introducing programmes to encourage alternative systems of production in the areas from which the milk quotas were transferred.

2.2. Development of milk quota markets As from October 1993, therefore, there have been five possible ways of transferring milk quotas: annual leasing, introduced in 1990, the rent and sale of quotas linked to land (whlch had existed since 1984), and the rent and sale of quotas not linked to land. This new situation has led to a marked increase in transfers as a result of a concerted drive to concentrate production. At the same time it has created a financial burden for purchasers: various steps have been taken over the years in an effort to narrow the room for manoeuvre of quota lenders or lessors and with a view to exerting a downward pressure on the cost of access to quotas for producers. The period between 1998 and 2000 leading up to the Agenda 2000 negotiations, and the German reform of the rules governing the transfer of milk quotas of 1 April 2000 fuelled uncertainty and led to feverish activity on the market.

6 Or who allowed such operations to proceed under their aegis. 7 This limit did not apply in the case of family transfers. 8 Local district.

25

Three Successive Trends in Germany

Annual Leasing

These leases, which had to be subscribed between 1 April and 31 December of each year, were by definition annual. At the end of the year the quota was re-allocated to the assignor. But there was nothing to stop the contracting parties from jointly agreeing to a promise of new annual leases in future years. In addition, they both had to supply the same dairy. Movements were thus recorded by the dairy, which was subject to administrative control. At the same time, since a dairy's collection area might be spread over several Lander, the annual leasing does not necessarily respect the boundaries of these Lander. This latitude, together with the scope afforded by long-term conventions, opened up the possibility for long-standing transfers in a dairy' s cross-border activity zone. In 1994 annual leasing for quotas originating from the landowners' recovering possession of the farm or plot of land were banned in order to discourage speculative behaviour on the part of the lessor. Similarly, in order to guard against the danger of an annual lease being transformed into a durable rent (opening the way for tenants to become lessors of the quotas attached to the land which they had rented), lenders were obliged in 1996 to supply milk personally. However, although various proposals were put forward, no hard and fast rules were fixed as to proportions. Table 1 Annual leasing contracts among Raiffeisenverband members

Production year Total quantity leased (thousand tonnes) Quantity per contract (kg) Number of contracts per thousand producers Quantity leased as percentage of total qty Average price (Pf/kg)

90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 146'

367

5'56

903 " 70~/ 8 9 8

375

407

400

2-83

11,000 12,000 15,000 17,000 22,000 18,000 14,000 13,000 13,000 13,000 94

226

309

428

234

391

228

272

284

230

1.3

2.9

4.4

6.6

4.9

6.3

2.7

2.8

2.8

3.1

15.5

16.5

14.2

15.0

18.3

22.2

20.4

.

16.5

.

.

16.4

.

.

11.8

.

.

.

.

Source:Raiffeisenverband

Statistics currently available (based on surveys of co-operatives belonging to the Raiffeisenverband, i.e. roughly two-thirds of the milk yields of the former Lginder 9 (Table 1)), point first of all to a rapid development of annual leases and intense activity until the 1994-96 period, followed by a fall in the quantities leased. The price movement was reversed, with a sharp rise over the 1997-2000 period. In the first instance, the introduction of the annual leasing system and the opportunity provided of balancing for over-production in the West by under-production in the East combined to prompt a pronounced increase in production, fuelled by the recourse to annual leases, whose prices neither rose nor fell, and by the prospect of balancing in the event of over-production. After 1996, the scope for balancing was considerably reduced and at the same time there was a fall in the quantities available for annual leases as a result of the ban on this possibility for non-producers. Moreover, the prospect of reform (discussions began in 1997) was encouraging quota holders to lease or sell. 9 The possibility of annual leasing did not exist in the new Ldinder.

26

Barth~lemy

In the face of diminishing supply, prices rose substantially, climbing as high as 30 pfennigs per kg. Furthermore, the average price concealed disparities with a difference of from 5 to 10 pfennigs per kg between the northern and southern Lginder. In 1997, for example, prices of 20 to 25 pfennigs per kg in Schleswig-Holstein compare with 12 to 18 pfennigs in Bavaria. (At the same time, the average quantities per contract in 1995 are 37,000 kg in SchleswigHolstein as against 13,000 in Bavaria.) Prices also fluctuated sharply in the course of the year, being at their highest in the month of December when most contracts were negotiated. Rent and sale of quotas with land This option had existed since the origin of milk quotas. The main stumbling block concemed the 'old rental contracts' taken out before 1984 which did not individualise the quotas included in the lease. As we have seen, the regulations in this field had developed over the years, notably in the light of strictures emanating from the Federal Administrative Court which interpreted the quota as an element contributing to a property's economic viability and thus indirectly enjoying the same constitutionally guaranteed protection. All rents or sales of milk quotas, whether or not associated with rents or sales of land, were subject to approval by the administrative authorities. To obtain such approval, the lessor or assignor was required to fill in a form specifying the origin of the quotas covered by the transaction. Given the complexity of the situation, that is to say the large number of possible origins, the application of rules governing the distribution of quotas on the areas, and the fact that it was virtually impossible for the authorities to determine the respective rights of all concerned, the declarant found himself obliged to engage his personal responsibility in the event of a challenge by any legal claimant. In practice, such disputes were by no means rare, largely due to the tendency of farmers to consider that the quotas attributed in 1984 originated in the presence of a production which was itself the result of their activity alone and which therefore did not concern landowners. In this connection, mention should also be made of a tendency among farmers and certain authorities to take the view that, when quotas had been leased for several years, they were no longer really linked to the farm and the land and hence no longer liable to be returned to the lessor in the event that he wished to recover his land. This interpretation gave rise to disputes and eventually a legal precedent was established by the Federal Administrative Court on 23 January 1998, ruling that quotas remain attached to the land even if they had been leased repeatedly. These transactions fell within the province of a standard lease agreement whose particular terms depended on whether the lease was for a definite or an indefinite period and whether the agreement covered part or all of the farming unit. Attention also focused on attempts to get round the regional limitation of quota transfers without land by means of transfers with land, since this principle of limitation did not apply to the latter. As far as rents were concerned, the idea was for a farmer to rent an area with quotas in another Land (which might be far away) and to produce milk on his original farm, having taken out a contract with a third party for the non-dairy farming of the areas covered by the quotas. The process was virtually the same for a sale, the difference being that it was accompanied by a quota 'densification' realised by the seller or the purchaser, through the sale of plots without quotas, thereby lightening the financial burden of the operation. Such cases were relatively few in number and were contested in courts of law by the administrative authorities of the Lander which had fallen victim to such practices and were anxious to defend the 'quota-property' of their region.

Three Successive Trends in Germany

27

Rent and sale of quotas without land Rent agreements were required to be written and drawn up for a duration concerning at least two production years. These periods usually lasted from two to five years but might sometimes be for as much as 10 or 12 years. The beneficiary of a rent or sale had to deliver milk for at least two production years. Inspired by the same desire to avoid speculation, milk quotas resulting from the landowner's recovery of a rented area ('old contracts') could be transferred separately from the land. From the tax point of view, the milk quota was considered as an intangible asset, to be recorded in the balance sheet when purchased, with a 10 year depreciation period. This rule, advantageous for the purchaser, was counter-balanced by the fact that it rendered the seller liable to tax. In the case of quotas which had not been exchanged since 1984, and whose original value was therefore nil, the entire value of the sale was recorded in the annual accounts and therefore generated considerable tax revenue. Moreover, the negotiability of milk quotas made them an asset which was clearly recognised by third parties. Their existence (even in the case of those held since 1984 and thus not featured on the balance sheet) constituted a guarantee for the bank which, although it could not be directly mobilised since the quotas were not liable to mortgage, nevertheless represented a specific value in the farm seeking a bank credit. There is no general statistical account of transfer quantities and prices. There are two main reasons for this state of affairs. Firstly, farmers were loath to volunteer information because of possible tax repercussions. Secondly, the markets themselves were hard to evaluate due to the numerous types of transfer, regional limitations and the lack of intermediaries organised for these transactions. There are, however, partial studies which provide a general picture of trends and volumes and which are supplemented by the contributions of various experts questioned in the course of our investigations. From these studies it emerges that sales prices were between 1 and 2 DM per kg in 1993, figures confirmed so to speak by the buyback plan of 1.6 DM per kg at that time. In 1994 and 1995 prices tended to fall, fluctuating between 0.8 and 1.5 DM per kg because of the possibilities of surplus adjustments with the regions of former East Germany. After 1995 they started to rise again, returning to 1993 levels in 1996. The years 1998, 1999 and 2000 have been marked by a pronounced upward trend. In 1998, it first seemed that the milk quota system would be maintained beyond the year 2000, but the newly elected government came out strongly against non-producers holding quotas, giving rise to protracted and confused discussions on the reform of the transfer system in Germany. In this climate of uncertainty, quota holders leased or sold their quotas. The Agricultural Ministry noted that, depending on the Ldnder, between 6 and 10% of milk producers ceased activity and sold 2 million tonnes of quotas between 1 September 1999 and 31 March 2000 z~ before the new system came into force. There was a sustained demand for these transfers for prices were then at their highest (between 1.5 and 2 DM/kg in almost all the Lander): producers are buying up quotas in order to strengthen their competitive position in the event of quotas being abolished in 2006. As for leasing prices, these were in the range of 8 to 15 Pf/kg at the start of the period, 10 to 20 Pf/kg from 1997, and roughly 15 to 20 Pf/kg in 1999/2000. The range of prices indicated above reflected approximately the north-south regional divide to which we have already alluded, with Baden-Wtirttemberg at the bottom of the scale and Schleswig-Holstein

10BMELF-Informationen No. 36, 4/9/2000.

28

Barth~lemy

at the top. The discrepancy was associated with a difference in the prices of milk purchases from producers (varying within a range of as much as 6 pfennigs per kg, i.e. 12% of the average price) and in the size of dairy herds. At the same time, it should be noted that twothirds of transfers in the north were through rents, roughly the opposite of the situation pertaining in the south. Observers explain this contrast by pointing to the higher purchase cost per farm in the north where both herds and transfer volumes are larger than in the south. Prices also tended to differ according to the time of year. Generally speaking, prices were lower at the beginning of the production year (after 1 April) and higher in the final months (between 1 January and 31 March). Producers had to adjust their delivery rights to their actual production while no longer being able to take out annual leasing contracts at this period. They were thus inclined to buy or rent additional quotas, thereby pushing up the prices of both these markets.

2.3. Quota mobility and cost problems The severing of the link between quotas and land was to result in a de-localisation of the quotas within the regions where this was possible. Within each of these regions, quotas tended to be concentrated in areas where production was most intense by virtue of the size of the dairy herds and the stocking per hectare. In the first two years it was mainly a question of additional growth, with farmers adjusting their quotas to their production capacity, notably after the reductions undergone. Subsequently, average volumes per transfer increased somewhat and corresponded to growth operations in the strict sense. The result was a decline of milk production in mountain and disadvantaged areas, a tendency reinforced by the concentration of dairies and their concern to cut milk collection costs. Without regional limitations on transfers, the de-localisation phenomenon would no doubt have been much stronger. While there was virtually no limit to the ability of producers to increase production, these same producers were increasingly prompt to denounce the costs involved in the annual leasing, rent and purchase of quotas. An indirect estimate, based on the cessation of activities, suggests that between 40 and 50% of quotas had changed hands since 1984. The milk section of the Union of Co-operatives (Raiffeisen) advanced a mean figure of 4 to 5 pfennigs (purchase or rent) per kg of milk produced, i.e. virtually 10% of the sale price. Producers were also quick to point out that the money made available for public support of the building of cowsheds had to be used for the purchase of quotas, since it was necessary to possess quotas before the subsidies could be claimed. On this question of the price paid by producers, the finger of blame was pointed at quota lessors as profiting excessively from a situation which, for example, allowed a retired farmer, renting out his 50 hectares of grassland for 20,000 DM per annum, to add a rent of 40,000 DM for 300,000 kg of quotas. In Germany, these farmers were disparagingly referred to as 'couch producers' (Sofaerzeuger) and were accused of taking unfair advantage of the situation. The reform of 1 April 2000 was principally directed against this category. 3. The reform of the year 2000 In both the Agenda 2000 discussions and the Berlin negotiations, Germany came out in favour of maintaining milk quotas. It interprets the agreement sanctioning a lowering of support prices and an increase in quota volumes as a signal that the discussions scheduled in

Three Successive Trends in Germany

29

2003 will lead to the suppression of quotas in 2006, for which it will have to prepare. It has also taken advantage of the reform in European regulations to introduce a new quota transfer system in Germany. 3.1. Quotas, the price of milk and the organisation of the sector The main criticism levelled in Germany against milk quotas concerns the price of milk. Despite the fact that quotas were created as a means of sustaining prices, and despite several reductions in their quantity, they have proved unable to stop these prices from falling. The average price paid to producers (61 pfennigs per kg in 1984) rose to 69 pfennigs in 1989 but then fell back to 62 pfennigs in 1992, before settling at about 59-60 pfennigs per kg in the years since 1994 (Table 2). At the same time, no examination of the effect of quotas is possible without taking into account developments in the field of production and marketing.

Table 2 Average milk prices paid to producers Milk year Pf / kg

83/84

84/85

85/86

62.7

61.0

60.3

86/87..... 87/88 60.6

59.4

88/89 ...... 89/90..... 90/9168.8

68.8

96/9"/

97/98

57.6

59.8

63.6 _

]Vlilk~/ear Pf / kg

. . . . .

91/92

61.8

92/93 ........ 93/94

62.4

59.9

94/95 ...... 95/96'

58.7

59.2

Source: Statistisches Jahrbuch fiber Ern(~hrung Landwirtschaft und Forsten, Landwirtschaftsverlag.

The straitjacket imposed by an exceedingly rigid transfer system between 1984 and 1992 was to have a marked effect in limiting the growth in the average size of dairy herds. Over this period, the size rose from 14 to 19 cows (former Lander), falling further behind France whose average herd jumped from 17 to 25 cows. The next period was marked by a greater degree of liberty for quota transfers in Germany. The rate of concentration doubled and the gap with France concerning the size of herds was gradually narrowed: in 1995 average herd sizes in Germany and France were respectively 25 and 28 dairy cows, and 28 and 31 dairy cows in 1998. Germany nevertheless lagged far behind the average Dutch and British herds of 44 and 69 cows respectively. In the sphere of milk product processing, where concentration is crucial to cost competitiveness and the ability to negotiate on markets, Germany's position is, in fact, no more than moderately favourable. Although the country is today the largest European dairy producer, its two leading dairy groups rank only 9th and 10th in Europe. Nowadays, the dairy industry is locked in a power struggle with supermarket and hypermarket outlets. Whereas the German dairy industry is no more than fairly well concentrated, with the five largest businesses representing 23% of production, rationalisation has continued apace among food distribution channels where 95% of national dairy consumption is accounted for by the five largest supermarket chains. It is an unequal struggle and certain members of the Raiffeisenverband are of the opinion that the battle has already been lost and that prices are now dictated by the supermarkets: milk for everyday consumption is often used as a loss leader in supermarkets, so much so that the German Competition Court was obliged to rule against the sale of milk at prices lower than the cost price.

30

Barth~lemy

When the future of milk quotas became a matter of public debate, German opinion was split down the middle. On the one hand, it was quite clear that milk quotas had proved incapable of preventing a considerable fall in milk prices. From this point of view, quotas might appear useless, and even harmful inasmuch as they stood in the way of the restructuring essential to securing the increased competitiveness required for direct exposure to world markets. On the other hand, the immediate abolition of milk quotas seemed fraught with danger. Would not the suppression of quotas work in favour of British, Dutch and perhaps French producers to the detriment of German production? It was this fear which led Germany, as from 1997, to support the continuation of the quota system despite its shortcomings. 3.2. The German debate on the quota transfer system From the outset the cost of quota transfers was condemned as an excessively heavy burden. The fact that a regulation introduced with the aim of supporting producers' income should also benefit non-producers never failed to arouse criticism, as may be seen by the German government's attempt, during the first period, to favour farmers at the expense of landowners, and by the ban on annual leases of quotas by non-producers in 1996. Several currents were apparent in the debates leading up to the 1999 negotiations. The idea of forsaking the market system in favour of a reserve had its supporters. In its extreme form it amounted to the suppression of any possibility of transfer. This was known in Germany as a passage from production rights (Produktionsrechte) to delivery rights (Lieferrechte). According to this second definition, the holding of quotas would be strictly dependent on the delivery activity. As soon as a producer stopped delivery, the quotas would revert to the reserves of the Lander, which would then be responsible for sharing them out free-of-charge in keeping with pre-established priority criteria. This was, in fact, the system pertaining in the L~nder of the eastern part of the country, the difference being that in the East there was very little or no demand for quotas, whereas such a system applied in the western part of the country would have functioned in a context of very strong demand. This current of opinion enjoyed very little support in 1995 and 1996 but then gathered momentum. It was voiced by the Young Farmers, the Union of Dairy Farmers (DBM) and on occasion by the administrative authorities. The winners of the elections in September 1998 (the SPD and the Green Party) also came out in favour of this approach. The Deutscher Bauernverband (DBV), by far the most representative of the general farmers' unions, took a more balanced view but nevertheless advocated substantial changes to the system. As far back as 1993, flexibility was advocated as the only realistic way of improving production units. As from 1997, it was hoped to increase this flexibility by completely severing the link with land. At the same time,~there is a desire to exert a downward pressure on quota prices. Despite the difficulties thrown up by the measure taken in 1996 to ban nonproducer farmers from the annual leasing s y s t e m - at which time a by no means negligible number of farms sprang up along the borders of L~inder, based on cross-border annual leasings (and depending on them for their survival) - - the DBV also called for the complete suppression of quota leasing and rents. It then proposed that the right to possess quotas should belong exclusively to the farmer (subject to a right to compensation for the original lessors in case of alienation). Finally, in a move designed to counter the growing influence of brokers in this sector (in Schleswig-Holstein they had already gained a 20% stake in the market in 1997), the DBV advocated a 'quota exchange' of which it would have sole control.

Three Successive Trends in Germany

31

In off-the-record discussions, this stance adopted by the German farmers' unions was presented as the maximum that can be expected in terms of reducing the quota access costs sustained by producers. The French model of non-market oriented management, and the power exercised by the FNSEA (French National Farmers' Union) in its capacity of jointmanager of the system in conjunction with the Government, sometimes arouse envious comments in German union circles. But the DBV does not feel that it can count on or enforce the necessary discipline at grass roots level to create the conditions of a non-market oriented management of quotas, in other words the definition of priority beneficiaries and quantitative criteria of distribution. The predominantly Christian-Democrat government which was in power until September 1998, was opposed to the idea of a non-market management of quotas, less no doubt out of its avowed commitment to the market economy than because of the difficulties in laying down non-market rules of distribution and out of reluctance to bear the sole responsibility for administering such a system. In the course of an interview given in November 1997, Mr Borchert, 1~ the Christian-Democrat Minister of Agriculture, expressed the wish to see the link with land severed and the limits imposed by Li~nder boundaries abolished. Doubtless inspired by a desire to disarm opposition in the Lginder of central and southern Germany (alarmed by the prospect of an unfavourable exodus of quotas), the Minister considered the possibility of creating special subsidies to encourage the transfer of quotas towards mountain and disadvantaged areas. Lastly, the Government moved quickly to adopt the DBV proposals designed to relieve pressure on quota prices by making it impossible to lease the quotas. However that may be, this German Government made its presence felt in the Agenda 2000 debate by requesting from the European Commission, in addition to the continuation of the quota system, a change in the regulations leading firstly to the suppression of the link between milk quotas and land, and secondly to the definition of a producer as the recipient of quotas. In adopting this stance, the German Government hoped that the creation of a new system on 1 April 2000, representing a clean break with the past, would be sanctioned by the full authority of the European Union. In this scheme of things, there would be a new legal definition of quotas: not only would they be completely mobile (within national frontiers), they would also necessarily be held by producers in activity and could only be sold if this activity were suspended. This system, similar to that pertaining to subsidy rights for maintaining herds of suckler cows and ewes, results in the suppression of the quota leasing market, itself the product of the German use of the European regulation of 1992. Mr Funke, Minister of Agriculture for the incoming Social-Democrat administration, injected an even greater note of urgency in his requests to the European Commission. In a public declaration on 11 November 1998,12 the Minister affirmed that he would not accept an extension of the milk quota system unless Brussels agreed to the suppression of the link with land. This would indeed have had the effect of getting Brussels to shoulder responsibility for a reform of the quota system in Germany sought by the German government, but running counter to the interests of land and quota owners. As we know, the German proposals in this field were partially adopted in the 1999 reform of the European milk regulations. Member States who wished to do so were free to sever the link between milk quotas and land. Starting from a position in favour of controlled 11 Top Agrar, 11 November 1997. 12 This declaration was echoed in the newsletter of the Ministry of Agriculture (BMELF-Informationen No. 46, 16/11/98). See also the interview in the Top Agrarreview of 11 November 1998.

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non-market transfer system, the German government has gradually come round to the stance taken by the DBV agricultural federation. It set in motion a reform of the German application of the regulations. This reform, which came into effect in April 2000, breaks the quota-land link in Germany and henceforth authorises transfers only through the quota markets, in line with the Canadian model already adopted in Denmark.

3.3. Quota markets The reform's first effect is to do away with any possibility of annual leasing of quotas so as to prevent non-producers from holding quotas. As far as balancing arrangements are concerned, the adjustments between over- and under-producing producers will now be carried out freeof-charge by the dairies. 13 With regard to the leasing of quotas, hitherto authorised, all contracts in force on 1 April 2000 are continued and may be extended. Only new contracts are forbidden. The central plank of the German reform is the requirement for transfers to be carried out through markets. 14 These markets are established by the Lander: the quota-land link is abolished but the limits to the movement of quotas remain as before. Thus, quotas may not be transferred beyond the boundaries of the Ldnder (in Baden-Wiarttemberg that of the four Bezirke, in Bavaria those of the seven Bezirke, as previously), although for cost reasons several Ldnder may share the same operational centres. Exchanges in these markets are carried out anonymously. There are three sessions per year. The market endeavours to fix the price so that the total of offers and of demands at this price are as close to each other as possible. If demand should exceed supply, the quantities in reserve will be used to make good the deficit. The reserves are in fact re-activated. As before, they will be supplied by quotas collected from producers who do not use them for one year without selling them. Above all, a 5% levy is exacted on offers whose price exceeds the equilibrium price by more than 20%. This levy is increased to 10% in the event of repeated overrunning of this price by more than 20% (as from 1 April 2001). These quantities in the reserve will be used in priority to adjust the working of the markets, as mentioned above, and only in the second instance allocated to priority producers defined according to objective criteria. In short, the markets operate according to market principles but they are also designed to exert pressure on prices, in particular by sanctioning those sellers who attempt to speculate on rises in price. The new regulation concerns the relations between landowners and tenant farmers. The quotas available for the lessor repossessing his asset are subject to a 33% deduction, except in the case of a farm in its entirety, or when the lessor himself or his family uses them for the production of milk. At the same time, the tenant farmer has the fight to acquire the remaining 67% of quotas at the latest market price unless he himself has terminated the lease. All these measures are designed to penalise those landowners suspected of wishing to speculate by evicting the tenant farmer.

13 Although direct negotiations between farmers will now be more difficult, it is legitimate to fear favouritism on the part of the dairies and a tolerance of clandestine negotiations between producers. 14 Direct transfers may still be made within the family, in the case of transmission of the entire farm as an independent dairy unit, or in the case of liquidation of a company existing on 31 March 2000.

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33

It should also be noted that this reform applies to the new Lander. Here, the quotas allocated free-of-charge by the pool thus become the property of the producers and may be negotiated through the intermediary of markets as in the other Lander. The aim of this new reform is quite clearly to facilitate transactions while maintaining pressure on prices. In its official declarations, the Government states that this policy is designed to pave the way for the end of milk quotas by investing milk producers with the means of expanding their herds at the best price, thus enabling them to become more competitive.t5 It is too soon to discern the effect of this reform. It will certainly help to further the reorganisation of dairy farm units, although the L a n d e r have defended 'their' quotas by preventing the emergence of a national market. As for costs for producers, it is unlikely that these will really decrease, if the experience of other markets is anything to go by. 16 On the other hand, there may well be a fall starting in 2003, if the decision to abandon quotas in 2006 is confirmed at this date, since some producers will then wait for the end of the quota system in order to expand production without having to pay for it.

15 BMELF-lnformationenNo. 36, 4/9/2000. 16 Cf. D.M. Gouin's study of quota markets in Quebec (Part 4 of this volume).

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Administrative M a n a g e m e n t in Favour o f Medium-Sized Farms in France Denis Barthdlemy

In 1984 France was the largest milk producer in Europe. Milk production was carried out by 427,000 farmers possessing an average herd of 17 dairy cows - - less than half the size of Dutch or British herds. However, this predominance of medium-sized herds at the moment when milk quotas were introduced has to be seen against the background of a previous major restructuring movement which had reduced the number of dairy farms by 40% between 1974 and 1984: the disappearance of herds of fewer than 10 cows was accompanied by an increase in the number of larger herds (more than 30 cows). This trend towards greater concentration was related to a move towards more intensive farming methods and in particular to a shift in production away from the mountain regions of the Alps, the Jura and the Massif Central towards Brittany and the Pays de Loire, which, by 1984, accounted for 36% of the national milk yield. France had long sought to delay the introduction of a quota system and its implementation was greeted with a certain amount of foreboding. In the circumstances, how could France continue the drive towards the greater concentration necessary to ensure that its dairy industry remained competitive? Was there not a danger that those regions which were losing out to the farms of western France would use the quota system to break the momentum, taking advantage of the French liking for an agricultural system with a large element of state control?

I. The French interpretation of the European regulations 1.1. The 'dairy quota' option adopted The milk quota system was established through EEC Regulations 856 and 857/84 which allowed Member States to chose between the allocation of quotas to producers (Formula A) or to dairies (Formula B). France opted for Formula B for reasons of flexibility. There were many farmers nearing retirement age whose milk production was on the decline. It seemed that the dairies, thanks to internal adjustments, were in a position to take the full weight of the national quota and at the same time to promote the necessary reorganisation of farms by putting 'buyers' and 'sellers' in touch with each other at local level. At national level, the Joint Milk and Dairy Product Board (Office National Interprofessionnel du lait ~ ONILAIT) was entrusted with the task of distributing the global reference among the dairies, collecting frees, managing the national reserve and carrying out spot checks. 9The references initially granted to dairies corresponded to the volume of 1983 yields minus 2% (1% in the case of mountain areas). The guaranteed global quantity was to undergo successive cuts, on the basis of reductions or cessations aiming to secure an equilibrium of the European market and to standardise the quantities of fat content. Milk Production Cessation

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Aid programmes (Aides gtla cessation de l 'activitd laitibre ~ ACAL) were to be launched at European level in order to ease the process of adjustment in the Member States. Thus the French reference quantity was to change from 25.36 million tonnes (+ 1.2 for direct sales) in 1984 to 23.4 million tonnes (+0.7) in 1992, 23.7 million tonnes (+0.5) in 1997, 23.8 million tonnes (+0.4) in 2000 and reach 23.9 million tonnes (+0.4) in 2006 in compliance with the provisions of the 1999 reform (European Regulation 1256/99 of 17 May 1999). It soon became apparent that the dairies enjoyed excessive power. As early as 1986 they were required to fix the reference of each milk supplier and to communicate this information to ONILAIT. They collected fines and were required to notify the Board of changes occurring among producers in the course of the milk production year. A certain degree of pressure could be brought to bear on them since they required official ONILAIT approval. In spite of these restrictions on the powers of the dairies, however, ONILAIT found it extremely difficult to make the situation really clear and open. Anxious to protect their potential, dairies tended to build up stocks of undeclared 'dead quotas' which they used for the benefit of certain producers, just as they tolerated loans of quotas directly exchanged between producers. The situation changed radically in 1992 when the Community reform (Regulation 3950/92) redefined the milk quota as a directly individual reference quantity. Henceforth ONILAIT was in a position to exercise a wide-ranging control and thus ensure the virtually total demise of'dairy tanks or cows on wheels'. 1.2. Controlled transfers and levies

Parallel to this, the prefects, the administrative heads of the French ddpartements (hereinafter referred to as departments), backed up by the Departmental Agricultural and Forestry Boards (Direction D@artementale de l 'Agriculture et de la For~t ~ DDAF), were empowered to record transfers of reference quantities between producers following changes in farming rights on land areas as well as quota allocations from the reserve for the benefit of priority farmers. The Community regulation simply stated that the quotas are linked to the land, in other words that they are transferred at the same time as the farming areas. There then followed an impassioned debate between the protagonists of a relatively liberal system (favouring a rapid overhaul of the sector) and those who preferred a more 'managed' approach seeking to impose an adjustment between producers, and it was not until the publication of the decree of July 1987 that the conditions governing transfers were finally defined. The decree attempted to impose a compromise. If a farm in its entirety were transmitted to a person not yet possessing quotas, the total reference amount would be transferred. Otherwise, the quota would be transmitted in proportion to the land concerned by the change of property or use and would be subject to a levy corresponding to 50% of the quantities in excess of the final threshold of 200,000 litres for the producer. The notion of proportionality, hence the link between quotas and land, was defined in relation to all the farm lands with the sole exception of those which had no possible connection with milk production, e.g. woodland, wasteland, ponds, longstanding cropland. Moreover, quotas associated with partial transfers concerning less than 20 hectares were entirely transferred to the reserve. The 1987 decree was thus intended to have repercussions in two directions. On the one hand, it aimed to impose a close link with land and a limit to growth above the ceiling of 200,000 litres per farm; on the other, it was supposed to lead to quotas in small transfers being confiscated and redistributed for priority cases. Despite these intentions, however,

Administrative Management in Favour of Medium-Sized Farms in France

37

various ways round this decree were found at departmental level, illustrating the flexibility of French administrative management and emphasising the continuing tension and rivalry between different elements of the professional federations. This transfer system remained in place for eight years, until the decree of 9 May 1995. The new text retained the principle of no-deduction on integral transfers (which had now to include not only all the land, but also farm buildings and the dairy herd) in favour of a person who was not previously a milk producer. In the case of partial transfers, the 20-hectare threshold was dropped and the practical implementation of the levies was altered: all quotas resulting from allocations made since 1984 by the reserve in favour of priority cases (young farmers, farmers in difficult circumstances, producers engaged in a development plan) were taken back by the reserve. A basic levy of 10% was then applied on the quantities in transfer. Another deduction of 10% was then made on that part of the final reference in excess of 200,000 litres (with the possibility of raising the deductions to 20% and the threshold to 300,000 litres for those departments wishing to do so). Union pressure resulted in a reinforced upper limit the following year. The decree of 22 January 1996 maintained the principle of exemption in the case of total transfers (as previously defined) to a person who was not previously a producer. As far as partial transfers were concerned, the reserve's recovery of quotas which it had allocated since 1984 for redistribution to priority cases was maintained, as was the basic 10% deduction. The additional 10% deduction beyond the final 200,000 litre threshold for the purchaser was replaced by two rates: 30% for the reference fraction bringing the quantity up to 300,000 reference litres, and 40% beyond this figure. 1.3. Annual compensations and loans As from the 1984/85 milk year, the Council of the Communities authorised balancing arrangements at national level for under- and over-production. For this particular production year, France kept more or less to the guaranteed global quantity and no penalty was imposed, but a surplus of 1% appeared during the 1985/86 production year. The scheme, marked by much tension between regions, was put into effect via the distribution of a fixed excess amount of 5,000 litres to priority producers, and quantities to wipe out the surplus from mountain areas, the remaining 10% being used to smooth out and lessen the burden of individual penalties. The following production year resulted in a slight over-production for France which nonetheless was authorised by the Community to apply the penalty on all producers supplying over 20,000 litres more than their references. This technique allowed the Government to create a national resource which was used to lighten the penalties of small producers (under 60,000 reference litres) and to finance programmes in favour of those wishing to cease their activity. In 1987 production year loans were authorised by the European Commission, giving French dairies the right, in the course of a milk year, to assign 'provisional allocations' to 'over-producing' farmers, secured by the shortfalls of other producers. A balancing scheme involving all dairies was organised at the end of the milk year. However, in accordance with the principle established during the previous milk year, this inter-dairy production year did not include 'surplus' producers who still had to pay the corresponding penalties. These provisional allocations were free. They were managed per dairy since they depended on their under-production. Initially, they were spread equitably among priority producers only. Then, in 1994, following admonitions from Brussels, which ruled that France had stretched its interpretation of Community texts beyond the limit of what was acceptable,

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the allocation was divided among all producers in proportion to their individual reference quantities. A minimum allocation rate was then fixed at national level (maintained at 10%) in order to limit discriminatory treatment related to the particular situation of the dairies. 2. The national r e s e r v e - - between dairies and departments

The European regulation of 1984 provided for the constitution of national reserves for the purpose of collecting and redistributing reference quantities. The reserves received quantities released through the effect of plans designed to encourage the cessation of dairy activity (the first plan, calculated to free the quantities required to solve the difficulties of farmers caught in the middle of an expansion programme, provided 1 million tonnes in France), through nonsubsidised cessations (supplies interrupted over two production years) and through levies on transfers. The quantities thus collected were either used for the purpose of reducing the national quota in line with Community reductions or were allocated to priority producers. Given the French liking for a controlled management in which both milk cessation plans and levies featured prominently, it was inevitable that the national reserve would have an important role to play. Over and above the technical details of management by ONILAIT, the question arose as to who was to exercise effective control of the system. 2.1. The question of collection zones

An exclusively national management of the reserve carried with it the possibility of transfers between regions, and this gave rise to much tension between the various departments. Already, in the course of the first production year, some departmental unions encouraged their producers to respect the quotas whilst others felt (correctly as it turned out) that a certain amount of liberty could be taken with a new regulation which was still 'feeling its way'. Similarly, it was well known that many departmental farmer's unions were seeking to create, so to speak, 'priority cases' by encouraging their members to subscribe to development plans. Many departments were afraid that they would end up as losers in a national share-out, with quotas which became available when their own small producers ceased their activity being used to meet the priority demands of other departments, thus accelerating the shift of production towards western France. During this first milk year, when the coffers of the national reserve were full, this fear of delocalisation proved the decisive factor and pressure from the most powerful professional federations led to the adoption of dairy-based management under the control of the departments. In this scheme of things the following categories could lay claim to 'priority' status: those involved in development or recovery plans, young farmers and producers who had recently invested, within the limits of their objectives and a ceiling of 200,000 litres of final reference. The decree of 12 July 1984 made it clear that only in cases where there were surpluses within dairies in relation to priority applicants would such surpluses be pooled in the reserve and allowed to go to other dairies or departments. The upshot was that 90% of references remained within the structures releasing them, only 10% being transferred to other regions. In short, France's approach to the management of the national reserve was essentially based on the dairy and the department, and was indeed entirely consistent with the choice of Formula B under which reference quantities were to be allocated to the dairies. In theory, pooling only came into play when there were surpluses in relation to the dairies' own priority

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39

cases. However, this approach gave rise to two kinds of p r o b l e m s - between the departments and within the departments. In practice, the construction of departmental management was such as to prevent movements from one department to another because the prefect did not allocate reference quantities to producers located in another department, 1 and in fact inter-departmental transfers only took place during the initial period when producers in certain departments released more quotas than were needed. This was very soon brought to a halt once the rate of farmers ending their dairy activity began to ease off, for the departments ~ all departments continued to create priority cases: young farmers, farmers seeking to set up in business, and above all new beneficiaries of development plans. 2 One might have supposed that the reform of 1992 would lead to a change in policy, since the quotas were now directly allocated to the farms. The decree of 10 November upheld the principle whereby released quotas were still allocated to the priority cases of the dairies concerned. It thus came down in favour of protecting the collection zones but nevertheless imposed a limit, since it ruled that 20% of the quantities released through natural or compensated cessation of activity could be reallocated outside the collection zone and hence conceivably outside the department.3 The text was couched in somewhat lax language, failing, for example, to spell out whether this 20% could or could not leave the department, and this was to lead to friction with Brussels. The European Commission was anxious to see all producers treated in the same way, which implied the real possibility of transfers between departments. To this end, the decree governing the distribution of the reserve's reference quantities instituted a national pool of 15% of the quantities released by assisted cessation of activity (at least of the fraction which is financed on the additional levies collected from producers exceeding their quotas). This was increased to 20% in 1998. In point of fact, by this time only small quantities were released in this way and the practical result of this pooling in favour of certain nationally defined priority cases was of limited significance. It was nevertheless ill-perceived by the departments. The same question arose in dealings within, as distinct from between, departments. Here again, the concern was to ensure equal treatment for priority producers whose predicament varied depending on whether or not the relevant dairy was well supplied. The actual complexion of the power struggle differed in this case by virtue of the local interdependence of the forces concerned. The departmental commissions imposed various solutions, the most common being to pool all the quantities released by levies on transfers in a departmental reserve for the priority cases of all the dairies. On the other hand, quantities freed by natural or assisted cessations of activity were only partially pooled - - at rates which varied from one department and one period to another.

1

This, of course, did not cover operations initiated by producers in activity when they exercised their right to supply the dairy of their choice which might in certain cases be situated outside the department. 2 This phenomenon assumed such proportions that in October 1988 a national regulation ruled that no new Material Improvement Plan (PAM - - this had replaced the original development plan in 1985) and no Projected Installation Study (EPI) for increasing milk reference quantities would qualify for priority allocations of milk quotas. Thus, whether or not the plan was accepted, it would no longer give entitlement to priority status, i.e. with respect to reference quantities which were not yet available. 3 In 1992 90,000 tonnes of reference quantities were distributed nationally in order to liquidate EPI and PAM dossiers dating back to before 1988 and not yet terminated in certain departments.

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Barth~lemy

2.2. The 'departmentalisation' of administrative control The other bone of contention concerned the practical details of administrative control. Since the 1960s administrative control of French farms had been rooted in the notion of the farming area. The underlying idea was to prevent farms being split up into areas which were too small to be commercially viable and at the same time to stop certain concerns expanding at the expense of medium-sized farms. This scheme of things was thrown into doubt by the introduction of milk quotas in 1984, since quotas were a production resource that was just as important, if not more so, than the land itself. The new situation inevitably prompted a debate as to whether the administrative control of farm areas should be abandoned or whether, on the contrary, the milk quotas should be incorporated into the system. It is safe to say that the introduction of milk quotas gave a new lease of life to the administrative control of French agriculture. The departmentalisation of the national reserve was imposed by most departments who felt that their milk capacity was in jeopardy. Not without considerable resistance from many parties, this first step was to result in the gradual merging of the new system of deductions and definition of priority cases into the pre-existing 'mould' of administrative control, thereby strengthening and revitalising the latter. The management of milk quotas was entrusted to a 'joint commission' (commission mixte) in parallel with the existing commission of administrative control, its panel being enlarged to include milk producers and dairies. This commission was responsible for establishing the criteria for defining priority allocations and for recommending transfers and allocations to the prefect with whom the final decision rested. In 1995 the joint commission was replaced by the Departmental Agriculture Guidance Commission (Commission d6partementale d'orientation agricole ~ CDOA), a single entity in charge at one and the same time of administrative structural control and the deduction and allocation of all production rights. In this scheme of things, the commissions enjoyed the same independence in the application of national rules with regard to milk quotas as they had in the administrative control of farming land. The national decrees and orders laid down the general rules concerning levies and criteria for priority allocations, but as the departmental commissions were free to adapt and combine these criteria at will, and as, moreover, the decrees were couched in somewhat vague language, there was in fact ample scope for policies to differ widely from one department to another. 3. A highly active restructuring plan based on public funds In this context of administrative control w which in spite of everything had the effect of a straitjacket w and faced with the pressing need to continue the restructuring of the dairy sector, France gave itself a certain room for manoeuvre at the beginning of each production year by introducing milk cessation plans, 4 financed out of Community or national funds. European financing was initially substantial but then tapered off and disappeared completely as from the 1994/95 production year. Funds were available from the national budget until 1991/92. A specific parallel source of finance was set up, funded by that part of the penalties owed by surplus producers but not due to Brussels on account of the principle of national adjustment. As from 1987/88, the regional and departmental authorities, and even dairies aided 4 Until the 1992/93 productionyear, only producers ceasing all milk production were concerned by these plans; subsequently partial cessations could also be financed.

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41

by ONILAIT, established local means of finance. These local operations were, however, limited in scope and were principally designed to solve specific problems (protecting certain production areas by helping young farmers to set up in business, buying up quotas from producers failing to measure up to quality standards, etc.). A total of 6.5 million tonnes, i.e. a quarter of the national reference of 1984, was released in this way between 1984 and 1999. Most of this was freed in the early part of this period: 5.3 million tonnes between 1984 and 1992 (1.5 million tonnes for the first production year, then between 0.3 and 0.9 million tonnes per year up to 1991/92). Between 1992 and 1999, the annual amount purchased varied from 250,000 to 60,000 tonnes. Since the purpose was to reorganise production, only small producers were invited, either through the limitation of the individual quantities ceded or through prices adjusted to quantities. Taking the plans as a whole, the average quota given up was 39,000 litres. In the absence of centralised statistics, it is difficult to obtain a general picture of the quantities concerned and the circumstances in which they were transferred between producers (it was not until 1995 that ONILAIT began to possess reliable data). In short, the only way to get a reasonably precise idea of the administrative management of milk quotas in France is to investigate at departmental level.

4. Departmental management: issues and practices For the purposes of our inquiry, we have selected four French departments representing contrasting situations: the C6te-d'Or, where the dairy sector is in decline; the C6tes-d'Armor, a major milk producer (1,100 million litres) specialising in generic production (milk priced at about 2 FF per litre); the Jura, a department with a large milk sector producing quality cheeses (milk valued at 2.25 FF per litre); the Meuse, marked by a strong concentration of production units in recent years under the impetus of a single dairy which alone accounts for 85% of the departmental yield and provides a good milk value (2.10 FF per litre). Each of these four departments strives to pursue a policy which best reflects its own interests.

4.1. Definition and handling of priority cases One of the features of the first years following the introduction of the quota system was the concern to create 'priority' cases with a view to speeding up the reorganisation of production and of 'jumping the queue' in the event of a national share-out of the quantities released by milk cessation plans. This at any rate was the case with the Meuse department, which, between 1984 and 1988, endorsed a large number of Projected Installation Studies (EPI) and Material Improvement Plans (PAM) with ambitious milk production targets. The waiting list thus created took up most of the quantities available until 1994-95 in spite of the various local milk cessation plans supplementing the national plans. The C6tes-d'Armor found itself in the same position: the department's pre-1984 EPI and PAM objective was maintained (30 to 50 dairy cows depending on the labour force). With the rise in milk yields, quota requirements increased to such an extent that the department was forced to freeze priority applications between 1986 and 1990. Regional subsidies were added to the aid programmes for those wishing to suspend their activity (ACALs) in an effort to increase the quantities available for distribution. By way of contrast, the Joint Commission of the C6te-d'Or (where grassroots pressure was less intense) approved EPIs and PAMs between 1984 and 1988 only in proportion to the

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reference quantities available in reserve. The C6te-d'Or was, in fact, one of the departments to lose references as a result of national milk cessation plans. Similarly, but this time in order to avoid the prospect of producers competing against each other, the Jura agreed only to marginal EPI and PAM increases, notwithstanding the vital importance of the milk sector in this department. As a result, it received only 400 tonnes from the national fund of 90,000 reference tonnes which were distributed in 1994 in order to wind up all the priority dossiers dating back to before 1988. Generally speaking, the authorities defined priority cases as follows: young farmers setting up in business, farmers in difficult circumstances, evicted farmers, small-scale producers or producers providing proof of a development project. The exact order of priority depended on the agreements which it was possible to establish between dairies. In the absence of such agreements, the top priority granted to a young farmer would only be effective if the relevant dairy possessed the necessary quotas. In the C6te-d'Or department, the Joint Commission and the Departmental Board of Agriculture obtained in 1988 a total pooling agreement under which the available quantities were managed directly at departmental level and could be transferred from one dairy to another. This agreement was broken in 1991 due to the fact that certain dairies in areas of declining production were regularly losing quotas. It was partially restored in 1997, for the sole benefit of young farmers setting up in business. The question did not really arise in the C6tes-d'Armor until 1994 when the quantities made available to the dairies through the milk cessation plans began to decline. An agreement was reached under whose terms quantities resulting from 'natural' cessations were not pooled and were used instead to meet the needs of farmers in difficult straits or of small-scale producers; quantities springing from compensated cessations were pooled and used to help young farmers get established, and in the case of inter-farmer transfers, only that proportion of the quantities collected still necessary for setting young farmers up in business was pooled. The Jura adopted a highly individual system. In this department, 40% of the milk is collected by small country dairies known as fruiti~res which produce the Comt6 appellation cheese. To combat the problems caused by the lack of concentration, an Economic Interest Group (Groupement d'Int~r~t Economique ~ GIE) encompassing all the fruitibres in the Comt6 appellation zone, was set up in 1984. This initiative made it possible to define the GIE as the sole buyer and hence to pool all the references of the fruitibres. Initially, the other dairies agreed to join this integral pooling of available quotas. This eminently favourable situation induced the Jura, as a way of offsetting the shortcomings of the reserve, to 'farm out' dairy under-productions to priority cases in the form of a provisional allocation pending a subsequent consolidation by means of the quotas actually available. This practice, designed to hasten the implementation of the departmental priority policy, ran counter to the European regulation regarding the proportion of year loans. It was brought to a halt in 1994 and was sanctioned by an administrative fine to the tune of 2 million FF imposed by ONILAIT. The provisional allocations created in this way were not finally wound up until 1997. Moreover, signs of discord were beginning to emerge between the GIE and the other dairies, the latter being less well positioned to promote their milk and having a larger number of farmers discontinuing their activity. In 1992, it was theoretically agreed that the reference quantities released were to be reallocated first of all to the producers nearest the outgoing party. After 1994, limited pooling was introduced: 80% of the quantities freed by naturally or

Administrative Management in Favour of Medium-Sized Farms in France

43

assisted discontinued activity went to the priority cases of the dairies concerned, with the remaining 20% going to the pool and the quantities resulting from levies on transfers was entirely pooled. In the Meuse department, the leading dairy (with an 85% share of departmental production) came out strongly against any pooling agreement, thus making it difficult for the other dairy in the department to satisfy the priority requirements of young farmers setting up in its zone of action. As to the quantities attributable to priority cases and the global reference ceilings which the recipients could not exceed, the systems adopted are too complex and too subject to variation over time to be described in detail here. To simplify, we may say that they defined the maximum allocations for young farmers, for example 30,000 litres in the C6te-d'Or as from 1988, or 30,000 litres in 1990 in the C6tes-d'Armor, subsequently increased to 60,000. The upper limit of the final reference of the farm was originally set in the region of 200,000 litres: in the C6te-d'Or 200,000 increased by 100,000 litres per worker as from 1991; in the C6tes-d'Armor, starting in 1990, 180,000 litres for a single work unit rising steadily to 400,000 litres for four work units; 200,000 litres in the Jura but adjustable according to the labour force; a reference objective of 100,000 litres + 100,000 per work unit in the Meuse. Discussion at local level tended to focus on the definition of labour and how it was to be counted. Did it concern only those workers involved in milk production? Were salaried workers to be included? Should family criteria be taken into account? And so on. In point of fact, the changing nature of these criteria mirrored the balance of power between the different categories of producers. After 1996, following the introduction of the Departmental Agriculture Guidance Commissions, more elaborate and comprehensive systems were established in virtually all the departments. Henceforth an objective of available income was defined (usually in the region of 100,000 FF per family work unit) together with a scale specifying the theoretical contribution of each production present on the farm. The quota amount to be allocated corresponded to the complement required to reach the target income, taking into account the operating needs of a typical farm and the number of labour units present on the farm. 5 Here again, the criteria adopted by each department tended to reflect the relative strength of the various groups of farmers. In this brief review of departmental variations within the national regulatory framework, attention should be drawn to an aberration common to the departments under consideration, and indeed to most French departments. The 1987 decree ruled that quotas linked to transferred areas of less than 20 hectares were to be deducted in their totality. On a wide scale, ways were found round this system, which concerned a large number of transfers and was an inconvenience to many farmers. The annual national decrees governing the distribution of deducted reference quantities included a list of a dozen or so criteria from which the departments were to select those which suited them best in drawing up their own definitions of priority cases. As from 1987, one of these criteria covered the case of a farmer taking possession of land previously used for milk production. The joint commissions rushed to take advantage of this loophole and included in the list of priority cases the case of farmers taking possession of land on which quotas had been levied to the reserve. In concrete terms, they established scales for the restitution of a fraction of the quantities deducted during transfers, 5 For a discussion of these systems, see the contribution by P.A. Roussel (Part 4 of this volume).

44

Barthdlemy

this fraction varying from one period, and one department, to another (generally speaking, the lower the quotas held by the producer, the greater the restitution). These priorities 'for reason of deductions' thus turned out to be 'super-priority' cases inasmuch as the reference quantities concerned were recorded in the reserve as a formality only, and were not therefore counted as available, even for the traditionally front-ranking priority new entrants. As we shall see, this practice was to assume alarming proportions. We have already seen its application in relation to the 20-hectare rule of 1987, but it was quickly extended to all kinds of deduction, thus surviving the decrees of 1995 and 1996 which abolished this rule. Confronted with the enormity of the problem, the Ministry of Agriculture 6 finally got rid of the offending criterion in the 1998 decree concerning the distribution of the collected reference quantities. 7 Whatever the eventual outcome of this struggle between the State and the departments, this episode provides a very good illustration of the flexibility existing in the application of apparently unambiguous national decrees, and of the scope of the power delegated to (or annexed by) the departmental authorities, themselves vulnerable to pressure from farmers at grassroots level. To complete this picture, mention should be made of certain practices which went beyond the scope of the official texts and yet were authorised by the departmental commissions. In most cases, these were 'special' authorisations for the transfer of land separately from quotas. Such practices are partly of the 'vote-catching' kind, no doubt inevitable in an administrative system so tightly controlled by professional representatives. But they also sometimes express a wider commitment to throwing off the shackles of rules which are deemed to run counter to local interests. Indeed, it is well known that certain departments in which milk production does not feature prominently have virtually severed the link between quotas and land by virtue of a wide array of special dispensations. Generally speaking, the regulations are respected more strictly in departments where there are many dairy producers and where there is more than one farmer's union.

4.2. Supplying the reserves In the case of our four departments, the reserves could call upon a volume lying between 1 and 2% of departmental references over the period running from 1992 to 1997. These are on the decrease as a result of a drop in supplies from subsidised outgoers' schemes, whereas quantities derived from natural cessations of activity and collections have remained relatively stable over time and account only for the smallest part of the overall situation (Table 1). The total quantities involved in transfers between farmers varied from one department to another. It represented an average of 2.5% of the departmental reference in C6te-d'Or between 1992 and 1996, 0.4% in C6tes-d'Armor between 1995 and 1997, 2.3% in the Jura between 1989 and 1997, and 3.8% in the Meuse between 1993 and 1998. Transfers of entire farm units make up the bulk of these figures. In most cases they come into effect within families, when a child or spouse takes over from the retiring farmer, and virtually never give 6

In actual fact, the Ministry of Agriculture remained unaware of the true scale (one-third of the total of the quantities collected over the 1996/97 milk year at a time when the 20-hectare rule no longer existed) until ONILAIT was in a position to obtain the necessary data. 7 A first attempt to remove this criterion was made in the distribution decree of 20 May 1997. The resulting wave of protest in the departments led to the reinsertion of the criterion in a decree of 23 May amending that of 20 May (but in return for this concession, the Ministry insisted that, in defining their priority cases, the departments must select at least two criteria - - instead of the original one - - among the nine featured in the decree).

45

Administrative Management in Favour of Medium-Sized Farms in France

rise to deductions. Conversely, partial transfers concern in particular unrelated farmers and account for only 22% of the quotas transferred in CBte-d'Or, 13% in C 6 t e s - d ' h o r and 15% in the Meuse, rising to as much as 41% in the Jura. Deductions are made, therefore, only on this small proportion, at rates reaching 52% in Cbte-d'Or but remaining between 20 and 30% for the other three departments. In other words, in relation to the total amount of transferred quantities, the deduction rates lie between 5 and 15%. Table 1 Supply of departmental reserves according to origin (thousand quota litres) Departments

Milk Years

(total reference) CBte-&Or(2 1) (ref: 98,500)

Subsidised cessations Non-subsidised cessations Deductions on transfers TOTAL

CBtes-&Armor(22) (ref: 1,100,000)

Subsidised cessations Non-subsidised cessations Deductions on transfers TOTAL

Jura (39) (ref: 280,000)

Subsidised cessations Non-subsidised cessations Deductions on transfers TOTAL

Meuse (55) (ref 322,000)

Subsidised cessations Non-subsidised cessations Deductions on transfers

92/93

93/94

94/95

95/96

96/97

(1) (1) 220

3,300 1,100 400 4,800

900 500 100 1,500

800 400 100 1,300

600 500 200 1,300

-

TOTAL

( I ) Data not collected

Source: DDAF* 21 - 22 - 39 - 55. * Departmental Board of Agriculture and Forestry.

This data, collected directly in four different departments, is consistent with the figures established by ONILAIT for the first time for the 1996197 milk year. In that year, the total amount of quantities in reserve at national level was 200 million litres, i.e. 1% of the national quota. Compensated cessation schemes accounted for 42% of this figure, non subsidised cessations 19%, deductions on transfers 39%. Moreover, the quantities concerned by transfers between farmers represented 5.5% of the national quota. A quarter of this total involved partial transfers, subject to an average levy of 24%, translating into an average 6% levy on all transfers between farmers. The results are roughly equivalent for the 1997198 production year: the reserve received 191 million litres of which 29% came from compensated cessations, 24% from non-subsidised cessations and 47% from levies on transfers (the transfers themselves concerned 5.6% of the national quota and were submitted to an average deduction of 6.4%).

4.3. Allocations The reference quantities placed in reserve were allocated to the priority cases. One might have thought that the departmentalised reserve would function in the same way throughout France. In actual fact, however, difficulties encountered in setting up the system and the specific

nature of individual departmental regulations and practices resulted in differences in allocations depending on origins. In general, quantities coming from compensation schemes for outgoing farmers were allocated to young farmers starting up milk production (and up to 1994 to the beneficiaries of Material Improvement Plans (PAMs) prior to 1988). Quantities resulting from non subsidised cessations of activity tended to be used to reinforce the references of farmers attached to the dairies within which these quantities were released. These were, so to speak, 'hidden treasure' which the dairies were at pains not to disclose over the first period and which they were loath to pool. As to the quantities collected on transfers between farmers, only a fraction was actually available for the commission's declared objectives owing to the widespread practice of returning to the beneficiaries quantities which had been collected purely as a matter of form. Thus, between 1994195 and 1996197,the CBte-d'Or department practised a 68% allocation rate of reserve quantities for the benefit of young farmers (each young entrant receiving an average of 20,000 litres, and other priority cases receiving 10,000 litres), but allowing for a 3 1% restitution of the quantities which should have been collected on the transfers. In CBtesdlArmor, between 1993194 and 1996197, young farmers received 41% of allocations from the reserve, i.e. an average of 43,000 litres as against 7,000 litres for the other priority cases (there being no figures for the restitution rate of deductions on transfers). In the Jura department, over the 1994195 and 1995196 milk years, young farmers received 28% of allocations, i.e. an average of 7,800 litres as against 7,500 litres for the other priority cases, with 73% of the deducted amounts being returned. Finally, the figures for the Meuse department between 1995196 and 1997198 indicate a 72% allocation rate for young farmers (an average of 20,000 litres compared with 10,000 litres for other priority cases), bearing in mind that 63% of the quantities collected were returned. At national level, the figures for the 1996197 milk year are to the effect that 12% of milk producers received an average allocation of 10,000 reference litres, that is to say a relatively high number of producers obtaining a quantity which represents 6% of the average national reference of producers. 5. Farm owners and tenant farmers

In the first instance, farm owners tended to interpret the link between milk quotas and farmed land by choosing to view the quotas in terms of landed property. This interpretation gradually gave way to a solution focusing more strongly on the notion of land actually used for farming as was already the case with sugar beet quotas. In drawing up the tenancy agreement, the farmer was unable to make provision for the presence of milk quotas because tenancy prices are regulated and must remain within the limits fixed by prefectural decree. Since these decrees fail to provide for additional prices for milk quotas, the owner cannot establish a price above these limits without running the risk of his tenant seeking to redress this price through the courts. At the same time, the owner cannot insist on the payment of money because article L 41 1-74 of the Rural Code expressly forbids any 'unjustified' payment when the tenancy agreement is concluded. In point of fact, of course, it is impossible to justify a milk quota price given that there is no specific milk quota market on which such a price can be observed.

Administrative Management in Favour ofMedium-Sized Farms in France

47

During the period of tenancy, the quotas are 'diluted' over the land, which is to say that they do not remain attached to the particular land which has given rise to their presence but are spread proportionally over the entire area of the farm. The practical consequence of this dilution rule is that, when the tenancy comes to an end or when the owner recovers his land for his personal use, the quantity of quotas attached to this land will be determined on the basis of the proportionality existing at that point in time. There may in fact be a greater or smaller quantity of quota than at the outset, depending on whether the operations carried out by the tenant farmer (rent, purchase of land or cessation of milk production) have resulted in a stronger or weaker average quota allocation. The debate focused chiefly on the question of cessation of activity in view of the widespread presence in France of compensation schemes for outgoing tenants. The farm owners took the view that a tenant farmer's participation in such a scheme was firstly subject to authorisation on the part of the owner, and secondly that an actual loss of funds was required if the tenant was to be compensated. These two points gave rise to a certain number of lawsuits as a result of which legal precedents were gradually established. According to the law of tenancy, the tenant is the operating farmer, that is to say he is responsible for deciding which productions are to be carried out. During the tenancy agreement, he is free to increase or reduce his milk production. Without the need for any special permission from the owner, he may therefore offer the farm quotas in the event of a milk cessation scheme and keep the corresponding compensation for himself. The only restriction (imposed by the Ministry of Agriculture in 1985 with a view to avoiding situations in which a tenant, knowing that he is going to leave the farm, can obtain a compensation for disposing of the milk quotas) was a rule to the effect that, in order to offer quotas in the case of a compensation scheme, the owner's authorisation was required when the owner had given notice of his intention to retrieve his properly. The minimum period of notice was fixed at 18 months. With regard to the loss of value, the principle applied was to the effect that the cessation of milk production could not be construed as a fault on the part of the tenant inasmuch as he was perfectly entitled to act in this way. Moreover, since it was the consequence of the normal exercise of his farming rights, the disappearance of the quota did not constitute a prejudice to the land (Cour de Cussation, 32me chambre civile, 20 mars 1996). Thus the owner could neither oppose the disappearance of milk reference quantities nor lay claim to compensation. But the tenant cannot claim compensation if the land recovered by the owner has, thanks to acquisitions made by the said tenant, more quotas than when it was leased out. This legal argument is founded firstly on the fact that the milk references are the result of administrative regulations and secondly on the statute of tenancy which invests considerable power in the tenant farmer. It constitutes a significant obstacle to any attempt to assign a value to milk quotas themselves. 6. Concealing the value of milk quotas

The administrative control of milk quotas in France has to be seen against the background of a wider commitment to defending the family agricultural holding, which in turn implies the distribution of the means of production in order to maintain and renew as many viable farm units as possible. The non-paying nature of production rights is supported both by the authorities and the unions as a vital factor in securing this goal. It exists in theory inasmuch as

milk quotas cannot be separated from the land and leasing rights are built around this assumption, but in practice indirect or secret payments are virtually the rule. As we have seen, when agricultural land to which milk quotas are attached is leased out, the owner cannot request any specific value for these quotas. He can neither insist on an addition to the tenancy agreement nor ask for a sum of money when the agreement is negotiated. But, as with all rural leases in France,8 this restriction is systematically flouted: either arrangements are made for an 'under-the-table' payment or else a building, piece of equipment or livestock is sold at a price far exceeding its intrinsic value.9 Moreover, the selling price of agricultural land which includes milk quotas is higher than that of land without quotas. In this way, the seller is paid for the quotas without infringing the law but, at the same time, no specific value is attached to the milk quota. France has a particularly powefil machinery at its disposal for monitoring agricultural land transactions. All intended sales must be reported to the local Rural Development Company (Socie'te' d'Ame'nagement Foncier et d'Etablissement Rural - SAFER) which examines the dossier and may, in certain cases, make use of its pre-emptive right. The various SAFER offices compile extremely exhaustive annual statistics on the land market, on which, incidentally, the Ministry of Agriculture relies when drawing up a list of land values which serve as a reference to judges during lawsuits. The SAFER offices are capable of producing statistics which distinguish land with and without quotas. The situation is doubtless somewhat complicated for, although the seller knows how much reference quantity is given up, this quantity may not correspond to what the buyer actually receives (because of possible levies). None the less, the SAFER agents, concerned as they are to comply with the coinciding injunctions of the public authorities and the unions, do not allow themselves to be thrown off balance by these complications. They have a very clear idea of the specific value to be assigned to the milk quotas in the transactions carried out in their own area. These specific values are not published. Thus the milk quota price can never be displayed as such, either because it is inextricably merged with the land with which it is sold or because there is a legal bar on disclosing it when a transfer occurs during the lease of agricultural land. In actual fact, of course, the milk quota does indeed have a price, characterised in the difference between the price of land with and without quotas, and, in the case of lease, by secret payments or the excessive price of buildings and materials.1° Yet the situation is sufficiently impenetrable to make it difficult to pin down a price. A study on the land market carried out in various departments in 1993 revealed an average price of the order of 1.30 to 2 FF per litre, with marked differences above and below this range.ll In the view of both farmers and experts, this value of 2 FF per litre is, generally speaking, most commonly encountered in a scale ranging from 1 or 1.SO FF in regions where milk production is on the decline to 5 FF in areas where competition is at its keenest. Cf. Barthelemy, D., 1988, La naissance de I'entreprise agricole, Paris, Economics, 184 p. In practice, the transaction may take place between the owner and the new tenant, or between the old and new tenant. With the notable exception of family transmissions. It is well known that inheritance is egalitarian in France, according to market values. The legal fiction that production rights are devoid of value makes it possible to avoid including any value in transfers between parents and children. " Levesque, R., Kerisit, R., Oger, X., 1994. La valeur foncibre des quotas laitiers, Etudes Fonciires, No. 62, pp. 30-33.

Administrative Management in Favour of Medium-Sized Farms in France

49

This reference value of 2 FF, that is to say roughly the price of a litre of milk, may appear somewhat modest compared with milk quota prices in Germany, the Netherlands or the United Kingdom where it is frequently negotiated at twice the price of a litre. Such apparent moderation is advanced as an argument in favour of the administratively controlled system which, so the reasoning goes, pegs the cost of access to quotas at a relatively low level for French producers compared with their principal competitors. An additional argument points to the relatively small amount of compensation paid during milk cessation schemes but conveniently overlooks the contradiction between insisting that no price is attached to quotas and at the same time compensating those producers who agree to cede their quotas to the national reserve. Each milk cessation plan has its own compensation conditions, so much so that the actual amount of compensation has varied over time and in points of detail (degression of the amount with the quantities proposed, payment on the spot or in instalments spread over several years). The 1984 programme offered 1 FF per litre for the first 20,000 litres, then 0.40 FF for the following 40,000 litres. In 1992/93, when large volumes were required to satisfy SLOM producers,12 the indemnity rose to 2.9 FF per litre for the first 30,000 litres and 0.50 FF for the following 120,000 litres. Subsequently, the unchanged amount has been 1.25 FF for each of the first 100,000 litres, and 0.65 FF thereafter. In all these programmes, we may say that only the first price range was involved since the average cessation was 39,000 litres. Overall, in the years between 1984 and 1999, 6.5 billion litres were purchased in this way for a total slightly in excess of 12 billion FF. The average price thus works out roughly at 1.90 FF per litre, very close to the declared price of 2 FF per litre. It may also be noted that the beneficiaries certainly included other elements in their calculations, since they were, in most cases, elderly small-scale producers getting ready to take advantage of the various retirement or early retirement compensation schemes. As for the 2 FF cost sustained by a producer in acquiring a litre of quota, this is only one part of the real charge. The link with land compels the farmer to increase his farm's area in order to obtain additional quotas. This extra land is often unwelcome since the producer's tendency is towards intensification, in other words towards reducing the amount of area per dairy cow and per litre of milk. In actual fact, therefore, there is often an additional cost linked to the upkeep of unnecessary and perhaps inconveniently positioned land. Furthermore, since the quotas are financed through the purchase of land, or through clandestine means, they are not eligible for tax relief, unlike the situation in Germany and the Netherlands. In short, it is by no means sure that French producers are at a particular advantage in terms of the cost of access to milk quotas, with the obvious exception of that part of quotas which is allocated free-of-charge to priority cases by the reserve. It should be pointed out that the production year loans are usually free. In the first period, marked by general confusion, the quotas lent by one farmer to another through the intermediary of'dairy cows or tanks on wheels' gave rise to remuneration. This was also the case in the years between 1988 and 1992 during which production companies were set up for the purposes of allowing quotas to be moved from one producer to another. These practices

12 These were producers who had participated, prior to 1984, in European programmes of temporary cessation of milk production and had, as a result, been deprived of references. These producers (named after the Dutch appellation for such programmes) took their case to the European Court and won the right to obtain quotas which then, of course, had to be made available.

50

Barthdlemy

have for the most part disappeared. The annual loan of a litre of quota was then negotiated within the 20-40 centime range (10% to 20% of milk price). 7. Restructuring production to the benefit of the medium-sized farm unit

The administratively controlled management of milk quotas in France is designed to attain two objectives: to reorganise production around the medium-sized farm unit and to strike a balance in farming land by maintaining the link with land and powers delegated to the departments. Overall, this scheme has been respected, though, as we have seen, there have been sometimes pronounced variations at departmental level. The shift of milk production towards the western part of France, a characteristic of the previous period, has been halted and even marginally reversed. Special allocations have enabled mountain areas to slightly increase their share of the national yield, while that of Brittany and the Pays de Loire has dropped by 2%. At individual level, farmers adopt a strategy geared to their particular imperatives. Measures in favour of young entrants frequently lead to the setting up of family companies between parents and children. In relation to the upper limits, usually established in the light of the number of working persons, tension arises when the parents withdraw: much pressure is applied in order to maintain quotas despite the reduced number of working persons in the company on the grounds that the previously constituted work tool should not be destroyed. The departmental commissions show varying degrees of rigour in this respect. By and large, the commissions look favourably on the new producer who exercises his right as an entrant to amass new quotas and at the same time prepares to reap the benefit of his parents' quotas at a later date. It is difficult to build up a general picture with regard to the volumes involved in the flow of transfers. Between 1984 and 1999, outgoers' schemes concerned a quarter of the national reference, fuelling a flow of transfers which may reasonably be supposed to have moved from small-scale to medium-sized producers. It is, of course, more difficult to assess the extent of direct transfers between farmers. Such fragmentary figures as exist tend to suggest that 75% of these transfers are family transfers, presumably having no effect on the size of the herds. On the other hand, the remaining 25% are unquestionably inspired by a restructuring impetus, since the transfers go towards producers with plans to expand their 13 activity. Perhaps a quarter or a third of this flow has been diverted towards the reserve, which has also received quotas originating from non-subsidised cessations in proportions which, to the extent that they are known, are themselves by no means negligible. In other words, although global figures cannot be advanced, the policy of administratively controlled management of quotas clearly has had a marked impact by virtue of the direct management of the reserve, and a doubtless considerable influence through the increasing penalisation of transfers involving large-scale farm units. The overall result is any case beyond doubt: a pronounced re-organisation to the benefit of the medium-sized farm unit. The period between 1974 and 1984 was notable for the reduction in the number of herds of less than 20 cows to the benefit of those of over 30 c o w s - a considerable shift in herd size. Over the following period, from 1984 to 1996, there was a reduction in the number of

13 Partly as a formalityonly, since they are subsequentlyre-allocatedto the transferees.

Administrative Management in Favour of Medium-Sized Farms in France

51

herds of less than 30 cows. Herds consisting of over 50 dairy cows initially decreased (up to 1988) and then began to rise again, especially towards the end of this period. In global terms, 80% of dairy farms were below the 50-dairy cow threshold in 1998, with an average yield of 170,000 litres of milk. At this time, 42% of deliveries were carried out by producers with less than 200,000 litres of quotas, 44% by those holding between 200,000 and 400,000, whereas only 14% of the yield was provided by herds of over 400,000 litres of quotas. From this it emerges that the substantial restructuring of the dairy sector has been carried through to the exclusive benefit of medium-sized herds (in certain regions, this limited growth in herd size has gone hand in hand with the development of a cereal, and to a lesser degree, meat activityl4). From the industrial angle, the processing companies were relatively scattered in 1984:1,600 establishments of which only 12 handled over 200 million litres of milk annually (14% of the national yield). However, these establishments were, in many cases, groups: three groups each collected over 800 million litres of milk per year, i.e. 22% of the French yield. By 1998, the number of establishments had been halved while the number of those handling more than 200 litres had doubled. Above all, however, the fixed nature of collecting areas resulting from the local fixity of quotas has led to strong external growth. Today, 12 groups collect more than 500 million litres and together account for 75% of the national yield; the three largest groups provide 45% of the yield between them and are in a competitive position with regard to the leading Dutch and Danish groups. In this relatively positive context, the milk price paid to the producer has slightly increased in current francs during the period as a whole (Table 2). Table 2 Average price o f milk atproduction (FFper litre) -

1985 1.65

1986 1987 '1988 1.70 1.73 1.77

,

,

i 9 8 9 1990 i991 1992 1993-1994'" 1995 L1996 1997 1998 1.87 1.86 1.82 1.85 1.87 1.87 1.87 1.87 1.86 1.88

................................ Sour'ce:CNIEL* * National Interprofessional Centre for the Dairy Industry.

8. Outlook Future prospects are to a large extent governed by two factors" the continued application of administratively controlled management of milk production and the outcome of the Agenda 2000 negotiations. 8.1. The future of administratively controlled management In 1984 the challenge facing the dairy sector was to succeed in re-organising milk production on the basis of a system which penalised transfers resulting in heavy concentrations of milk quotas. From the point of view of the system's promoters, this challenge has been successfully met. There is therefore no reason to anticipate the disappearance of administratively 14 This development of mixed farming explains the increasingly complex norms governing the allocation and limitation of quotas imposed by the Departmental Agriculture Guidance Commissions (CDOAs) which are striving to keep pace with developments so that their objective to favour medium-sized farm units is not offset by mixed farmers associating a medium-sizeddairy unit with a medium or large-sized cereal unit.

52

Barthdlemy

controlled management or of the supposed absence of milk quota value, both of which are deeply rooted characteristics of French agriculture. In spite of everything, however, there are signs of tension. The publicly financed milk cessation plans have played a central part by providing the reserves with quantities available for distribution, thereby leaving the departmental commissions free to modulate their policies or to deduct less than they should have done on transfers between farmers. Today, only small quantities are provided by the compensated cessation plans and this has reduced the scope of the reserve. Tension is rising. On one side, there are those who wish to pursue a strict policy in favour of young entrants and medium-sized farm units and on the other, producers wishing to expand. The latter, in many cases, benefited from allocations when they set up but now find themselves thwarted in their expansion projects. How is this tension to be resolved? New quantities will probably become available. Following on from the early retirement incentive schemes, the compulsory new sanitary norms for livestock farming imposed by European regulations are now likely to force smallscale farmers to cease their activity, since the proportional cost of acquiring the necessary installations will be prohibitive for them. Will the new migration of quotas be organised? If new means of finance are found, the previous mechanism can be perpetuated. Otherwise, greater scope will be given to direct transfers between farmers, with deduction and allocation policies with greater or lesser degrees of restriction depending on the department.

The Agenda 2000 reform The milk quota system has enabled the French dairy sector to reorganise around the mediumsized farm unit. In this it has proved consistent with the overriding concern to promote the family farm holding in France. The suppression of quotas and the drastic fall in the European milk price in world markets would deal a fatal blow to many milk producers. France has always campaigned to maintain milk quotas as being, in present conditions, the system best calculated to support farm families. During the preliminary discussions of 1997, it advanced the idea of a double quota similar to that which exists for sugar quotas: a first quota corresponding to internal European consumption and a second quota for exports on the world market. In the view of France, this formula would have secured the functioning of a double market - - the European market at a European price, ensuring the income of the producers as a whole, and the world market allowing those who so wish to export their production. At the start of the Agenda 2000 negotiations, this was still the French position associated with a notion of flexibility in the form of the possible modulation of quota quantities in the light of opportunities arising on the world market. In its draft of July 1997, Agenda 2000 proposed the maintenance of milk quotas, a 10% decrease in milk support prices, the abolition of the compensatory subsidy on maize for silage, the creation of a dairy cow premium, 15 and the benefit of a bovine premium (pertaining to the bovine meat aid). The suppression of the premium for silage maize caused an outcry as a large proportion of French cattle-farming units make use of this form of feeding. The 'Santer Package' of March 1998, which modified the initial proposals, restored the principle of this premium but at the same time specified a 15% decrease in support prices (instead of the 10%

15 Or rather a quota premium since each farm unit will be allocated a number of premium rights equal to the multiple represented by its quota in relation to the average production per cow in the European Union.

Administrative Management in Favour of Medium-Sized Farms in France

53

originally advanced), and a 2% increase of reference quantities (1% for young farmers, 1% for mountain areas). Fundamentally, France was opposed to any cut in support prices, even if compensated by quota premiums: 'Why get the taxpayer to pay when the consumer can do so?' asked the president of the National Federation of Milk Producers. 16 Similarly, France was against the 2% increase of the European quota and opposed to anything that smacked of a re-nationalisation of aids, including the creation of national envelopes within the European budget, fearful lest this should lead to a dismantling of the single European market and the CAP and thus to competitive distortions between Member States. In the course of the Berlin negotiations, France was therefore one of the countries most adamant in their resolve to maintain milk quotas, and opposed to the perspective of an increase in the volume of quotas, which it saw as the first step towards the dismantling of the quota system. It had to take note of the reverse tendency, embodied by such countries as the United Kingdom, Denmark, Sweden and Italy, to seek the abolition of quotas, and was forced to accept a compromise including a 15% drop in the intervention price for butter and milk powder, put back until 2005, and the increase in the volume of quotas by 1.2% immediately for five countries and by 1.5% in 2005 for the others. It was also obliged to accept the prospect of national complements to the European budget for the premium compensating the reduction of intervention prices scheduled to come into effect from 2005. At the end of the day, it has merely put off the evil day, hoping against hope that the situation might change. In any event, the somewhat ambiguous formula according to which the Council will re-examine the situation in 2003 'with a view to bringing [the milk quota system to an end] in 2006' continues to be interpreted by a large number of French milk producers as no more than a commitment to reviewing the quota system in its present form and to replacing it by a new system ~ not to abolishing milk quotas themselves.

16 Agra Presse, 30 March 1998, p.52.

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55

The Costly Process o f lntensification in the Milk Sector in the Netherlands Bernard J.S. Hoetjes, Jean-Pierre Boinon

As is well known, the Netherlands is a highly urbanised and densely populated country with an export-driven and technologically developed economy. The Netherlands ranks fourth among European milk producers, supplying 9% of total EU production. Almost 70% of Dutch milk production is exported (particularly in the form of cheese), mostly to EU countries but also to other destinations (25%). Dairy product exports account for 11 to 12% of total Dutch agrifood exports. The Dutch dairy industry is dominated by two co-operative groups, Campina Melkunie and Friesland-Coberco, between them representing almost three-quarters of the total milk collection in the Netherlands. In all, there were, in 1994, 15 companies collecting an average of 754,000 tonnes in the Netherlands. This is by far the heaviest concentration of milk processing in the European Union. Farmers belong to co-operative groups which strictly speaking have no activity of their own but are shareholders of companies involved in the processing and marketing of dairy products (Olijslager, in Helfier, 1998). The major Dutch dairy companies have their subsidiaries not only throughout the European Union but also in Asia and Latin America. Milk production is spread fairly evenly throughout the country, but the regions of Friesland, Overijssel and Gerlderland in the northern and eastern parts of the Netherlands are responsible for half of national milk production. These regions, along with Zuid-Holland, the western part of Utrecht and Noord-Brabant have the highest density of dairy cows. The largest dairy farms are to be found in Friesland and Noord-Brabant. The dairy area, i.e. about 1 million hectares, is decreasing slowly, but the number of dairy farms more rapidly: in 1990 there were 47,000 dairy farms, in 1999 less than 32,000, with a decrease in this last year of almost 5%.

1. The introduction of the milk quota system in the Neiherlands For the 1984/85 milk year, the national quota for the Netherlands was fixed at 12,052,000 tonnes, i.e. 6.6% below milk production in 1983. As 1981 was adopted as the reference year for fixing each country's national quota, and as milk production in the Netherlands had increased by 9% between 1981 and 1983, the Netherlands (along with the United Kingdom) was one of the countries in the European Community with an allocated reference quantity substantially below the 1983/84 milk year production. Once the national quota had been allocated, the Government was able to fix the reference year for distributing this quota. After discussions between the Ministry of Agriculture and the professional fanv.ing organisations, it was agreed that 1983 should be the reference year for producers supplying the dairies. This choice was dictated by the desire to encourage the development of dynamic farms and not to

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penalise producers who had embarked on, and invested in, production expansion. As to whether quotas should be allocated per producer (System A) or per dairy (System B), a difference of opinion emerged between the professional farming organisations and the Ministry of Agriculture. The former were worried that System B would lead to unequal treatment of producers depending on the dairy to which they belonged, while the latter and representatives of the dairy industry felt that there would be substantial under-production on the part of certain producers and that System B would make for a more flexible management of excess quota amounts. After consulting the interested parties, the authorities finally decided in favour of System A because of the smaller penalty which would have to be paid in the event of overrunning the quotas. However, when in 1987 the penalties incurred became the same irrespective of the system chosen, the Netherlands opted for System B (per dairy) as from the 1988/89 milk year (Divanac'h, 1990). It was not easy to introduce a milk quota regulatory system as not only the farming profession but also dairy industrialists and the Dutch Government were opposed in principle to the implementation of a milk quota system. Nobody was ready to apply a milk quota system and the decree putting the new regulatory system into practice had to be amended no fewer than six times in the course of the first three months (Van Bruchem, 1986). For the 1984/85 production year, the dairy farmers' individual quota was fixed at the 1983 production level minus 8.65%, i.e. two points below what would have been needed to respect the national quota, which represented about 266,000 tonnes. This supplementary reduction made it possible to create a national reserve which could allocate additional quotas to producers in specific situations: those who, between January 1982 and March 1984, had invested in extensions to buildings designed to house dairy cows or who were committed to making such investments; producers whose 1983 production was more than 10% below that of 1981 or 1982 due to exceptional circumstances in the course of the 1983 reference year (natural disaster, epizootics, expropriation, temporary incapacity, etc.); such producers were entitled to ask for a different reference year (1981 or 1982). Other circumstances giving rise to quotas from the national reserve were also examined, in particular the case of dairy farmers setting up in the polders of Flevoland and young producers who had set up on farms whose production had dropped sharply in the course of 1983 due to serious family problems. A national milk quota commission, consisting of officials from the Ministry of Agriculture and representatives of the professional organisations, was set up in order to review applications for supplementary quotas. In all, 60% of milk producers (33,000 producers) applied for supplementary references and 668,000 tonnes, i.e. almost 6% of the national quota, were allocated to 14,567 beneficiaries. Investors enjoyed three-quarters of the supplementary reference attributions (472,000 tonnes). Between 1984 and 1989, the Dutch Government organised six quota repurchase campaigns financed by penalties not paid back to the EEC, by the Government itself and by Community funds. These campaigns recouped 282,000 tonnes and involved 3,557 producers (5.6% of producers). In the first years, the references distributed to producers were greater than the quantities available in the national reserve (up to 191,000 tonnes in 1986/87, i.e. 1.6% of the national reference). This was one of the main reasons why the national quota was exceeded by the -

-

The Costly Process of Intensification in the Milk Sector m the Netherlands

57

Netherlands. Over the first five milk production years under the quota system, the Netherlands annually exceeded its reference by an average of 1.4%. Subsequently, with the exception of the 1989/90 year, milk production has always exceeded the national reference, but only marginally so, by an annual average of 0.6% between 1990 and 1996. In 1998 and 1999, however, the excess increased to 5%. Today, the national reserve represents no more than about a thousandth of the national reference. It is supplied through quotas lost by producers who have ceased milk production for at least nine months. The milk quota system is administered by the Milk Office (Produktschap voor Zuivel), an interprofessional organisation working under the aegis of the Ministry of Agriculture and fulfilling the missions of allocation of references, calculation of over- and under-production, control of compensation amounts and collection of penalties, and checking on the legality of quota transactions. The Milk Office centralises all information concerning the management of quotas and keeps a data base on all milk producers and processors. 2. Milk quota transfers 2.1. Permanent transfers Milk quotas were initially established on a temporary basis for a period of five years. This explains why both the public authorities and the farming profession were against the free negotiability of quotas and the first decree of 1984 laid down the principle that the milk quota should be attached to the land. The link between land and milk quota was gradually loosened over the years. The decree of 1984 ruled that the partial transfer of quotas should be proportional to the amount of transferred land used for the production of fodder, with an upper limit of 20,000 kg per hectare (the surplus amount being collected by the national reserve and compensated at 0.65 guilders per kg). Starting in 1985, it became possible to sell land without reference (initially with a ceiling of 5.5 hectares and then, as from 1986, without limitation). This arrangement meant that, while the quota remained attached to the land, the land could be leased or sold without its quota. Thus, by selling his farm gradually over a period of time, a producer could amass a maximum amount of references over a minimum amount of land. Following the reform of the CAP in 1992, a new decree came into effect in March 1993, allowing quotas to be acquired permanently by the temporary lease of the land to which they are attached. There are thus two major types of transactions for the definitive transfer of quotas. The first type of transaction, the less widespread of the two, aims to transfer milk quotas through the sale of land between two farmers. In this case, the person acquiring the quotas buys the land at a price which is among the highest in Europe: between 35,000 and 45,000 guilders and even as much as 70,000 guilders in the urbanised westem part of the Netherlands m to which must be added the price of the quota which, negotiated at around 3.5 to 4 guilders per kilogram of milk. In view of the high price of land, farmers prefer to acquire only supplementary references, and this has become possible since the reforms introduced in 1993. The permanent transfer of quotas without accompanying land transfers is possible. In such cases, the seller is required to lease the land needed for the production of the new quotas sold to the acquirer for a minimum period of one year. At the end of the lease, the land is returned to the lessor but

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without the initial quota. In other words, the references quantities may be transferred without land being transferred as well. The link with the land is maintained by the temporary rental of land, but since the transfer of land without quota is possible, the quota may remain on the farm which benefited from the transfer at the end of the temporary rental agreement. Dutch regulations have gradually relaxed the link between quota and land, but the present situation still requires the possession of land for milk quotas to be sold. Thus, the professional farming organisations are clamouring for the total liberalisation of the milk quota market as the current system leads to transaction costs and is unduly time-consuming. In the Netherlands, the tax system with regard to milk quotas tends to be fairly favourable to buyers. Thus, the producer buying milk quotas does not pay transfer tax, which is calculated only on the price of the land to which the quotas are attached. In the evaluation of inherited property on which tax is liable, when the farm is acquired by a direct heir, the value of the milk quota is nil. Lastly, the quota cost can be depreciated for annual tax purposes. This measure was taken because of the temporary nature of the milk quota system. At the outset, the depreciation period was set at three years and was then raised to eight years from 1994 onwards.

2.2. Temporary transfers of milk quotas The leasing of milk quotas has been authorised in the Netherlands since the milk production year of 1989/90 and takes place without the transfer of land. In the early years, it was only allowed between those belonging to the same dairy co-operative, which acted as an intermediary between under- and over-producing farmers. Since 1992, however, rentals have been allowed between producers belonging to different dairies. Leasing agreements are subject to strict conditions. They must be negotiated before 31 December (until 1996, the deadline was 31 July) of the year in course and a tenant may not lease a reference in excess of 75,000 kg. As for the person leasing out the quota, he may not release less than 10,000 kg unless the amount corresponds to his quota in its totality. Subcontracting of quotas is forbidden and the same producer may not at one and the same time acquire quotas and lease them out. At the outset, the leasing of quotas was authorised in order to avoid illegal situations of quota loans between producers from the same dairy, often with the connivance of the dairies. Thanks to a more liberal interpretation of the system, retired producers are able to retain ownership of their quotas and to lease them out. Thus half of the 8,000 producers offering quotas for lease, lease out their reference in its entirety. Certain sectors of the agricultural community, in particular young farmers, have called for the leasing of quotas to be banned. Members of Parliament have asked the Ministry of Agriculture to consult with those leasing out quotas, in particular retired farmers, with a view to setting up a regulatory system acceptable to all parties and seeking to suppress the possibility of milk quota leasing. Up to now, the Ministry of Agriculture has opposed such action, since, under the system as it now stands, it is able to supplement the pensions of the retired farmers. 2.3. The organisation of milk quota transfers The development of permanent or temporary transfers of milk quotas has obviously called for a certain amount of organisation. From the legal point of view, it is the responsibility of the Milk Office to record all milk quota transfers and to ensure that such transfers take place in

The Costly Process of Intensification in the Milk Sector in the Netherlands

59

conformity with the regulations. However, there is no properly organised market with regard to milk quota transfers, which may be carried out through mutual agreement or through the intermediary of a broker. The dairies have an important part to play in quota transfers. It is in their interest to keep up the volume of activity and thus to inform their producers seeking quotas of potential sellers. It is therefore quite natural for the dairies, free-of-charge, to put potential buyers and sellers in touch with each other and a contract by mutual agreement, using a form which is fairly simple to fill in, may be drawn up between the two parties. They are also instrumental in initiating arrangements, often informal in nature, between producers with surpluses and those under-producing, deducting 0.25 guilders per litre of the excess milk from the former and paying the same amount to the latter. But firms of brokers specialising in milk quotas have also sprung up. Some of these are small companies with a local activity working on behalf of producers belonging to the same dairy. Others act on a national scale. But even the biggest among them handle less than 10% of transactions. Some of these brokers act as dealers in quotas: they buy them and then sell them again at a profit. Those who limit themselves to brokerage activities charge a commission on transactions lying between 1 and 2% of the quota price. In short, there is a lack of homogenous information concerning milk quota prices. One broker tried out the idea of a 'milk quota exchange' but met with little success. This exchange was insufficiently transparent to guarantee the success of this type of operation, probably because the volumes of quotas exchanged was too small. The dairy farmers' organisation LTO took up the idea to introduce the same system as exists in Canada where the laws of supply and demand are applied to a freely accessible quota market. This idea, however, has met with opposition from the brokers and from the tenant farmers. The Dutch Government and the agricultural organisations in 1998 and 1999 discussed the introduction of a national milk quota exchange reserved for producers producing less than 20,000 litres of milk per hectare. The purpose of such an exchange would be to lower quota prices and to foster the extensification of milk production. In anticipation of this project, the most intensive producers, who would be excluded from such an exchange, started buying quotas and pushing up prices. However, a proposal by the Agriculture Ministry to start a milk quota exchange in 2000, was voted down in Parliament. A motion to that effect, presented by the orthodox protestant party RPF, was supported by a majority in the Second Chamber in December 1999. Things thus remained as before (van der Heijden, 2000).

2.4. Quantities of quotas transferred For classification purposes, Dutch statistics divide quota transfers into three categories" - transfers linked to transfers of land: these are for the most part transfers in the context of a family inheritance, and the value of quotas is included in the total amount of farm assets transmitted, - permanent transfers of quotas with a temporary leasing of land, - leasing of quotas. Only the last two categories may truly be said to give rise to a milk quota market. The volumes transferred permanently in the course of the three milk years between 1994 and 1997 were an annual 265,000 tonnes on average, that is to say about 2.4% of the national milk reference. As far as transfers by leasing were concerned, these involved an annual average of about 585,000 tonnes, i.e. 5.4% of the total reference. In all, therefore, we may say that about

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8% of the national reference is exchanged annually on the milk quota market (Table 1). In 1998 and 1999, the total volumes transferred were 929,000 and 1,000,000 tonnes, i.e. a similar percentage of the total reference.

Table 1 Transfers of milk quotas in the Netherlands during the 1994-97 milk years Number of sellers/lessors 'Numberof buyers/lessees -" Voiume (thousandtonnes) 94/95 95/96 96/97 94/95 95/96 96/97 94/95 95/96 96/97 1,146 861 800 1',182 865 ' 860 "Transfer of quotas 342 268 255 with land Transfer of quotas without land

254

259

282

2,604

2,573

2,300

6,309

Leasing

578

577

601

7,974

8,206

8,200

13,702

6,480

7,400

13,503 14,800

Source: Centraal B u r e a u v o o r de Statistiek.

As the same producer may both buy and lease quotas, we may assume that at least a third of Dutch milk producers annually have recourse to the milk quota market, in the form of either purchase or leasing. According to Pollemans (1996), the volume of quotas transferred by permanent transfer without land has been in the region of about 2% of the national quota since the 1987/88 production year. With regard to leasing (legally sanctioned in 1989) the volume transferred each year increased steadily up to 1998 when it evened out at about 5% of the national reference. With reference to dairy farmers intervening on the milk quota market, Polleman's study (1996) gives us indications for the 1992-96 period. On the permanent milk quota transfer market, both purchasers and sellers of quotas tend to be those most highly specialised in milk production. Purchasers tend to be young farmers (or perhaps older farmers with an heir). whereas sellers for the most part are older farmers. Farmers with a high quantity of quota per hectare purchase relatively more quotas. The chances are that these intensive farmers have already invested in cattle buildings and dairy equipment, and the purchase of additional quotas is a way for them to derive the maximum benefit from their investment. The largest farmers are the biggest buyers of quotas, in a context in which 45% of milk producers having a quota of less than 200 tonnes possess 20% of the national quota but buy only 14% of the quota., falling into the category of permanent transactions. Sixty per cent of farmers deciding to suspend milk production lease out their quota in it, entirety and most of them prefer to lease each year rather than to sell. 2.5. The price of milk quotas Milk quota prices are regularly published in the weekly farming magazine 'Boerderij', basec on statistics supplied by brokers and the Milk Office. As far as permanent milk transfers arc concerned, the price is fixed on the basis of milk fat. Between 1987 and 2000 it was an averag~ of 0.85 guilders per percentage point of fat content and per kg, with a low of 0.75 guilder,' observed in the spring of 1997 before it was decided to extend the quota system until the yea: 2006, and a high of 0.94 guilders recorded in December 1997. The average price is therefon 3.51 guilders for a kg of milk reference with 4.2% of fat content; this is five times the price o

The Costly Process of Intensification in the Milk Sector in the Netherlands

61

milk, which in 1996 was set at 0.63 guilders. Pollemans (1996) provided a statistical series of the average price of milk quota permanent transfers since 1985. Between 1985 and 1990, milk quota prices climbed in parallel with the development of the milk quota market. This price culminated in the region of 4.50 guilders between 1991 and 1995 and was established at 4 guilders in 1996. The fall in quota prices occurring in 1996/97 was a consequence of a drop in milk prices between 1992 and 1996. The milk quota price follows the price of milk and is between five and six times as high. In the Netherlands the price of milk quotas is one of the highest in Europe. Table 2 Trend o f milk quota selling prices and comparison with the price o f milk

Milk year 86/87 87/88 88/89 89/90 90/91 91/92 92/93

"

Seliingprice 0f'a iiireof quota (guilders/litre)(1)

......

1.5 2.2 3.0 3.5 4.3 4.4 4.5

' Price ofa litre of milk (guilders/litre) (2)

...........

0.66 0.66 0.72 0.73 0.68 0.69 0.71

Quotasellingprice/miil~price ratio .........

2.3 ...... 2.3 4.2 4.8 6.3 6.4 6.3

93/94 94/95 95/96 96/97

4.5 4.0 4.0 3.5

0.69 0.66 0.65 0.63

6.5 6.1 6.2 5.6

97/98 98/99

3.6 3.7

0.69 0.70

5.2 5.3

99/00

3.8

0.69

5.5

(1) Source: Pollemansand De Boerderij.

(2) Source: CNIEL, 1998, p. 155 and Canal Pays-Bas 16/05/1998.

As for the price of temporary milk quota leasing, this lies between 0.09 and 0.10 guilders per percentage point of fat content, i.e. between 0.3 5 and 0.42 guilders per kg of milk. The price was 10% higher during the 1992-95 period. The leasing price of one kg of milk quota corresponds to more than half the selling price of a kg of milk. The high price of milk quotas whether for sale or leasing gives rise to additional production costs which, combined with the drop in milk prices of the last few years, have caused problems for certain producers, particularly young farmers setting up in business. Indeed, the Young Farmers Federation (Nederlands Agrarisch Jongeren Kontakt ~ NEJK) has asked for the free market of milk quotas to be closed down since one of its effects is to increase the burden of charges for producers in the process of setting up or expanding. But the demand for milk quotas remains as high as ever, for dairy production holds out the promise of more regular income than 'intensive production' and in particular pig farming where production prospects have been limited in recent years. In the Netherlands, the high price of land, not to

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mention heavy investment and environmental constraints for 'intensive production', makes it difficult for milk producers to diversify towards more extensive farming (bovine meat, cereals).

3. Milk quotas in the lessor/lessee relationship Property ownership is not a prominent feature of the agricultural landscape in the Netherlands, historically speaking. The proportion of farming land held in tenancy, however, has dipped sharply over the past 40 years (28% of exploited farming land in 1997 compared with 48% in 1970 and 52% in 1 9 5 9 - in 1999, there was a slight increase to 29%). In the case of dairy farming, 24% of the land used is held under tenancy. Often, however, one finds a combination of ownership and tenancy: only 10% of the tenant dairy farms have more than 80% of the land held in tenancy. European Union regulations stipulate that Member States are responsible for organising the distribution of milk quotas between lessors and lessees. However, the various decrees implementing milk quota regulations in the Netherlands failed to address the question of what happens to the quotas when the lease expires. The Dutch authorities took the view that it was up to the parties to the agreement to deal with this problem. Whilst such an attitude was perfectly coherent in the case of lease agreements concluded after the introduction of the milk quota system, it was highly questionable for leases negotiated prior to 1984 when the parties could hardly be expected to reach an agreement on the distribution of non-existent quotas. This latter case prompted a string of legal actions in which the Dutch courts were required to construct a body of jurisprudence to fill the loopholes left by the absence of regulatory indications. In the first instance, precedent considered that the sale of milk quotas by the lessee in the course of the lease, without the prior agreement of the lessor, constituted a failure on the part of the lessee to respect the obligation to maintain the leased asset in its original state unless the said lessee bought back, before the end of the lease, a quantity of quotas equivalent to the amount sold. However, if the lessee had received premiums in the context of a cessation of milk activity programme, he was under no obligation to buy back the milk quotas thus lost before the expiry of the lease. With regard to leases concluded before 1984, precedent generally considered that half of the quota (or more if the lessee had made investments corresponding to an expansion of the dairy activity) could be sold without the lessee having to pay a compensation to the lessor. This was tantamount to considering that at least half of the original quota belonged to the lessee. If the tenant farmer gave back all his milk quotas at the end of the lease, he could claim a compensation insofar as he had participated in the creation of these quotas. In the 1990s, there was some discussion as to whether the quotas should necessarily be specified in the lease agreement. The public authorities preferred to leave the decision in the hands of the contracting parties, fearing that any obligation to specify the quotas in the agreement would lead to a rise in tenancy prices.

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63

4. Changes in milk production structures Milk quotas were introduced in 1984 in the context of increasing milk production in the Netherlands and a tendency towards farm concentration. In the years between 1975 and 1983, the number of farms with fewer than 30 dairy cows had diminished by 60% while the number of those with more than 50 dairy cows had more than doubled. The first consequence of the brake on growth brought about by the introduction of quotas was to slow down both the disappearance of small herds (fewer than 30 dairy cows) and the hitherto pronounced increase of larger herds (more than 50 cows). Confronted with the 15.8% reduction of national milk production between 1983 and 1990, Dutch dairy farmers opted for increased productivity by, at one and the same time, cutting down the number of cows and improving the average yield per dairy cow. This approach, enabling them to reduce their productions costs and the level of pollution, was made possible by virtue of the high degree of technological expertise already attained by the Dutchmilk sector in 1984. The milk sector reacted swiftly as soon as it became possible to procure additional quotas through purchase or leasing. The six programmes launched between 1984 and 1988 designed to encourage the cessation of milk activity succeeded in freeing only 2.5% of the national milk references. The Dutch Government had entrusted the practical administration of quotas to the dairies and agricultural organisations and were content merely to control and register the application of the system. The emergence of the milk quota market towards the end of the 1980s gave fresh impetus to the process of milk production concentration which had already existed before 1984, but at a steadier rate. Between 1990 and 1996, small dairy herds continued to disappear but at a slower rate than before 1983. In short, the milk quota market enabled certain farms to consolidate and to increase their milk production. On the other hand, the high price of quotas, whether for purchase or leasing, forced the more vulnerable farms to reduce or even halt milk production since the investment required to acquire milk quotas was now added to the necessary investment to ensure productivity. The high price of quotas raises the problem of the acquisition of farm units. The fact of the matter is that, in a country where most farms are family units, the capital ~ in particular the milk quota capital ~ is undervalued compared with what it would command if exchanged on the market on the occasion of family acquisition.

5. The outlook The milk quota market is now accepted as being the most efficient means of access to production rights. The milk sector has adapted to the situation and is opposed to the abolition of milk quotas, which would create more problems than it would solve. In fact, there was a feeling of relief in 1999, when the EU decision was made to keep the quota system in place until 2006. The proposal in Agenda 2000 to base milk production a i d s - in order to compensate for a lowering of the milk intervention price - - o n a 'virtual cow' of average milk yield meets with the approval of the Dutch, since such a measure works in favour of farms with highly productive cows. On the other hand, the Dutch farming unions are against a 2% extension of European milk production since this would push prices downwards. At the request of the Ministry of Agriculture, various institutes have conducted several studies to evaluate the

64

Hoetjes- Boinon

consequences which the application of the measures specified in Agenda 2000 would have on milk producers' incomes. It emerges from these studies that the incomes of the largest dairy producers would suffer most. The Dutch milk sector is resolutely geared to the export market and, if it is to remain competitive, must ensure that its image is beyond reproach. This image, based on technologically advanced farming with quality products and traceability throughout the production process for all components of the sector, will have to be maintained if the increasing demands of their customers are to be met. The challenge facing the Dutch milk sector in the years ahead will be to accommodate the increasingly stringent environmental constraints imposed on farmers by Dutch legislation. In the long run, milk production is likely to come up against the same development problems as those currently confronting the pig sector. This explains why the farming unions are lobbying for a regulatory system which would reserve the purchase of milk quotas for the least intensive farm units. They are also asking for financial aids as an incentive to the extensification of milk production. However, this will require some 35,000 extra hectares in a country where the scarcity of land puts land prices among the highest in Europe. The price of land, pushed upward by overall economic growth and by urban-residential expansion, and the decreasing willingness of the Government to subsidise any private sector, including agriculture, form a serious challenge for the furore of the Dutch dairy sector.

65

The Liberal Approach in the United Kingdom Jean-Pierre Boinon, Edward H. Perkins

The United Kingdom ranks third among European milk producers, with a 12% share of European milk production in 1997. Milk represents about one fifth of the value of final British agricultural production. Since it joined the European Economic Community on 1 January 1973, the United Kingdom has encouraged its milk producers to increase milk production so as to reduce imports and to attain self-sufficiency in food. Milk production in the United Kingdom rose from 14.3 million tonnes in 1973 to 17.3 million tonnes in 1983 (of which 97.4% was collected by the dairies). The reference quantity of milk attributed to the United Kingdom in 1984 was 15.9 million tonnes (15.5 for wholesale quota and 0.4 for direct sale quotas). This quantity corresponded to the 1981 production plus 1%, but given the substantial development of production between 1981 and 1983, it amounted to a reduction of 6.2% compared to 1983. This quota was sufficient to allow the United Kingdom to cover only 85% of its national consumption. In 1984, the method for implementing the quotas in the United Kingdom took into account the existence of the Milk Marketing Boards (MMBs) which were responsible for organising the milk market: all producers were obliged to sell all their milk production to or through the MMBs which in turn were required to accept all the milk from the producers in their geographical area and to find a market for it. 1Thus in 1972 the English and Welsh MMB reorganised a series of processing units under the name of Dairy Crest. In particular, this allowed surplus milk production to be available for intervention products and assisted market stability by producing products capable of being stored. This milk marketing system guaranteed British producers a stable milk price but was criticised by both dairy companies and major producers. Direct negotiation between producers and processors was not possible and the industry sustained high costs in collecting milk from small producers. The operating costs of the MMBs were high and were reflected in the price of the milk delivered to the processors. In 1994, therefore, the MMBs were removed. This deregulation was to have repercussions on the management of milk quotas from 1994 onwards. During the Community negotiations leading up to the introduction of the milk quota system, the British representatives were consistently opposed to quotas, preferring in their place a lowering of the milk intervention price which would have resulted in a reduction of community budget expenses incurred in supporting milk products and would have reduced the supply of milk. Essentially, milk producers, and in particular the MMBs, were in favour of the status quo, in other words no reduction of the milk intervention price and no quota system. The leading British agricultural union, the National Farmers Union (NFU), did not 1 The British territory was divided between five MMBs, one covering the whole of England and Wales, three covering Scotlandand one Northern Ireland.

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Boinon

- Perkins

reject the principle of quotas out of hand but was on the whole against the method for distributing quotas between the Member States: 'The proposed 1981 base for distributing European quotas among the Member States was rejected by the NFU for two reasons. Firstly, the climatic conditions of 1981 were unfavourable for the United Kingdom and milk production had been abnormally low. Secondly, producers who had developed their production substantially between 1981 and 1983, often encouraged by European subsidies, were unfairly penalised' (Petit et al., 1987 p. 101).

1. T h e i n t r o d u c t i o n

of the milk quota system

Thanks to the centralised system of milk collection in force until 1994, the British government was able to move swiftly to introduce the quota management system. The 'quota by dairy' system was adopted (system B) and the British national quota was distributed among the five Milk Marketing Boards, each of which was then responsible for distributing their quota to each producer. 'The centralisation of milk purchases prevented rivalry between local dairies from developing. The institutional framework made it possible to establish an efficient market of milk quotas' (Burrel, 1989 p.79). The system provided an effective balance between the volume of production and the national quota, and in this way helped to reduce the penalties paid by over- and under-producing producers which could have penalised the British milk industry as a whole. In order to facilitate transfers of quotas between producers (by sale or by annual lease), quota agencies acting as intermediaries between seller and buyer began to develop as from 1985. The individual quota allocated to each producer was fixed for 1984/85 at 9% below deliveries for the year 1983, whereas a reduction of only 6.2% was all that was required to respect the quotas allocated to the United Kingdom. The difference was used to set up a national reserve whose mission was to redistribute supplementary quotas to producers in special situations. Three types of beneficiaries were eligible for these supplementary quotas: - those whose production in 1983 had been adversely affected by an exceptional event such as cattle disease or health problems sustained by the producer. In such cases, it was possible to obtain 1981 or 1982 as reference years, - those who had embarked on an investment plan (excluding the acquisition of land) with a view to developing their milk production, - those showing that their quota allocation was insufficient for other reasons (exceptional difficulties). Special milk quota tribunals were set up to process the applications and to apply this policy. About three-quarters of producers claimed this supplementary quota allocation, but most of the applications were turned down and 6,000 producers lodged an appeal. All the applicants falling into the first category and whose claims were deemed admissible obtained quotas based on a reference year which was more favourable to them. Producers in the second category whose claims were judged admissible, obtained only 64.7% of what they had initially been allocated owing to the high number of admissible claims and the quantities available in the national reserve. British legislation had specified that priority producers could not lay claim to more quotas than the quantity available in the national reserve, thereby justifying a 35% reduction compared to the initial allocation. In this way the United Kingdom managed to avoid

The Liberal Approach in the United Kingdom

67

the sort of problems encountered in Germany. The situation was considered to be particularly harsh in the case of producers who had invested prior to 1984. An aid programme in favour of those wishing to cease milk production was also set up and succeeded in releasing 279 million litres in England and Wales, i.e. 2.2% of the quota of these two countries. This programme concerned 1,670 producers (i.e. 4.2% of producers in 1984) and was able to meet 75% of the claims of producers in the third category. The programme also allocated a quota equal to 1983 production (without the 9% reduction) to small-scale producers delivering less than 200,000 litres. Unlike France, Great Britain did not introduce other milk activity suspension programmes involving the financial intervention of the state. In other words, the British Government decided not to pursue an active policy for reorganising structures. As for the European milk activity cessation programmes introduced in 1987, these met with little success as the amount of the milk cessation premium was less than the market price of the quota. Instead, the reorganisation of the milk production sector, already well underway in 1984, was to be secured by the establishment of a quota market. In the course of the first years following the implementation of the quota system, the idea of a levy on transfers supplying a national reserve was mooted by the NFU as a way of helping young farmers setting up in business (Helin 1992, p. 95). This possibility was explored in several articles written by university specialists (Burrel, 1989; Swinbank and Peters, 1990) who examined the consequences of a levy on the quota market. In point of fact, there was little real prospect of such a measure ever being adopted. In a 1995 report on 'trading of milk quota' the House of Commons Agriculture Committee noted: 'the National Federation of Young Farmers Clubs, the Farmers' Union of Wales and several individual farmers suggested a quota siphon by which a proportion of quotas traded for permanent transfer would be placed in a national pool for reallocation to new entrants. But the Tenant Farmers Association was opposed to this on the grounds that a siphon would simply increase the quota price and make it less flexible as a business asset' (House of Commons, 1995 page XV). For landowners, these levies would amount to a confiscation of capital and for most of the participants in the milk sector, it would be difficult to define the beneficiaries of reserved quotas. Even if such a national reserve had been created, there was no question as far as the professional agricultural organisations were concerned of allocating these quotas free-of-charge as is the case in France. In their memorandum to the Committee the Young Farmers wrote: 'We do not believe such quota should be given outright to a new entrant, but it should be loaned or leased' (op.cit. p. 76). In 1996, in the course of a hearing before the Committee, the NFU representative indicated that 'after consulting the other agricultural professional organisations and the Young Farmers in particular, we have come to the conclusion that perhaps the fundamental problem for new entrants is more to do with finance and that the finance problem is the same for horticulture and any other sector' (House of Commons, 1996 vol. II p. 74). The absence of a policy in favour of the allocation of free milk quotas to young entrants is consistent with a similar lack of British policy in favour of helping young entrants to set up in business (Dauc~ et al., 1993, p.25).

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2. Milk quota transfers The Government and the various professional agricultural organisations quickly reached a consensus as to the method governing the transfer of milk quotas from one farm unit to another. There could be no question of hindering the development of milk production units already underway in the years leading up to the introduction of the milk quota system. At the outset, only the representatives of the Country Landowners' Associations were in favour of establishing a link between the milk quota and the holding. The other organisations (MMB, NFU, Tenant Farmers Association) considered the milk quota to be an asset of the agricultural concern belonging to the producer; as such it should be negotiated separately from transfers of land, in the light of the farmer's own strategy. Since the European regulatory texts, at least until 1992, stipulated the link between quotas and land, the British devised a milk quota transfer mechanism which paid lip service to the European texts and protected the interests of landowners while at the same time allowing more efficient milk production units to develop. From 1985 onwards, quotas were considered as an element of capital which could be acquired through purchase (permanent transfer) and a veritable market of milk quotas, organised by brokerage agencies, began to emerge throughout the United Kingdom. In 1987, the European Community legalised the annual leasing of quotas and this allowed the United Kingdom from this date to set up a temporary rental market of milk quotas alongside the permanent milk quota transfer market, commonly referred to as 'milk quota leasing'. Prior to their dissolution in 1994, the MMBs were responsible for managing the quota transfers in their particular geographical zone of reference. Since then, the registration and control of all quota transactions has become the responsibility of the Intervention Board. This Board keeps the register of producers and is responsible for calculating penalties due to the European Union. 2.1. Permanent quota transfers First of all, it should be recalled that there is a legal form of milk quota transfer without land, recognised since 1992 throughout the European Union. In the United Kingdom, this type of transfer is little used (it represents no more than 1% of transferred volumes) owing to heavy regulatory constraints. Both buyer and seller are obliged to show that the transfer is necessary for improving the structure of their milk production. The seller has to show that he never reaches his quota share while the purchaser must demonstrate that he needs supplementary quotas because he is increasing his milk production (or getting ready to do so) through an active policy of investment. The biggest obstacle standing in the way of this type of transfer would seem to be the fact that the purchaser is unable to rent out or resell the quotas during the period of the milk production year and the following production year. Most permanent milk quota transfers involve the transfer of land. However, the link between milk quotas and land concerns only the land used directly for the milk herd (the entire herd, including heifers) and not all the land on the farm holding, as is the case in France. The transfer of quotas linked to the land is used when a complete farm unit is sold or transferred by inheritance. But what the British usually understand by a transfer with land is in fact to a quota transfer mechanism with temporary lease of land to which these quotas are attached.

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The person wishing to sell must first of all be the owner of the land to which these quotas are attached, otherwise he must obtain the permission of the landowner. He then rents out the land in whole or in part to the farmer wishing to acquire quotas for a minimum period of eight months in Scotland, 10 months in England and Wales and 12 months in Northern Ireland. 2 The quotas attached to the land leased in this way, within an upper limit of 20,000 litres of milk per hectare (unless there is a special dispensation from the Ministry of Agriculture), can be used by the tenant farmer. The tenant must farm the land but may not use it for milk production: he produces the additional production resulting from the increase of his quotas on another part of his farm, so that at the end of the lease the landowner recovers the land leased out but this is no longer destined for milk production and there are therefore no longer any quotas attached to it. In other words, the quota is now attached to the land previously farmed by the temporary tenant/quota beneficiary. The need for the temporary tenant to use the leased land as a support for the transfer of quotas limited the exchange of quotas to within a particular geographical area. A way round this particular problem was found in the shape of subleasing. The owner selling quotas takes back his own land (which he has just leased to the tenant acquiring quotas) on a sublease basis. 3 In other words, the sublease cancels out the lease whilst leaving the advantages of the quota transfer intact. Until 1994, the transfer of quotas was limited to the particular geographical zone of the MMB to which the seller belonged, but since the dissolution of the MMBs all geographical constraints have been removed, with the sole exception of the Scottish Islands, resulting in a shift of milk production within the United Kingdom. This procedure allows a certain measure of freedom with regard to the tie between land and quota and is useful for producers wishing to increase their milk production. However, it should be noted that although this procedure results in the transfer of milk quotas without land, it nevertheless implies the existence of the landowner to which the quotas are traditionally attached. This procedure for the transfer of milk quotas was established prior to EEC Regulation 3950/92 which allowed the transfer of milk quotas without land in certain conditions. It was the result of a compromise between the different parties involved and it seems that nobody has been inclined to call this compromise into question after 1992. The representatives of landowners are naturally in favour of the bond between quota and land, although they feel that the legal solution adopted involves additional charges for all parties. In their view, as expressed in the Memorandum which they submitted to the House of Commons in 1995, 'they would like to see changes in the rules allowing owners and tenant farmers the fight to agree to a definitive distribution of quotas on each farm with the respective shares being recorded separately on the registry of the Intervention Board. In the case of such a definitive redistribution, the tenant would merely be required to keep the owner's quotas on the farm, while being free to sell his own quotas. [...] Quotas coutd then be transferred without the need for a transaction involving land' (House of Commons, 1996, p. 87). However this solution would have necessitated an agreement between owners and tenant farmers for the distribution of quotas. The loosening of the quota/property link may therefore prove detrimental to landowners and, as the NFU emphasises, pave the way for speculation 2 After an initial period of uncertainty, the Ministry of Agriculture introducedthis minimum period in order to maintain the link between quota and land. The minimum imposed period corresponds to the duration of excowshed fodder of milk cows. 3 Some experts feel that this practice is legally questionable and suggest that recourse should be made to a third party as sub-tenant.

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and the possession of quotas by non-milk producers. To sum up, the compromise reached in the United Kingdom facilitates the transfers of milk quotas, without geographical limitation, since 1994. It is therefore instrumental in encouraging the restructuring of dairy farms to the advantage of those with the financial resources for acquiring milk quotas.

2.2. Temporary transfers of quotas The United Kingdom was the first country in the European Union to introduce the leasing of quotas in 1987, even before such a possibility was approved by the Commission. The leasing of quotas is understood to concern the quotas not used by a producer who wishes to loan them, in return for a payment, for the year to another producer. Quotas may be leased from 1 April to 31 December of the milk production year. 4 Quota leasing is a measure of flexibility making it possible to adjust quota to production in the case of farms in danger of overrunning or falling short of production, but as they are forbidden over the last three months of the milk production year, they cannot be used for the final adjustments. In order to avoid speculation, the quotas leased for a production year cannot be subleased by the tenant. Quotas are leased independently of land and at the end of the production year return to their owner. One of the leading milk quota brokers has devised a formula for the rent of quotas spread over several years - - COLT or Contract Over Long Term quotas. This contract fixes the rent prices over several years (between three and five years) and offers a measure of security to both lessor and lessee. Currently, this programme has a substantial annual volume of litres. 5 However, the milk quota leasing allows producers to adjust their annual production with a wide range volume demand.

2.3. Volumes of quotas transferred

Table 1 Quotas: permanent transfers and leasing (Volume in millions of litres) (England and Wales 1986-1994) .....

Perm~enttransfers .......

Leashag'

Total

86/87

464

194

658

87/88

421

255

676

88/89 89/90

450 417

342 468

792 885

90/91

400

602

1,002

91/92

350

684

1,034

92/93

370

701

1,071

93/94

273

886

1,159

. . . . . . . . . . . . .

Source~ House of Commons, '1995 p182.

Tables 1 and 2 show the annual trend in the volumes of quotas transferred. The leasing of quotas accounts for 64% of transfers, permanent transfers with land for 35% and permanent 4 Since 1 April 2000, the quota leasing period has been extended from 31 December2000 to 31 March 2000. 5 Information provided by Inn Potter Associates.

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71

transfers without land for less than 1%. In the course of the 1998/99 production year, there were 35,633 milk quota holders in the United Kingdom. If this figure is compared with the number of transfers of quotas for the same year (41,609), it emerges that each producer makes an average of more than one transfer of quotas per year (permanent transfer or leasing). This illustrates the dynamic state of the milk quota market in the United Kingdom in which transfers each year represent 13% of the national quota. Table 2 Quotas: permanent transfers and leasing (United Kingdom 1994-1997) 6

Permanent trans- Permanenttrans- ' fers with land fers without land

Leasing

TOTAL

Volume (millions of litres) 1994/95

547

15

1,038

1,600

1995/96

583

18

1,143

1,744

1996/97

664

16

1,175

1,855

1997/98

758

14

1,277

2,049

1998/99

692

19

1,334

2,045

Annual average

649

16

1,193

1,859

Number of transfers 1994/95

11,917

198

24,208

36,323

1995/96

18,855

614

31,204

50,656

1996/97

20,544

334

31,662

52,527

1997/98

19,725

235

28,725

48,685

1998/99

13,822

256

27,531

41,609

Annual average

16,973

327

28,666

45,966

38

49

42

40

Average volume per transfer 94-99 (thousands of litres) .

.

.

.

.

Source:Dairy Facts and Figures, 1997, p. 63/64 and1999, p. 63/64.

2.4. The price of quotas The complexity of the legislation particularly with regard to the permanent transfer of quotas has led to the emergence of a new activity among a g e n t s - quota brokerage. There are more than 100 milk quota brokers, ten of whom cover the entire territory of the United Kingdom. One of the largest of these the agencies, Br-uton Knowles, supplies statistics on quota prices which serve as a reference base for transactions. Another agency, Ian Potter, has created an Internet site which may be consulted for offers of quotas and prices requested and which also provides statistics on the price of transactions carried out by the agency. These prices are in the public domain and may be consulted by everyone, potential buyers and sellers alike. The

6 These data correspond to the total of milk quota transfers and direct sale quotas, unlike the data presented in M. Cardwell's contribution (Part 2 of this volume), which concern milk quotas alone.

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prices quoted are national in scope since, from 1994 onwards, all geographical barriers to quota transfers have been lifted (with the exception of the Scottish Islands). The milk quota price (both sales and for leasing) is published each week in the Farmer's Weekly, the trade journal read by most English farmers: Table 3, which details milk quota prices for permanent transfers and leasing has been drawn up from data supplied by Bruton Knowles up to the 1994/95 production year and updated since then by the data published by Ian Potter Associates. These are clean quotas which may be used by the buyer in the course of the milk production year.

Table 3 Trends in milk quota prices (sale and annual lease) and comparison with the price o f milk (pence/litre) Milky ear

8'6/87-

' sale price ofa " Priceof annual litre of quota (1) leaseof a litre of quota (1)

' Priceofa litre of milk (2)

Quota price/ milk price ratio

(3)

18.24 ..........

i189

87/88

30.10

5.20

14.72 15.20

.......

1.2 2.0

88/89

33.95

4.62

16.32

2.1

89/90

34.88

5.40

17.33

2.0

90/91

37.22

5.93

17.32

2.2

91/92

34.92

6.82

18.59

1.9 1.6

92/93

30.90

4.24

19.53

93/94

42.34

5.31

20.49

2.1 2.9

94/95

61.25

11.46

20.96

95/96

65.71

12.17

23.34

24.94

2.8

96/97

61.64

13.02

23.35

25.02

2.6

22.12

2.3

19.37 18.34

2.0 1.8

97/98

47.81

9.65

20.63

98/99

35.80

7.92

18.09

99/00

32.81

7.16 .....

(1)-Source: Burton Knowles and 1an Potter Associates. (2) Source: CNIEL, 2000, p. 155. (3) Source: Ian Potter Associates.

There is a market for used quotas, that is to say for quotas which may be used only as from the milk production year following their acquisition. The price difference is roughly the price of the annual lease. As quota leasing was not possible over the last three months of the milk production year, the producer who has failed to adjust his quotas properly to his production may buy unused quotas and sell used quotas if he has overrun production and vice versa if he has under-produced. In this case, however, transaction costs are double the normal rate. Over the past ten years, the milk quota purchase price has been negotiated at slightl) over twice the price of a litre of milk, which is fairly sensitive to fluctuations in the poun~ 7 Details of quotas prices can be seen at the Farmer's Weekly web site www.fwi.co.uk.

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sterling in relation to the euro. After increasing sharply up to 1996, the quota price dropped by more than 20% in the course of the 1997/98 production year, by 25% in the course of production year 1998/99, by 9% in the course of production year 1999/2000 and such indications as we possess for the 2000/01 production year suggest a further fall of about 40%. This is to be seen in the context of a 35% fall in the price of milk between April 1996 and April 2000. 8 Quota prices are subject to seasonal variations. Up to 1997, the variations were minimal at the beginning of the milk production year and then gradually increased towards the end. Since 1997, the variation has been different and, at the present time, prices have fallen substantially.

3. Milk quotas in the lessor/lessee relationship

In 1984, out of the 40,000 milk producers identified by the Milk Marketing Board of England and Wales, 44% were owner occupiers, 25% were operated through a tenancy agreement and 30% had a mixed ownership arrangement (MMB, 1989, p. 53). Land ownership is an important factor in the United Kingdom. The Country Landowners' Association is a powerful lobby which makes sure that landowners' interests are protected in the milk quota transfer mechanisms. The relations between lessors and lessees with regard to the milk quota questions are govemed by two bodies of legislation. The Agriculture Act of 1986 stipulates the method for sharing milk quotas allocated to the milk producer at the end of the lease (tenant farmer in position on April 1984) for tenancy agreements concluded before this date. The second text is the Agricultural Holdings Act 1986 which deals more generally with the relations between lessor and lessee including the question of milk quotas. The Agriculture Act came into force on 25 September 1986, that is to say more than two years after the introduction of the milk quota system allocated to the producer but attached to the land. It took months of debate between the Ministry of Agriculture, the Country Landowners' Association and the association representing the interests of tenant farmers before a compromise could be reached and enshrined in the Agriculture Act 1986. 'Throughout the negotiations the tenants' lobby had been adamant on one point: some formula had to be devised for determining the reasonable output from a farm' (Edwards, 1995, p. 44). At the end of the lease, the quotas remain attached to the land, even if they have been bought by the tenant farmer. The Agriculture Act 1986 therefore provided for compensation in the case of tenant farmers in accordance with a statutory formula. Tenant farmers eligible to apply for compensation at the end of the lease under the terms of the Agriculture Act 1986 are as follows: - those who were in activity on 2 April 1984, who had milk quotas allocated to and/or bought by the tenant farmer, - the statutory successors of such tenant farmers, - the transferees of the lease of a tenant farmer meeting the two previous criteria,

8 In order to prevent a large fall in UK milk production, in 2000, the largest supermarkets have provided the pressure on processors to increase the price of milk paid to the to the producers.

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the tenant farmers subleasing from a tenant farmer arriving at the end the lease and claiming compensation from the principal tenant farmer. 9 For these tenant farmers, a standard quota is calculated corresponding to the product of the multiplication of the rented surface area used for milk production by a 'prescribed quota per hectare' listed on the table accompanying the regulation. This 'prescribed quota per hectare' is established on the type of the breed of cows, the geographical zone and the quality of the land. It represents about 80% of the average milk yield per hectare for a given category. For England and Wales, there are nine categories of the 'prescribed quota', a state of affairs which by no means reflects the diversity of the milk production conditions. The legislator therefore provided for the possibility of modulating this 'prescribed quota', if, owing to the particular quality of the land of a given holding or the particular climatic conditions of the zone, the quantity of milk which may reasonably be produced over a hectare of land is above or below the average milk yield of the category in which this holding has been classified. Once the standard quota has been established, it is compared to the quota attached to the land concerned by the lease. For this purpose, the quotas purchased are subtracted from the global quota of the farm, and the outstanding amount shared out in proportion to the land used for keeping the milking herd. If the quota thus calculated is above the standard quota the excess amount gives rise to compensation for the outgoing tenant farmer to be paid by the landowner, in the same way as the quota bought by the tenant farmer and assigned to the farming land during the lease. But the tenant farmer may also lay claim to compensation on a fraction of the standard quota, if in 1984 he owned part of the investments intended for milk production. For example, he pays a farm rent of R for fields without buildings or milking equipment (which he owns), whereas he pays R + A if he also rents buildings and equipment, his share in the standard quota being A/R + A. This share, translated into litres of quota will give rise to a compensation at the end of the lease. If the allocated quota QA is less than the standard quota QS, the quotas liable for compensation are calculated according to the following formula: -

QA A QA x ~ x R+A In this case, as the formula above shows, the tenant farmer cannot claim a compensation unless he is the owner of a part of the investments intended for milk production (A>0). It should be noted that the tenant farmer's share in the standard quota is calculated on the basis of the situation pertaining in 1984. Now, it may well be that the lease was signed a long time ago, as in the case of a young tenant farmer in 1984 or in that of a tenant farmer able to transmit his lease to his successor. If a tenant farmer is to lay claim to any part of the standard quota, therefore, he must keep a record of the situation in 1984. The regulations specify that the tenant farmer, who is eligible under the terms of the 1986 Agriculture Act and who has bought quotas in the course of the lease, may be reimbursed for them at the end of the lease. However, tenant farmers are advised to obtain the agreement of the owner prior to buying the quotas, particularly if the lease precludes subleas-

These last two situations are rare in the extreme, since lease transfer or subleasing are usually forbidden in the tenancy agreements.

9

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75

ing and if the tenant farmer does not possess land of his own, which means that he is unable to resell the quotas. Tenant farmers whose lease was taken out after 2 April 1984 are not eligible for the compensation stipulated by the 1986 Agriculture Act. The tenancy agreement must take into account the existence of quotas attached to the land. Ideally, the agreement should make provision for subleasing so that the tenant farmer is able to resell any quotas bought just before the end of the lease. If this is not the case, the agreement must provide for compensation at the end of the lease, calculated in a way which is made clear in the agreement. But a tenant farmer who buys quotas without the owner's agreement, and without previously taking steps to include contractually binding clauses concerning the ultimate destination of the quotas bought in the course of a lease, might have difficulty to recover his quotas at the end of the lease. A tenant farmer/producer can only sell quotas with the agreement of the lessor, l~ On the other hand, when a tenant farmer buys quotas through this temporary rental arrangement, he increases the quotas attached to his owner's land and in so doing improves the value of the property. According to the legislation covering this particular point, introduced by the 1986 Agriculture Act, the tenant farmer must wait until the end of the lease before receiving compensation from the owner for the improved value related to the increase in milk quotas. This explains why the Tenant Farmers' Association is seeking to have the quota-land link abolished: this 'would allow tenant farmers to treat quotas like assets which can be sold and bought without having to refer to the owner' (House of Commons, 1996, vol. 2, p. 106). However, The Tenant Farmers' Association notes that the outright suppression of the quotaland link would have the effect of allowing large-scale concerns to acquire quotas. The Association therefore suggests that only milk producers actually possessing milking cows should be entitled to hold the quotas. It also draws attention to the bureaucratic and unwieldy character of a procedure which allows the existence of a free quota market while at the same time maintaining the quota-land link. In the case of payment of a compensation by the incoming tenant farmer to the owner, in order for example to allow the landowner to pay the compensation owned to the outgoing tenant farmer, it is up to the incoming tenant farmer, vchen negotiating the terms of the lease, to find out what his position will be at the end of the lease. Finally, there is the case of tenant farmers in occupation on 2 April 1984 whose lease was terminated before 20 September 1986, when the 1986 Agriculture Act came into effect. This category received no compensation and the European Court was unwilling to rule on the matter, indicating in its decree that it was up to the Member States to lay down the framework of agreements between lessors and lessees. It was not a matter for the laws of the European Community. 4. The dissolution of the Milk Marketing Boards in 1994

The Milk Marketing Boards were forced to adapt to the new situation arising from the increase in milk production between 1970 and 1983 in the United Kingdom. The boards had originally been set up to ensure a stable milk market with stability of prices. In order to 10 During the sole programmedesigned to encourage the cessation of milk activity in 1984, tenant farmers were able to cede quotas with the authorisationof the owner.

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absorb the increase in milk production, the MMBs established processing subsidiaries (Dairy Crest for the MMB of England and Wales, Scottish Pride for Scotland). These subsidiaries process the surplus production which private dairy companies are unable to buy and sell it on the British market or to the intervention agencies. The subsidiaries were thus competing with British dairy companies in supplying the home market but at the same time enjoying monopoly status with the MMBs and in effect a monopoly with regard to intervention. The introduction of milk quotas, and the fall in butter and milk powder volumes for intervention resulting from this introduction, caused serious difficulties for the subsidiaries whose production costs were becoming too high and had to be passed on in the price of milk paid by the MMBs. In other words, private milk companies who were forced to buy their milk through the MMBs were being asked to foot the bill for the possible poor business management of the subsidiaries. They therefore exerted considerable pressure, aided and abetted by the major companies, for the liberalisation of the milk supply. The British Conservative government of the time was sympathetic to their case and in 1994 the Milk Marketing Boards were dissolved. Under the new regulation, a producer was free to choose his buyer. In the place of each of the dissolved MMBs, a producer's co-operative was established (Milk Marque for England and Wales, Scottish Milk for Scotland) and each producer was free either to sell his milk through the intermediary of the new co-operative, which itself resold the milk to the dairy companies, or to sell the milk directly to a company. Initially, dairy companies took steps to link up with the largest milk producers by offering them more attractive prices than Milk Marque or Scottish Milk. Since these co-operatives accepted milk from all producers, their collection costs per litre of milk were higher, a fact reflected in the price paid to all producers. By concentrating only on the largest producers, private companies were able to keep collection costs per litre of milk below co-operative levels and to pass on this advantage in the price paid to the producers. Pursuing the same logic, private dairy companies also encouraged the small producers from the same village to join forces. In 1997, Milk Marque covered 60% of English and Welsh producers but held only 40% of the milk yield. As a result, in 1997 Milk Marque was obliged to impose a flat rate for collecting milk from producers to the detriment of small producers. However, it seems that the situation has stabilised since the early years of the reform. Private dairy companies no longer seek to buy the loyalty of milk producers by increasing prices. They even exert a downward pressure on milk prices by imposing increasingly stringent constraints with regard to animal welfare, quality, hygiene and so on. Collective acquiescence is becoming a means of pressure" if the excessively low price of milk is not to the liking of one of the producers, he can only with difficulty renounce his agreement individually. Nevertheless, in the course of the 1997/98 production year, Milk Marque and Scottish Milk paid producers one to two pence per litre less than the price paid by other buyers ( F a r m e r ' s W e e k l y , 26/06/1998). Moreover, changes in the structure of milk consumption in the United Kingdom are having an impact on the way the milk sector functions. Whereas in 1983, 72% of milk sales involved deliveries to consumers' homes, in 1994 this figure had dropped to 49%. With food distribution now concentrated in the hands of a few large companies such as Safeway, Tesco and Sainsbury' s, there has been a small increase towards the consumption of long-life milk. These large companies have forced dairy companies to bring down the price of milk and this in turn has led to regrouping and concentration in the milk processing business.

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In 1993, 52% of the British dairy market was supplied by the three largest dairy companies: Dairy Crest which is now completely privatised, Northern Foods and Unigate (Kirk, Anderson in Rama, Pieri, 1995, p. 130). In 1995, the 22 companies treating more than 100 million litres per year (including seven companies controlled by foreign capital) processed 80% of the milk produced in the United Kingdom. In 1999, Milk Marque was re-organised because of industry pressure and the Monopolies and Mergers Commission Report which severely criticised the milk collection and selling arrangements. As a result, there are now three co-operatives milk purchasers: Zenith (Northern England and North Wales), Axis (Central England and South Wales) and Milk Link ( South and South-West England). Each is an independent co-operative with his own pricing policy and transportation costs. These organisational changes of the British milk sector in recent years, of which the dissolution of the Milk Marketing Boards in 1994 is but one aspect, have had and continue to have an influence on production units" the largest producers as well as those in regions in which the processing units were concentrated have been relatively favoured. In 2000, Dairy Crest and Unigate have merged in one company with large percentage of the dairy processing industry.

5. The development of dairy farms In the first instance, the milk quota system penalised farms which were engaged in developing their milk production. The redistribution of quotas in their favour by the national reserve was insufficient to satisfy all the applications and for such producers the arrival of milk quotas signified an end to their growth, at least over the first years. Quite naturally, therefore, they were among the first to seek to acquire or lease quotas, in order to make the most of the investments which they had already made or which they were in the process of making. At the present time, purchasers of quotas are for the most part producers possessing a high degree of technical expertise in the field of milk production and whose general managerial efficiency is such as to ensure an increase in production capacity. For these producers, the quota very quickly becomes the principal obstacle standing in the way of increased productivity, and they therefore prefer to invest in the purchase of quotas rather than in other forms of capital (land, buildings, cattle). These farmers are in a position to take a long-term view: they are young farmers or farmers whose succession is assured - - possessing total security either as landowners or under the terms of a protected tenancy. They have an offensive strategy of milk production development and on the whole prefer buying to leasing quotas (even to the extent of taking out loans in order to buy the quotas), except in the case of tenant farmers whose lease agreement does not provide the necessary guarantees for recovering the quotas at the end of the lease. The prospect of an end to the milk quota system has little effect on the strategy of such farmers. The farmers we met in April and May 1997, at a time when it seemed very likely thatmilk quotas would be abolished in 2000, were continuing to buy milk quotas, thereby taking advantage of a fall in the purchase price of quotas linked to uncertainty concerning the future of the quota system. As far as they are concerned, the possession of milk quotas is a way of preparing for the opening up of markets and fiercer competition. Other quota applicants adopt a less aggressive attitude. Initially, they prefer to rent quotas in order to adjust their reference to their level of production, and then only to buy quotas which they can finance from their own resources. The leasing of quotas is often preferred to purchase inasmuch as rental costs are tax deductible, whereas the purchase of

78

B o i n o n - Perkins

quotas is not eligible for tax depreciation and consequently the expenses incurred in acquiring quotas cannot be deducted from tax. In the past, the milk quota market also had its share of producers acting as speculators. They bought quotas with a view to leasing them out afterwards. According to the quota brokers, these producers represented about 15% of milk quota acquisitions. But, recently, the regulation has been changed to prevent such speculation. As far as quota sellers are concerned, these are for the most part farmers over the age of fifty with no successors likely to take over of the milk activity. The United Kingdom tax system encourages retiring farmers to sell their quotas as they are not liable to tax on the added value concerning the sale of agricultural assets if they have not received an allowance beforehand. In other words, a farmer who immediately sells his quotas on retirement or, without leasing them for a period, is exempt from tax on the profits made from the sale. However, since 1998, changes have been made in the capital tax system, and the retired farmers tax position may not be as advantageous as previously. But there are other producers involved in the selling of quotas. First of all, producers in difficult financial circumstances prefer to cash in their 'milk quota' assets in order to switch towards other types of production, for example beef/sheep meat or cereal farming, depending on the region. Here, too, the legislation governing environmental standards or animal welfare comes into play, for it involves additional costs which these producers are not in a position to accept. And then there are producers in crop farming regions who, thanks to the sale of quotas and of cattle, have been able to buy arable land and specialise in crop farming. At first sight, the existence of milk quotas seems to be an additional barrier to people wishing to set up in agriculture (and not simply young farmers). Indeed, as there are no aid programmes of this sort in the United Kingdom, installation tends to take place within a family framework under the terms of a partnership associating both generations of farmers and featuring an inheritance system which favours the transmission of the agricultural inheritance to an heir who remains in the profession. However, the introduction of milk quotas and the creation of a new farming asset was accompanied by a variation in the amount of the other assets necessary for milk production. According to a firm of consultants specialising in farm management, the ratio between milk gross margin and the capital necessary to produce it (land, herd, quotas) did not vary with the introduction of milk quotas. The creation of the milk quota asset was accompanied by a fall in land assets and cattle assets (Oliphant, 1996). In 1984, land represented 82% of the assets necessary for milk production while cattle represented 18%. In 1995, land represented 35%, cattle 12% and milk quotas 52%. Whereas gross margin per cow doubled in the course of this period, the price per hectare of land stagnated and the price of a cow increased by 64%. Increased revenue from milk production has resulted in an increase in the price of milk quotas. In the last production year, decreasing milk revenues have directly decreased milk quota value. Looking ahead for a moment to the global study of the impact of the way different countries manage their dairy farms, we may draw attention to the dominant features of the British situation. The rapid movement towards larger herds (more than 70 cows) which marked the period between 1973 and 1984, fell off between 1984 and 1992 but then picked up again, with an increase in the proportion of herds of over 100 cows. The United Kingdom has kept ahead of the field in terms of the size of cow herds. At the same time a certain specialisation has begun to take shape, characterised by a geographical shift of production (thanks to quota mobility). There has been a reduction in production in the East and South-East of

The Liberal Approach in the United Kingdom

79

England where farmers have tended to specialise in cereal farming, and to a lesser extent in the Midlands where the trend has been more towards bovine and sheep farming. By way of contrast, the West of England and in particular Northern Ireland have increased their milk production. 6. The British position in the years ahead

In 1984, the British looked askance at the introduction of the milk quota system, deeming it less effective in controlling production than a reduction in the support price of milk powder and butter. Moreover, in 1984, the United Kingdom was in the middle of a process designed to modernise and restructure dairy farms, and milk production in the United Kingdom was only sufficient to meet about 85% of its requirements. It was legitimate to think that once this process had run its course the goal of self-sufficiency would be achieved. The introduction of the milk quota system had the effect of freezing a situation which appeared unfavourable to the United Kingdom. Most of the milk producers we have met are in favour of keeping the quota system for as long as possible. The fact of the matter is they have now fully integrated quotas into the management of their production system. Quotas have provided a fairly reasonable stability of milk price and consequently a fairly level income for milk producers (at least up to 1997). As the quota has now become an important asset in a dairy farm holding, its suppression would give rise to any number of problems, in particular the question of compensation for older, small-scale producers without successors. The quota system seems to be more advantageous for small producers who (in production terms) are standing still or falling back than for major producers wishing to increase their production and having to finance new quotas. Compared to the tendency prior to 1984, there has been a slowdown, at least over the period between 1984 and 1994, in the concentration of dairy farm holdings. The abolition of milk quotas with a consecutive lowering of the price of milk would result in production being concentrated increasingly in the larger farm units of the Western regions where production conditions are more favourable. Quite a few large-scale producers would be in favour of the abolition of quotas; this would initially lead to a sharp drop in the price of milk but subsequently to a retum to higher prices once the less competitive producers had wound uo their dairy activity. However, many brokers and consultants are of the opinion that milk quota prices will not go up again, the rise in production being easily offset by the number of farmers winding up their activity. This indeed is the point of view expressed by the National Farmers Union in a memorandum dated September 1996 and examining trends in the organisation of the milk product market (Roberts, 1996). During the last three years, the milk prices fell to the extent that, in 2000, total milk production level has also fallen. As far as milk producers are concerned, the main problem is not so much the existence of milk quotas as their situation in relation to the milk industry and the major channels of distribution. Producers are worried that a total liberalisation of the milk market, with in particular a lowering of the intervention price, would lead to a reduction in the production price of milk and to a fall in income. Their fears would seem to be vindicated by the consequences of the revaluation of the pound in the course of 1997 and subsequently. The 20% appreciation of the pound against the euro has led to a consequent fall in the milk support price. While the United Kingdom exports or sells to intervention agencies a small part of its production, the price per litre of milk paid to the producer dropped sharply in the course of

80

B o i n o n - Perkins

1997 and since. British milk producers therefore prefer the quota system with the maintenance of the machinery for intervention prices to a complete liberalisation of the milk market which would put them at the mercy of the major processing groups. Although we are not yet in a position to measure all the consequences, it is clear that the milk sector in the United Kingdom was more profoundly influenced by the dissolution of the Milk Marketing Boards in 1994 than by the introduction of the milk quota system. For the Ministry of Agriculture, the milk sector is the only one in which the price decreases scheduled in agenda 2000 are not sufficiently important. The British Government is in favour of the abolition of milk quotas although its present position is that this abolition should be spread over several years. A few years ago, it floated the idea of a milk quota market which would allow transfers of quotas between the different members of the European Union. The United Kingdom is convinced that it has a comparative advantage in milk production and is therefore keen to drive home this advantage. As far as the dairy companies are concerned, milk quotas are seen as an obstacle to the development of milk production and thus to their activity as a whole. As they collect milk directly from the largest producers, these companies view quotas as a hindrance to the concentration of production and at the same time an extra production cost to be sustained by the producers. Milk quotas are therefore instrumental in increasing the price of milk and cheese, and it is for this reason that the Dairy Industry Federation is lobbying for the suppression of milk quotas. The principal criticism which they level against the milk quota system is to the effect that the limitation of production in Europe is causing them to lose market shares in Asia where the demand for dairy products is on the increase. They are interested in the proposal made by French dairy companies for a system of double milk quotas but do not believe that such a system is compatible with the rules of the World Trade Organisation. Generally speaking, senior executives in the dairy industry are pressing for the removal of volume related regulations. Although the deregulation of 1994 allowed dairy companies to deal directly with producers (and chiefly with the largest producers), the existence of co-operatives of producers (Milk Marque for England and Wales, Scottish Milk for Scotland), was seen as an obstacle to the maximum efficiency of the British milk sector. The introduction of the new co-operatives (Zenith, Axis and Milk Link) has somewhat changed the attitude of the dairy processing companies. Time will tell in the event those co-operatives develop processing capacity what attitude might be taken by the processing industry. In other words, the future of the milk quota system is only one element in the debate concerning the development of the milk sector in the United Kingdom. It is unlikely that there will be much change for the next few years. A review of the milk quota system is planned for 2003 with possible removal by 2006. There are a number of factors which will influence attitudes during the coming years. These include the continuing problem of pound sterling/euro exchange, the resulting difficulty of exporting and import penetration of the UK market, the purchasing power of the supermarkets and their demands for high welfare standards. In the absence of an EU quota scheme, the milk purchasers would impose their own volume controls and price levels to accompany such volume controls. The development of organic farming systems could also have a substantial impact by reducing the levels of production both on a per hectare and per cow basis. Thus with a significant percentage of producers in the organic sector the total volume of production could fall significantly.

The Liberal Approach in the United Kingdom

81

The position of milk producers prices in the next two years could have also a significant effect on the position after 2006. If producer prices remain at current levels then large numbers of milk producers could leave the industry and those remaining producers would not be able to produce the total national quota. If this were to happen the arguments over milk quotas would disappear as the UK dairy industry would be in serious decline and unable to reach national quota production levels. If total dairy cow numbers were to fall below 2.2 million, then this situation could well occur. Also the possibility of changes caused by annual health regulation and disease control (BSE) could still have an effect on the overall situation. At the present time therefore the large number of factors influencing the situation make it impossible to make any sort of accurate prediction.

This Page Intentionally Left Blank

83

The Effects o f National Implementations on Dairy F a r m Structures Denis Barth~lemy, Jean-Pierre Boinon, Pierre Wavresky

Milk quotas have been in existence for 15 years, and we are now in a position to measure the impact of the introduction of the new system, its development, and the way it has been applied in the different countries. At the outset, one of the questions provoking much debate within each Member State, with regard to the management of milk quotas, concerned the impact such measures would have on the future of dairy farms. Would a policy exercising a large measure of control over milk quota transfers necessarily lead to the preservation of small farms, and would a more liberal approach inevitably result in the expansion of larger farms and in increased competitiveness? The data are now to hand and we are able to assess the consequences of the policies pursued and to draw conclusions from our discussion. 1. The different situations pertaining at the outset In each of the countries under review, the milk quota system was introduced when milk production was in the middle of a period of drastic change. Dairy farming was traditionally concentrated in small mixed farming units, since this type of production called for labour which was at once in plentiful supply and readily accessible, and at the same time had the advantage of securing a regular income. Thus, milk production was particularly suitable for small family units. Part of the comparative advantages enjoyed by these small units began to disappear in the 1960s and 1970s as a result of changes in the production, processing and marketing of milk. New preservation and packaging techniques for dairy products (long-life milk, for example) were leading to the creation of milk basins far removed from consumer centres. Genetic progress with regard to animal selection, modifications in food techniques and the development of mechanical milking resulted in economies of scale for expanding farms. The outcome was a particularly pronounced re-organisation in this sector of production: between 1971 and 1983 the number of dairy farms fell at a rate which was twice as high as that for farms as a whole in the four countries under review. This difference was most noticeable in the United Kingdom and France (Table 1).

Table 1 Annual rate of change in the number offarms between 1971 and 1983 (%) Germany Dairy farms

-4.8

All farms

-2.4

France

Netherlands

United Kingdom

-5.4

-4.9

-5.2

- 1.6

- 1.8

- 1.3

Source: EuropeanCommission- Yearbookof Agricultural Statistics.

84

Barthdlemy- Boinon - Wavresky

Over the 13 years between 1971 and 1984 leading up to the introduction of the milk quota system, we may draw distinctions between the situation in the Netherlands and the United Kingdom and that pertaining in France and Germany. In both 1971 and 1984, the Netherlands and the United Kingdom were notable for a milk yield per farm unit which was three to five times greater than in France or Germany, with far larger milk production units. The re-organisation of Dutch and British milk herds was already well underway, with a marked decrease in the number of cow herds of fewer than 50 dairy cows (at a time when the number of cow herds of between 20 and 50 dairy cows was on the increase in Germany and France), with a particularly strong increase in the number of herds of more than 50 cows in the Netherlands. Table 2 Milk production 1971-1984: principal characteristics and trends (A% = Percentage annual variation)

Germany 1971 1984 A%

France 1971

1984

tm

Netherimads A%

1971

1984

A%

1971

1984

A%

Dairy farms (thousand)

713.4 397.2 -4.4 '815.6 427.4 -4.8

116.6

63.5 -4.6

....109'15

58,4 -4.7

Dairy cows (thousand)

5,480 5,735 +0.4 7,280 7,195 -0.1

1,896

2,521 +2.2

3,244

3,429 +0.4

Yield (000 tonnes)

17,994 23,982 +2.2 19,241 27,700 +2.8

Average yield per dairy cow (litres)

3,856 4,866 +1.8 3,191 3,858 +1.5

7,910 12,763 +3.7 4,440

5,334 +1.4

12,601 16,188 +1.9 4,003

5,131 +1.9

Yield per unit 25,223 60,378 +6.9 23,591 64,810 +8.1 67,839 200,992 +8.7 115,078 277,192 +7.0 (litres) Cows per unit

8

14 +5.0

9

17 +5.0

16

40 +7.1

30

59 +5.4

.

Source: CNIEL,from EEC-OSCE.

Over this period, the increase in milk production was at its strongest in the Netherlands: milk yields grew at an annual rate of 3.7% as against 2.8% in France, 2.2% in Germany and 1.8% in the United Kingdom. Dairy product exports in the Netherlands doubled between 1970 and 1983. This sharp increase in milk production in the Netherlands was the result of a rise in the number of dairy cows, whereas in the three other countries the size of the milk herd stagnated. The average yield per dairy cow in the Netherlands, which in 1971 was already the highest in the EEC, grew at a lower rate than in the United Kingdom and the gap between the two countries tended to narrow. The Netherlands took full advantage of the milk market organisation which allowed the entire milk production to be distributed at a guaranteed minimum price with no limitation on quantity. By way of contrast, Germany and France were characterised by small production units (in 1971 over 90% of the farms possessed fewer than 20 dairy cows). Over the period between 1971 and 1983, the restructuring process was, none the less, somewhat more pronounced in France than in Germany: small farm units with fewer than 20 dairy cows disappeared more rapidly in France over this period, the result being that, in 1983, small farm units represented three-quarters of all farms in Germany and a little less than two-thirds in

The Effects of National Implementations on Dairy Farm Structures

85

France (Table 3). Milk yield remained at its lowest in France and the gap with Germany was not narrowed. In 1983, cow herds of more than 50 dairy cows accounted for 10% of all dairy cows in Germany and 40% in France. The comparative figures for the Netherlands and the United Kingdom were respectively 63% and 76%.

Table 3 Dairy farm units classified by herd size (%) (,4% = Percentage annual variation)

Qe~y

.

.

.

Number of dairy cows

1971 1983

1-19 20-49

94.7 75.9 ' "-6.5 9i.8 5.2 22.0 +7.4 7.9

50 and more All

.

.

.

France

....

A%

1971 1983

' N&herlands . . . . . . A%

1971

1983 .

0.2

2.1

100.0 100.0

.

.

.

1971 ,i

,i

A%

i

65.0

-8.1 67'9

28.9 -11.5 46.1

21.0

-i 1.2

31.1

+6.0 30.4

37.9

31.7

-6.3

47.3

+2.9

100.0

-5.2

+18.6

0.3 3.9 +18.8 1.7 -4.8 100.0 100.0 -5.4 100.0

'

.

A%

UK 1983

-3.2

36.3

33.2 +21.7 17.6 100.0

-4.9 100.0

Source:Europe-an'Co/nmission- 'Ye-arbookofAgricuitural Statist:tcs.

2. National trends under the milk quota system Compared to the period before 1984, the quota system marked a break with the past with regard to the number of dairy farms, accompanied by a sharp differentiation. The average annual rate, which between 1971 and 1984 had been within the range of-4.4 and-4.8% per year, dropped in France, particularly during the period between 1984 and 1992, when it fell to -9.1%, whereas the rate of decrease slowed down in the Netherlands and the United Kingdom. In Germany, the 1984-88 period was marked by a slight slowdown in the rate of decrease of dairy farms, whereas from 1988 onwards it overtook the rate prevailing before 1984. 2.1. A very fast restructuring process in France Among the four countries under review, average production per farm increased most sharply in France. Whereas in 1984 average production levels per farm were comparable in France and Germany, in 1998 they were 12% above those of their German counterparts, although still well below British and Dutch levels. In France, the number of farms with fewer than 20 dairy cows fell at the annual average rate of 12.8% between 1983 and 1997. This is clearly the result of the various programmes encouraging the cessation of milk activity, to which many small producers subscribed. The number of farms with more than 50 cows increased by 25%, but in 1997 farm units with an average of 20 to 49 cows still predominated. This re-organisation of milk production to the advantage of the medium-sized farm unit took place mostly in the first period (1984-89) during which the aid programmes were at their zenith.

Barthdlemy- Boinon- Wavresky

86

Table 4 Trends in milkproduction in France: principal characteristics Annual variation (%) 1984

1988

]qumber of dairy farm Units" (thousand)

427.4

291A '

Number of dairy cows (thousand)

7,195

5,841

Average numberof dairy cowsper farm unit Milk production (thousand tonnes) Milk production/farm(kg) Yield/dairy cow (kg)

17

20

27,700 26,606 64,810 3,850 .

.

.

.

.

91,304

4,555

1992

1998

84-88

1~9

145.8

-~.i

-9.1

4.1

4,968

4,476

-5.1

-4.0

-1.7

+4.5

+5.6

+3.5

25,315 24,793

- 1.0

- 1.2

-0.3

127,211 170,048 5,096 5,539

+8.9

+8.6

+5.0

+4.3

+2.8

+1.4

25

31

88-92 92-98

.

'Source: CNIEL,from scEEs. The period between 1971 and 1983 was characterised by a fall in the number of cow herds of fewer than 20 cows whereas the number of herds with more than 30 cows increased noticeably, testifying to a definite jump in size. The following period (1983-95) saw an accentuation in the decrease of the number of cow herds with fewer than 20 cows. But in the first instance this large-scale departure of small producers had little effect on the size of herds. The rise in production per cow (the average French milk yield rose from 3,900 kg per cow per year in 1984 to 5,500 kg in 1998) allowed the remaining dairy farm units to increase production without expanding the size of their herd. With an increase in the average milk yield per cow of 4.3% per year between 1984 and 1988, and of 2.8% between 1988 and 1992, improvement in performance was at its highest in France. However, over the latter period (1992-98), milk yield improvement per cow was lower than in the other three countries. In 1983, the average yield per dairy cow in France was 15% below that of Germany and 24% below that of the Netherlands. By 1992, France had caught up with Germany and narrowed the gap with the other countries. This improvement in average milk yield was one of the results of milk activity cessations, which were particularly prevalent in the early years and which concerned, in particular, small farm units with limited technical resources. The development of large herds was quite clearly blocked, and there was even a fall back in the number of herds of more than 50 cows during the 1983-89 period. It is only in the later period that we begin to see once more an increase in the number of herds of more than 50 dairy cows. Restructuring had been radical, since globally the number of herds of fewer than 20 cows had dropped by 80% between 1984 and 1997, resulting in a relative increase in the proportion of herds in the category immediately above. Although farm units with more than 50 dairy cows were the only category to increase in size, they still only represented 14% of the total in 1997 but accounted for 31% of dairy cows. The average size of the milk herd has increased rapidly since 1984, the figure for 1998 being 31 dairy cows. Over the period between 1992 and 2000, when ONILAIT statistics began to be available, yields from quota holders of more than 200,000 litres rose from 33% of the total collection to 59%, bearing in mind that quota holders of more than 400,000 litres provided 14.6% of the national yield in production year 1999-2000. These figures show very clearly the extent to

The Effects of National Implementations on Dairy Farm Structures

87

which French dairy farms as a whole correspond to a unit with a herd of 30 cows producing 200,000 litres of milk.

Table 5 Breakdown of dairy farm units and dairy cows in France (%) Annual variation in number of dairy farm units

Breakdown of dairy farm units Number of dairy cows

1983

Breakdown of dairy cows

83-89

89-97

83-97

1983

1989

1997

-10.9

-14.2

-13.3

35

24

10

23

-3.7

-6.3

-5.6

24

24

19

33

+0.1

-0.9

-0.3

27

35

41

5

13

-2.3

+4.4

+1.7

13

29

28

0

1

-5.8

+5.8

+1.5

1

1

3

100

-7.5

-7.3

-7.9

100

100

100

1989

1997 ,,

i-i"9 . . . .

67

54

29

20-29

17

21

30-49

12

20

50-99

4

100 and more

0

100

100

All

Source: European commission- YearboOkof Agricultural Statistics. 2.2. A less spectacular rate of change in Germany The 1984-98 period was of course marked by the reunification of East and West G e r m a n y in 1990 and the resulting increase in references and milk production. In the course o f the 1984-88 period, the annual rate at which dairy farms disappeared was twice as slow in G e r m a n y as in France. On the other hand, it gathered speed in the 1990-98 period, overtaking the rate of decrease in France. The same observations are valid for the number of dairy cows and for milk production per farm unit.

Table 6 Milk production trends in Germany: principal characteristics 1 Annual variation (%) Years / Periods

1984

1988

1992

1998

84-88

88-92 -5.0

92-98 -6.3

Number of dairy farm units (thousand)

397.2

337.3'

275

185.9

-4.0

Number of dairy cows (thousand)

5,735

5,074

5,632

5,193

-3.0

+2.6

-1.3

14

15

20

28

+1.0

+8.0

+5.3

Milk production (thousand tonne)

25,982

23,976

28,378

-2.0

+3.9

+0.2

Milk production/farm (kg)

65,413

7 1 , 0 8 2 101,785

Average number of dairy cows per farm unit

Yield/dairy cow (kg)

4,530

4,725

27,991

4,970

152,652

+2.1

+9.4

+7.0

5,465

+1.1

+1.3

+1.6

Source: CNlELfrom EUROSTAT.

1 The data included in Tables 6 and 7 concern West Germany for the years before 1990 and the whole of Germany for the years since 1990.

88

Barthdlemy- Boinon - Wavresky

On the whole, the restructuring of milk production in Germany has been less wideranging than in France. In 1997 farm units of fewer than 20 dairy cows still accounted for over half of German dairy farms - - and this despite the contribution made by the large dairy farms in the Lander of the former East Germany. The rate of decrease between 1983 and 1997 was five points below that of France (7.9% per year as against 12.8% per year in France). This also holds true for dairy farms comprising between 20 and 29 cows, where the rate of decrease was 5.2% per year in France as against 2.9% in Germany. Table 7 Breakdown o f dairy farm units and dairy cows in Germany (%)

Number of dairy cows

Breakdown of dairy farm units

Annualvariation'in the number of dairy farm units

Breakdownof dairy Cows

83-89 89-97

83-97

1983

1983

1989

1-19

76

68

51'

-5.8

'9.5 .... -7.9

20-29

14

17

20

-0.7

-4.5

-2.9

30-49

8

11

18

2.0

-0.4

50-99

2

3

9

2.2

100 and more

0

0

2

-

100

100

-4.1

-6.1

All

1997

100"

1989

1997

46

37

17

24

25

17

+0.6

21

25

24

+7.8

+5.4

9

11

21

+37.8

-

1

1

21

' -5.3

100

100. . . .

lO0

Source: European Commission- Yearbook of Agricultural Statistics. There are no doubt several reasons for the slower rate at which dairy farm units disappeared in Germany compared to France. Part of the explanation is probably to be found in the fact that France practised a milk cessation policy on a wider scale and over a longer period than in Germany, since the German government stopped buying up quotas in 1990 once it had absorbed the surplus distributed in 1984, whereas in France the buyback plans were more commonly implemented even to the extent of using funds originating from penalties levied on producers. But the underlying reason is to be found elsewhere" it lies in the prolongation of the trend already observed between 1971 and 1983, i.e. the greater resistance put up by smallscale German dairy farms, able to rely on the income derived from mixed farming which is a more common feature of agriculture in Germany than in France. It should, however, be noted that, taking the Lander of the former West Germany on their own, the number of herds with more than 50 dairy cows increased by 50% between 1983 and 1995, thus representing 9.4% of all dairy farm units and 27% of dairy cows in 1995. 2 Seen in this light, the relative importance of this group is therefore fairly close to that of the same group in France, which goes to show that, leaving aside the impact of the assimilation of the new Ldnder of the former East Germany, the German restructuring process has tended to work in favour of the larger farm units. 2.3. A temporary halt to the development of large Dutch farm units The year 1984 marked a change in the rate of progress in the Netherlands. The rate at which the number of dairy farms declined between 1984 and 1988 slowed to about half of what it

2 Data provided by the Ministry of Agriculture (cf. German regional trends in III-2), the data in Table 7 including the new Lander.

The Effects of National Implementations on Dairy Farm Structures

89

had been between 1971 and 1984, whereas the average size of herds, which had increased spectacularly, now began to drop. This sharp slowdown in the concentration of production was expressed by a fall in the annual rate of decrease in the number of farm units of fewer than 20 dairy cows (declining from 11.5% before 1983 to 1.2% between 1983 and 1989). It was also marked by a fall in the number of farm units with more than 50 dairy cows (a decrease of 4.9% for farms with between 50 and 99 dairy cows and a 10.9% decrease in the case of units with more than 100 cows). Table 8 Milkproduction trends in the Netherlands: principal characteristics '"Annual Variations(%) Years / Periods Number of dairy farm units (thousand) Number of dairy cows (thousand) Average number of dairy cows per farm unit Milk production (thousand tonnes) Milk production/farm (kg) Yield/dairy cow (kg)

84-88

88-92

92-98

63.5

57.4

48

37.3

-2.5'

-4.4

'4.1

2,521

2,038

1,881

1,643

-5.2

-2.0

-2.2

40

36

39

44

-2.8

+2.5

+2.0

-2.8

-1.1

+0.1

-0.3

+3.4

+4.4

+2.5

+0.9

+2.4

1984

12,763 200,992 5,063

1988

11,406

1992

10,901

1998

10,995

198,711 227,104 294,772 5,597

5,795

6,692

,j,

,,

Source: CNIELfrom-EUROSTeiT. Between 1984 and 1989, the proportion of dairy cows in units with over 50 dairy cows fell by 10 points (53% in 1989 compared to 63% in 1983), whereas herds of between 30 and 50 cows increased from 22% to 30%. Compared to the other countries, therefore, the situation in the Netherlands over the first period following the application of the milk quota system was characterised by stabilisation. Against a background in which the total number of farm units was falling more gradually than elsewhere, there were fewer changes within each category of farm unit size. The proportion of farms with fewer than 30 dairy cows remained stable whereas units with more than 50 cows decreased, leading to a growth in the relative importance of medium-sized herds. In order to respond to the imposed reduction of national milk production (a cutback of 15.8% between 1983 and 1990), Dutch dairy farmers opted to increase productivity. They reduced the number of cows (a 5.2% drop per year between 1984 and 1988) while at the same time accelerating the increase in the average yield per dairy cow. This approach enabled them to reduce production costs and was made possible by the high technological level already attained in the Dutch milk sector by 1984. Numerous applications for extra quotas were formulated when the milk quota system was put into practice and as soon as it became possible to acquire additional quotas through purchase or rent, the milk production sector very quickly adapted to the new situation. This development in the milk quota market towards the end of the 1980s made it possible to resume the trend towards concentration of milk production but at a slower rate than in the years prior to 1984. Between 1989 and 1997 the number of small dairy herds

90

Barthdlemy- Boinon - Wavresky

continued to fall, but more slowly than before 1983. The number of farm units with more than 100 dairy cows once more began to increase at a moderate rate of 3.1% per year (compared to a rate of 19.4% per year between 1975 and 1983). These farm units accounted for 13% of the national milk herd in 1997 as against a figure of 15% in 1984. Over the 1992-98 period, milk production per farm rose by 4% per year whereas it had fallen back between 1984 and 1988, but this rate of increase remained below that observed over the 1975-83 period. Table 9 Breakdown o f dairy farm units and dairy cows in the Netherlands (%)

Number of dairy cows

Breakdown of dairy farm units

Annual variation in the number of dairy farm units

Breakdown of dairy cows

83-89

1983

1989

1997

1983

1989

1997

i-1"9

28

30

21

-1.2

-8.8

-5.~5

6

"7-

4

20-29

16

15

12

-3.7

-7.5

-5.9

9

10

7

30-49

23

28

29

+0.3

-4.2

-2.3

22

30

26

50-99

28

24

34

-4.9

-0.8

-2.6

48

43

50

5

3

4

-10.9

+0.8

-4.4

15

10

13

lOO

10o

lOO

-2.6

-4.7 "

-3.8

100

i00-"

100

100 and more All

89-97 ....

83-97

Source." European Commission- Yearbook of Agricultural Statistics. The average quota per farm unit reached 294,772 kg per farm unit in 1998. In 1996, farm units possessing a milk quota in excess of 400,000 kg produced 47% of the national reference (as against 35% in 1991) and those with the quota of less than 200,000 kg produced 15% of the national reference compared to 21% in 1991. To sum up, the introduction of the milk quota system applied a fairly spectacular brake to the concentration of milk production in the Netherlands in the first years following its implementation. The process of adaptation was largely a question of improving productivity which in turn led to a reduction in the size of herds since production per production unit could not be increased. Subsequently, the development of the milk quota market allowed a resumption of the trend towards production concentration but at a more subdued rate than in the years leading up to 1984.

2.4. Swift adaptation on the part of British dairy farms The milk quota system was implemented in the United Kingdom at a time of major change in milk production. Between 1971 and 1983, the number of dairy farm units had fallen at the rate of 5.2% per year. Small farm units with fewer than 30 cows were fast disappearing to the advantage of units with more than 70 cows. As from 1984, we note the same slowdown in the United Kingdom in the rate at which the dairy farms disappear as in the Netherlands (3.4% over the 1983-97 period). However, contrary to what occurred in the Netherlands, the introduction of the milk quota system did not, over the first 1984-88 period, lead to a reduction in milk production and milk herd per farm unit. The number of herds consisting of fewer than 20 dairy cows, which already represented only a small proportion of farm units, continued to dwindle but at a slower rate than before 1984. In 1984, the reduction of milk references concerned only farm units of more than

The Effects of National Implementations on Dairy Farm Structures

91

200,000 litres and the smallest units were therefore spared. 3 The fall in the number o f units possessing between 20 and 50 dairy cows continued, at a slower rate than before but more quickly than elsewhere. The proportion o f dairy cows present in herds of fewer than 50 dairy cows dropped from 23% in 1983 to 18% in 1989 and 17% in 1997, whereas in the case of cow herds o f more than 100 dairy cows this proportion rose from 38% in 1983 to 45% in 1989 and then 46% in 1997. The main impact of the restructuring process was felt during the first 1984-89 period.

Table 10 Milk production trends in the United Kingdom: principal characteristics Annual Variation (%) ........ Years / Periods

84-88

88-92

92-98

58.4

48.3

42

36.3

'4.6

'3.4

-2.4

3,429

3,044

2,779

2,496

-2.9

-2.3

-1.8

59

63

66

69

+1.8

+1.2

+0.6

14,637

-1.7

-0.7

-0.1

313,043 350,024 403,223

+3.1

+2.8

+2.4

+1.3

+1.6

+1.7

1984

'Number ot"dairy farm Units (thousand) Number of dairy cows (thousand) Average number of dairy cows per farm unit Milk production (thousand tonnes)

16,188

Milk production/farm (kg)

277,192

Yield/dairy cow (kg)

4,721

1988

15,120

4,967

1992

1998

14,701

5,290

5,864

Source- CU~EL,from P~uRosr/4r Table I 1 Breakdown of dairy farm units and dairy cows in the United Kingdom (%) ' " Number of dairy cows

Bre~down of dairy farm [ Annual'variation in the / number of dairy farm units units 1983

1989

1997

83-89

89-97

16

13

-8.2

.... -4.7

83-97

Breakdown of dairy cows 1983

1989

1997

,,

1-1

20

-6.2

3

5

....

2

2

3

3

20-29

12

9

9

-9.3

-2.4

-5.4

30-49

22

22

21

-4.3

-3.2

-3.7

15

13

12

50-99

31

34

36

-2.8

-1.8

-2.2

38

36

38

-2.0

-1.3

100 and more All

15

20

21

-0.4

100

]60'

- 100

-4.4

..... -2.6. . . . . -3.4

38 "]00'

45 100 "

46 100

Source: EuropeanCommission' Yearb'ookof Agricultural Statistics. Although the number of large units of more than 100 dairy cows, which had been on the increase before 1984, fell back over the 1983-95 period as a whole, the initial 1983-89 period was characterised by an increase in milk production in the largest dairy farm units. The milk 3 The original introduction reduced all 1993 production levels by 9%. However, production units with less than 200,000 kg received a supplementary reference quantity in 1985 restoring the original reduction.

92

Barthdlemy- Boinon- Wavresky

quota market allowed the largest and smallest milk producers to sell their quotas and to readjust their production system (towards cereals in the east of England, and towards suckler cow or sheep production in the most deprived regions). Herein lies the reason, at least until 1992, for the fall in the number of farm units with fewer than 100 dairy cows, whereas those which remained increased the size of their herds. In the course of the 1988/89 production year, 50% of the national quota was produced by farms delivering more than 500,000 kg and 13% by those delivering less than 200,000 kg. These figures stayed quite the same until 1995/96. However, the dismantling of the Milk Marketing Boards, undertaken in 1994, renewed the concentration of milk production in the United Kingdom in more recent years. In the production year 1998/99, 58% of the national quota was produced by farms deliveringmore than 500,000 kg and 10% by those delivering less than 200,000 kg. Nevertheless, the level of milk production per British farm, the highest in Europe, increased less rapidly than elsewhere in the 1988-99 period. All in all, the introduction of the milk quota system has slowed down the move towards increased concentration of British milk production, but the slowdown has been less spectacular than that observed in the Netherlands, doubtless because both production and concentration of production units in the period immediately before the introduction of milk quotas was less intense in the United Kingdom than in the Netherlands. 3. Regional trends under the milk quota system

Another aspect of the debate over the management of milk quotas, particularly with regard to the link between milk quotas and land, concerns the regional distribution of production. If quotas were allowed to be transferred independently of the farming land to which they were attached would this not result in a shift in the areas in which production took place? A comparison of regional trends in France, Germany and Great Britain is particularly instructive on this point. 3.1. France --- a relative strengthening of mountain zones

At regional level, milk production had developed strongly in the west of France prior to the introduction of the milk quota system. Milk production in the Brittany and Pays de Loire regions had practically doubled between 1971 and 1984. In marked contrast, it had fallen back over the same period in non-specialised milk regions such as the Paris area and the Mediterranean region. Production in the mountain regions (Franche-Comt~, Rh6ne-Alpes, Auvergne) increased at a slower rate than in the nation as a whole and the contribution made by these regions to the national yield fell back slightly (Table 12). The advent of milk quotas put a halt to the development of milk production in the west of France, where growth had been at its highest in the previous period, and the fall in the milk yield in these regions was greater than in the country as a whole. Losses of milk reference at the beginning of the period were sometimes limited, when producers were encouraged to draw up milk development plans allowing them to become owners for the allocation of quotas coming from the national reserve. This was the case in the Mayenne, Orne and Manche departments which succeeded in keeping or increasing their share in the national milk production.

The Effects of National Implementations on Dairy Farm Structures

93

Table 12 Regional trend in milk yield (%) /{nnual trend of the yield

Share of national yield 1971

Regions

1984

71-84

1998

84-98 ,,

,,,

Nord- Nord-Est 1

23.3......

2"0.9

Basse-Normandie

12.2

11.0

'

,,,

2i.1

+1.5

-0.8

11.0

+1.6

-0.9 -1.1

Pays de la Loire

11.8

14.9

14.5

+4.2

Bretagne

16.0

21.9

20.7

+4.9

-1.3

Sud-Ouest2

6.8

7.1

7.2

+2.8

-0.8

Franche-Comt~

5.0

4.4

4.8

+ 1.3

-0.1

+1.9

+0.1

Rh6ne-Alpes Auvergne

10.3

9.7

11.2

Other regions

14.5

10.1

9.5

100

France , .

.

.

.

.

.

.

.

.

100

-0.4 +2.4

100"

,

- 1.3 '

-0.9

,,L

.....

1 Regions of Haute-Normandie, Picardie, Nord-Pas de Calais, Champagne-Ardennes and Lorraine. 2 Regions of Aquitaine and Midi-Pyr6n6es.

Source: CNIEL,from SCEES.

Table 13 Regional characteristics of milk deliveries in 1984 and 19984 "

Yield Per deliverer (litres)

DairY cows per deiiverer

1984

1984

1998

1998

Annual trend (%)

Yield per dairy cow (liuTes)

Annual trend (%)

1984

1998

Annual trend (~

3,965

5,221

+2.0

Nord-Nord-Est 1

96,835

1'95,863

+5.2

24

38

+'3.1

Basse-Normandie

75,999

173,521

+6.1

20

38

+4.5

3,732

4,267

+1.5

Pays de la Loire

83,660

196,086

+6.3

20

34

+4.0

4,193

5,706

+2.2

Bretagne

91,664

196,370

+5.6

20

34

+3.9

4,540

5,707

+ 1.6

Sud-Ouest2

53,531

137,251

+7.0

15

29

+4.7

3,533

4,574

+2.1

5,016

+1.7

89,062

174,810

+4.9

23

35

+3.1

3,935

Rh6ne-Alpes Auvergne 43,073

115,879

+7.3

15

28

+4.9

2,941

4,068

+2.3

14

34

+6.8

3,816

5,416

+2.5

34

+4.4

3,887

5,093

+i.9

Franche-Comt6

Central regions3

51,682

183,263

+9.5

France

72,144

172,0'04

+6'.4"" 1 9

, 9

,

,

,,

_

,

1 Regions of Haute-Normandie, Picardie, Nord-Pas de Calais, Champagne-Ardennes and Lorraine. 2 Regions of Aquitaine and Midi-Pyr~n~es. 3 Regions of Bourgogne, Centre, Poitou-Charente and Limousin.

Source: CNIEL,from SCEES.

4 This table provides data for dairy cow producers delivering to the dairy industry. At national level, there were, in 1984, 350,493 milk producers out of 427,400 farm units possessing at least one dairy cow. In 1998, there were 130,000 milk producers out of 141,100 units possessing dairy cows.

94

Barthdlemy- Boinon - Wavresky

In 1984, the largest dairy farm units were to be found in the north and east of the Paris basin. A common feature of these regions was the 'large mixed and dairy farm' system associating milk production with crop farming (Perrier-Cornet, 1995). This has to be seen as a strategy of adaptation characterised by a move away from dairy specialisation by units faced with a reduced ability to expand milk production. In the regions of central France where as late as 1979 small dairy farm units still predominated, many milk producers took advantage of milk activity cessation aids. This resulted in a profound restructuring at local level since the national reserve was in fact managed at departmental level. The 7.8% annual fall in the number of producers in the central regions between 1989 and 1996 was accompanied by a sharp increase in the size of cow herds and in yields per producer. Table 14 Annual trend in the number o f dairy farm units per size o f herd (%)

All - 0ver 49 40-49 30-39 1-19 20-29 79/88 89/99 79/88 89/99 79/88 89/99 79/88 89/99 79/88 89/99 79/88 89/99 -6.2 -4.7 -2.9 +4.'5 + 1.5 Nord - Nord-Est 1 -10.2 -10.9 -5.1 -5.7 -2.1 -2.3 +1.8 Basse-Normandie -9.8 -11.5 -3.6 -10.8 +0.9 -5.2 +4.1 -1.8 +4.6 +4.8 -5.9 -5.9

Dairy cows ' Periods

Pays de la Loire

-11.6 -13.6

-1.5

-5.8

+5.3

-2.5

+5.0

+5.9

+5.1

-5.7

-5.4

-1.8

+2.6 +1.7 +3.6

+7.9

-6.0

-5.0

-0.2

Bretagne

-10.3 -13.8

-2.8

-6.5

+2.6

Sud-Ouest2

-12.0

-9.1

-3.2

-3.5

+3.0 +0.2 +5.4

-1.4

+6.9

+2.0

-8.8

-4.8

Franche-Comt6

-10.1 -12.8

-2.1

Rh6ne-Alpes Auvergne Central regions3

-3.8

-3.7

+0.5

-1.8

+3.3

+7.0

+0.2

-5.0

-4.5

-9.7

-0.5

-4.0

+3.8

-0.2

+6.1 +0.6 +8.9

+2.8

-6.7

-5.3

-12.7 -11.1

-4.7

-7.0

+0.5

-1.1 +3.5

-1.7 + 6 . 7 + 2 . 7 -10.3

-6.2

-9.3

_

_

Regions of Haute-Normandie, Picardie, Nord-Pas de Calais, Champagne-Ardennes,Lorraine. Regions of Aquitaine and Midi-Pyr6n6es. Regions of Bourgogne, Centre, Poitou-Charente and Limousin. Source: RGA 79 and 88; bovine survey 89 and 96. The milk-producing area of western France, where growth had been brought to a halt, underwent major re-organisation marked by the notable reduction in the number of farm units of fewer than 20 dairy cows, whereas the number of herds of more than 50 dairy cows climbed at an increasing rate. In the predominantly mountainous regions of Rh6ne-Alpes and Auvergne, output per producer remained very low despite a marked increase in the number of dairy cows per producer and a definite improvement in productivity per dairy cow. The rate at which the small farm units disappeared was slower than elsewhere and there was an increase in the number of dairy farm units of between 30 and 39 dairy cows. As in Franche-Comt6, smallscale dairy farm units managed to survive thanks to the high quality of their production. To sum up, we may note a stabilisation of production zones, with re-organisation inside these zones depending in large measure on the ability of dairy farms to switch to other kinds of farming and/or the quality of the milk.

The Effects of National Implementations on Dairy Farm Structures

95

Table 15 Size o f dairy farm units in 1979 and 1996 Dairy cows Year .

.

1979 .

.

.

.

1979

1999

1999

1979

Over 49

40-49

30-39

20-29

i-19

1979

1999

1999

1979

1999

4

24

,,

....

1i .....

22

"f4

Nord Nord-Est 1

60

20

20

21

Basse-Normandie

67

24

18

14

8

18

4

15

3

29

6

25

3

14

2

18

"

5"

18

15

25

67

16

20

24

8

30

3

14

2

16

Sud-Ouest 2

82

38

12

25

4

20

1

9

1

8

Franche-Comt6

55

13

26

28

13

31

5

13

2

15

1

8

1

9

12

1

18

12

2

17

Pays de la Loire

75

Bretagne

Rh6ne-Alpes Auvergne

84

41

10

23

3

18

Central regions 3

87

39

8

15

3

17

1 , ,

....

France

74"

15

26

22

6 .

1 2 3

.

,

3

22 .

.

.

.

.

.

.

Regions of Haute-Normandie, Picardie, Nord-Pas de Calais, Champagne-Ardennes, Lorraine. Regions of Aquitaine and Midi-Pyr6n6es. Regions of Bourgogne, Centre, Poitou-Charente and Limousin.

Source: RGA 79; bovine survey 96.

3 . 2 . T h e b o u n d a r i e s o f the G e r m a n Lander act as e f f e c t i v e b a r r i e r s A l t h o u g h we do not possess figures for the shareout o f m i l k p r o d u c t i o n per Land, w e are able to build up a picture o f the relative i m p o r t a n c e o f m i l k p r o d u c t i o n f r o m the n u m b e r o f dairy cows. 5

Table 16 Breakdown o f number o f cows informer West Germany (%) Years

. . . . . . . .

1984 .

.

" .

.

.

1988 .

i992 , .

.

.

.

"

1996

.

9.8

9.6

10.2

Niedersachsen

20.6

20.0

20.1

20.8

Nordrhein-Westfalen

11.5

11.1

11.1

11.1

5.1

5.0

4.7

4.5

Schleswig-Holstein

Hessen Rheinland-Pfalz

4.1

4.0

3.6

3.6

Baden-W0rttemberg

12.1

12.2

12.0

11.8

Bayem

36.4

37.7

38.0

37.6

Saarland

0.4

0.4

0.4

0.4

100.0

.... 100.0

10070

_

'All 'old' Lander

............

100"i'0

. . . . . . . . . . . . . . . . . . . . . . . . . .

_ _

'Source: Landwirtschaftsministerium.

5 The study is confined to the Lander of former West Germany only. The incorporation of data concerning the new Lander (of former East Germany) would have introduced developments which do not concern us here.

Barth~lemy- Boinon - Wavresky

96

Table 17 Average number of dairy cows per herd 'Years

"

1984 . . . . . . .

1988

1992

1996 .

.

.

.

'Schleswig-Holstein " '

34

35

39

48

Niedersachsen

21

22

25

31

N ordrhein-Westfalen

17

18

21

27

Hessen

11

12

15

19

Rheinland-Pfalz

13

15

21

28

Baden-Wtirttemberg

11

12

14

18

Bayem

13

14

16

19

Saarland

16

18

24

31

All 'old' Liinder

15

16

19

23

'New' Lander

107

128 ,

'All Germany

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

,

,

23

.

28

Source: Land~virtschaftsmini'sterium.

In 1984, Bavaria (the largest milk producing region) accounted for 36.4% of German dairy cows. The two Lander of North Germany (Schleswig-Holstein and Lower Saxony) ranked second as a milk production area with 30.4% of their herd. Between 1984 and 1996, and particularly at the beginning of this period, these two leading zones strengthened their relative position at the expense of the other Lander, whose share in the national herd fell from 33.2% in 1984 to 31.4% in 1996. This seems to suggest that the loss of quotas, linked to the milk cessation plans which existed up to 1990, had a more than proportional effect on regions which were less geared to milk production.

Table 18 Size of dairy farm units in 1984 and 1996 (%) "Dairycows

.

.

.

.

Years

"Schleswig-Holstein

'

"4o-59

20-39

1-19

.

1984

1996

1984

1996

1984

25

12

39

28

25

-

"

59 and more

1996

1984

1996

30

li

30 12

Niedersachsen

57

37

29

33

10

18

4

Nordrhein-Westfalen

66

47

26

31

6

14

2

9

8

0

4

Hessen

84

62

14

26

2

Rheinland-Pfalz

77

43

18

31

4

16

1

10

64

15

26

2

8

0

2 1

Baden-Wt~rttemberg

83

Bayem

77

56

21

37

2

7

0

Saarland

69

41

23

27

6

18

2

15

5

ll

1

5

.....

All 'old' Ldnder

72

51

22

,

33

Source': "Landwirtschaftsministerium

The Effects of National Implementations on Dairy Farm Structures

97

Table 19 Annual variation in the number of dairy farm units per herd size category and per Land (%) Dairy cows Periods

1-19

20-39

40-59

60 and more

84/88 88/92 92/96 84/88 88/92 92/96! 84/88 88/92 92/96!84/88 88/92 92/96 84/88 88/92 92/96 -5.9 -ll.0 -13.9 -2.1 '7.2 -12.5 -2.1 -3.3 -4.7 -5.5 +6.6 -~8.9 -3.4 -5.2 -5.9 ,,,,,,

'Sch'leswigHolstein Niedersachsen NordrheinWestfalen Hessen Rheinland-Pfalz

-4.7 -10.6 -11.2 -2.4 -4.9 -6.0 -1.1 -1.2 +0.6 -8.6 +5.9+14.1 -3.8 -7.0 -5.7 -4.8 -10.4 -10.8 -3.3 -4.2 -6.0 -0.6 +0.1 +1.5 -9.1 +8.0+19.4 -4.2 -7.4 -6.5 -7.4 - 12.2 - 11.7 -0.4 -4.3 -4.6 +2.6 +7.7 +4.7 +4.4+15.1+24.2 -9.2 -18.3 -13.6 -0.9 -6.2 -8.C +0.2 +2.2 +0.8 -2.9+12.7+19.6

-6.2 -9.8 -8.3 -7.1 -13.0 -8.2

BadenWUrttemberg

-6.3 -9.3 -9.1 +0.2 -2.5 -2.6 -0.3 +2.8 +6.8 +1.7 +7.9+21.7 -5.1 -7.4 -5.1

Bayem

-5.4 -9.6 -8.3 +0.7 -1.2 -2.0 -0.7 +7.3 +11.8 -3.8+15.4+28.6 -3.9 -6.8 -5.1 -7.7 -16.2 -12.2 -2.1 -8.8 -10.2 +1.0 +0.7 -1.7 +2.8 +7.1 +13.2 -5.5 -11.5 -7.8

Saarland

All 'old' Ldinde"-'~r -5.8-10.3

-

9

.

~

~

-1.0 +0.8 +3.2 -6.5 +7.6+15.1 -4.4 -7.4 -5.9

Source: Landwirtschaftsministerium. As far as the sizes of milk farm units are concemed, we may make a distinction between, on the one hand, Schleswig-Holstein in 1984 (where 36% of farm units had more than 40 dairy cows) and to a lesser degree Lower Saxony, and, on the other hand, all the other regions where small farm units of fewer than 20 dairy cows were the rule. In the first period (1984-88), the reduction in the number of dairy farm units concerned all herd sizes, including the largest, in most regions. Up to 1988, there were few variations in milk production farms, particularly in the two leading milk producing regions. Between 1988 and 1992, the rate of decline in the number of milk farm units gathered pace everywhere. It concerned first of all small units with fewer than 20 dairy cows and worked to the advantage of farm units with more than 40 dairy cows, except in the case of the two Lander of North Germany where there was an increase only in the number of units with more than 68 dairy cows. Between 1992 and 1996, the rate of increase in the number of herds consisting of more than 60 dairy cows intensified, and in particular in those Lander characterised by small production units. In 1996, herds of more than 40 dairy cows were in a majority only in SchleswigHolstein. Everywhere else, the fall in the number of small farm units with fewer than 20 dairy cows led to a relative strengthening of the other classes of herds, and the number of herds of more than 40 dairy cows increased from 1988. In the Lander of Hesse, Baden-Wtirttemberg and Bavaria, units of fewer than 20 dairy cows were still in the majority in 1996. Generally speaking, the boundaries of the German Lander have proved to be effective barriers. Apart from a slight erosion in the relative position of those Ldnder which are less specialised in milk production, when the German state bought up quotas in order to cancel them, each Land has kept its quota potential. On the other hand, we observe a marked restructuring process at work actually inside the Lander, leading to a drop in the number of small units to the benefit of the larger ones, a movement which gathered pace after 1992 when the quota market was liberalised in Germany. Although the statistical data are not set out here,

98

Barth~lemy- Boinon - Wavresky

various available German studies, (e.g. Meinhardt, PrOtt, Schmidt, 1996), show that this concentration of production has gone hand in hand with shifts in production inside the different Lander, in line with the principle of growing regional specialisation. 3.3. A shift in milk production towards the west of the United Kingdom The free milk quota market in the United Kingdom has facilitated the shift of milk production between different regions. Until 1994, quota transfers were only possible inside the zone of action of the same Milk Marketing Board, but this was already enough to allow movements inside the entity formed by England and Wales which was covered by a single Milk Marketing Board. Over the whole of the 1984-98 period, the regions which have benefited the most from quota transfers are those situated in the west of the United Kingdom (West of England, Wales, Northern Ireland). It should be noted that in the initial period (1984-89), the reduction of the UK quota resulted in a fall of production in all regions, particularly the east and the southeast. Since 1989, milk production has continued to fall in the east and the south-east, and to a lesser degree in the Midlands. It stayed identical in Scotland, whereas it has increased in the west of England, Wales, and to a very high degree in Northern Ireland. Table 20 Quotas p e r region (millions litres)

Periods

1984-85

1988-89.... 1994-95 1998-99 84-98 ,

Annual variation (%) 84-88 88-94 ,

94-98

,

England Northern

1,329

1,215

1,482

1,481

+0.8

North Western

2,824

2,633

2,494

2,459

379

308

280

246

Eastern

-2.2

+3.4

0.0

-1.0

-1.7

-0.9

-0.4

-3.1

-5.1

-1.6

-3.2

East Midlands

612

552

525

504

-1.4

-2.5

-0.8

-1.0

West Midlands

1,320

1,212

1,147

1,141

-1.0

-2.1

-0.9

-0.1

632

559

478

455

-2.3

-3.0

-2.6

-1.2

Mid Western

1,960

1,803

1,848

1,808

-0.6

-2.1

+0.4

-0.6

Far Western

1,483

1,395

1,361

1,404

-0.4

-1.5

-0.4

+0.8 -2.4

Southern

671

554

554

502

-2.0

-4.7

0.0

1,520

1,384

1,473

1,436

-0.4

-2.3

+1.0

-0.6

Northern Ireland

1,342

1,246

1,312

1,550

+1.0

-1.8

+0.9

+4.2

Scotland

1,302

1,155

1,204

1,174

-0.7

-3.0

+0.7

-0.6

15,374

14,016"

i4,157

14,159

- 0.6

' -2.3

+0.2

0.0

South Eastern

Wales

UK

.........

Source: MMB and Dairy Facts and Figures, from IBEA.

In the course of the four past production years, England lost 169 million litres, i.e. 1.7% of its quota in 1994, Wales 37 million litres (2.5%) and Scotland 30 million litres (2.5%), whereas Northern Ireland increased its quota by 238 million litres (18.1% of its quota). It would therefore seem that the transfer of quotas beyond the old Milk Marketing Board

99

The Effects of National Implementations on Dairy Farm Structures

boundaries made possible by deregulation has worked particularly in favour of Northern Ireland. However, it has to be said that the system used for observing these movements is somewhat unsophisticated and may, in fact, conceal specific features in certain counties. In the recent period, it would seem that the disappearance of the Milk Marketing Board's monopoly has resulted in a concentration of milk production in places where processing industries are situated. The figures reveal that in counties with a high density of milk processing industries such as Cumbria and North Yorkshire in the North, Gloucestershire and Shropshire in the centre-west of England and Devon in the south-west, there was a notable increase in milk production in the course of these four recent production years. Table 21 Breakdown o f dairy farm units per herd size in 1984 (%)

Dairy cows

less than 36 '

30-69

70-99

100 and more

All

13.9

100

-

England Northl

26.5

43.9

15.7

Midlands2

24.9

39.7

18.5

16.9

100

East, South-East3

25.3

25.3

19.3

30.1

100

South_West4

23.4

39.8

18.4

18.5

100

Wales

38.1

41.3

12.0

8.7

100

Northern Ireland

52.7

34.6

3.7

33.2

8.3 27.9

4.4 35.2

100 100

29.7

38.6

i6.0

15.6

100

Scotland ,

UK

1 North Region, North-West Region, Yorks & Humberside. 2 East Midlands and West Midlands. 3 East Anglia and South-East Region. 4 South-West Region.

Source: MAFF, Agricultural Census.

As far as milk production unit sizes are concerned (Table 21), there were in 1984 two zones characterised by very large scale farming u n i t s - eastern and south-eastern England and Scotland m where units of more than 100 dairy cows represented respectively 30 and 65% of all the dairy farm units, as against 16% for the United Kingdom as a whole. At the other end of the scale, in Northem Ireland and to a lesser degree in Wales, small-scale dairy farms were the rule: 53% of farm units in Northern Ireland and 38% in Wales had fewer than 30 dairy cows in 1984, compared to a figure of 30% for the United Kingdom as a whole. In the eastern and south-eastern regions of England, where the fall in milk production was very pronounced between 1984 and 1998, the reduction in the number of dairy farm units concerned all farm categories, including units with more than a hundred dairy cows, whose numbers dropped at an annual rate of more than 4% over the 1984-92 period and 2% over the 1992-99 period (Table 22). In Northern Ireland, on the other hand, the number of farm units with more than 100 dairy cows rose consistently over the entire period, and the increase in the number of largescale units accelerated from 1992. The 1992-99 period, when deregulation came into effect,

1oo

Barthdlemy - Boinon - Wavresky

was marked throughout the United Kingdom by accelerating concentration of dairy units, and by a faster growth in the average number of dairy cows per farm unit, by a sharper decline in the number of units with fewer than 70 dairy cows and renewed growth in the number of farm units with more than 100 dairy cows. This concentration of milk production is particularly noticeable in Northern Ireland where milk production is developing in a region against a historical background of relatively small units. Table 22 A n n u a l trend in the number o f dairy f a r m units p e r h e r d size (%)

Dairy cows Periods

Less than 30

All

100 and more

70-99

30-69

84-92 92-99 84-92 92-99 84-92 92-99

84-92 92-99

84-92 92-99 u

,,,

,

,|

England North 1

-4.7

-5.5

-3.6

-5.2

-1.6

-2.0

-1.0

+2.0

-3.1

-3.3

Midlands 2

-4.8

-5.3

-3.4

-5.1

-2.9

-2.7

-1.5

+0.8

-3.3

-3.3

East, South-East 3

-6.4

-3.0

-5.1

-7.6

-4.8

-5.7

-4.2

-2.0

-5.0

-4.2

South- West4

-6.9

-3.7

-3.6

-6.3

-2.6

-2.3

- 1.2

+0.8

-3.6

-3.2

Wales

-5.4

-6.6

-3.0

-4.5

-2.0

-1.6

-1.8

+3.3

-3.6

-3.7

-5.0

-7.8

+0.3

-2.6

+0.6

+1.5

+1.1

+6.1

-2.1

-3.4

+10.1

-1.6

-2.4

-6.6

-2.7

-2.3

-3.5

+0.5

-2.1

-2.6

-5.2 ' -514

-2.9

-4.9

-2.3

-2.1

'-1.8

+1.2 ' -3.2

-3.3

Northern Ireland Scotland UK

1 North Region, North-West Region, Yorks & Humberside. 2 East Midlands and West Midlands. 3 East Anglia and South-East Region. 4 South-West Region. Source: MAFF, Agricultural Census.

Finally, the ability to transfer milk quotas has tended to accentuate regional specialisation. In the east and south-east of England, the sale of milk quotas has made it possible for major milk producers in the cereal farming regions to buy up ploughable land and to diversify into crop farming. In the Midlands and the north-east of England, the trend has been towards bovine and sheep meat farming. As a result of this shift towards types of production deemed to be more profitable in the regions under review, milk production has fallen back in the very areas where dairy farming was most prominent in 1984. The growth in both production and the size of farm units observed in Wales and Northern Ireland (traditionally characterised by small-scale farm units), has been made possible by the transfer of quotas thus released, in particular since 1994 when the Milk Marketing Boards (and the boundaries which they imposed) were removed. This relatively recent deregulation is likely to continue to produce major relocation effects, largely because dairies, henceforth exposed to the full force of competition, are seeking to economise milk collection operations by concentrating production in a narrow geographical perimeter.

The Effects of National Implementations on Dairy Farm Structures

101

Table 23 Trend in the number o f dairy cows p e r f a r m unit ,,,

Years / Annual variations

1984

1992

1999

84-92 (%)

92-99 (%)

England North 1

58

63

73

Midlands 2

63

67

East, South-East 3

80

83

South- West4

66

Wales Northern Ireland

+ 1,0

+ 2.2

76

+ 0,8

+ 1.7

88

+ 0.4

+ 0.8

73

82

+ 1,3

+ 1.7

47

51

61

+ 1,0

+ 2.5

36

39

51

+ 1.2

+ 4.7

Scotland

89

86

93

-0.3

+ 1.1

UK

59

63

72

+ 0.8

+ 2.0

1 North Region, North-West Region, Y0rks & Humberside. 2 East Midlands and West Midlands. 3 East Anglia and South-East Region. 4 South-West Region. Source: MAFF, Agricultural Census.

4. Conclusion Lastly, the impact of milk quotas is clearly visible on production concentration and the shift of production zones. Generally speaking, the presence of milk quotas is tending to slow down the move towards concentration in production which was a feature of the years prior to the implementation of quotas. However, effects and rates of change have differed considerably depending on the national policies adopted for putting the quota system into effect. France has adopted a narrow definition with regard to the link between land and milk quota, establishing strict administrative control at departmental level. This barrier to change is modulated by a highly active policy of milk cessation plans through which quantities of reference are bought from small producers and then redistributed. The result has been to hasten the disappearance of small-scale farms compared to the period before the introduction of quotas, combined with a relative freeze in the number of large-scale farms. The consequence has been a concentration of production in medium-sized farm units. Germany has successively applied two distinct policies" first strict administrative control and then a more liberal approach. Overall, the rate of production concentration is lower in Germany than in France. However, it would be rash to attribute this difference entirely to milk quota management, since the rate of decline in the number of dairy farm units was already lower before 1984, no doubt due to a greater ability on the part of small-scale German farmers, often involved in mixed farming, to resist change. On the other hand, we may note that the disappearance of small dairy farm units has worked more in favour of large-scale farms than has been the case in France.

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Barth~lemy - Boinon - Wavresky

Considering these two countries which, in the milk sector, are comparable in terms of size and production conditions, we may therefore distinguish the differentiated effects of the practical applications of the milk quota system. Administrative control, when it is accompanied by means other than a mere control of transfers, can authorise a rapid restructuring of dairy farm units. In addition, it unquestionably helps to impose a particular development model, for example the medium-sized farm unit in France. Milk production in the Netherlands and the United Kingdom is much more concentrated on large-scale farm u n i t s - so much so that what is considered to be a medium-sized farm in Germany or France is classified as a small-scale unit by both the Dutch and the British. The Netherlands and the United Kingdom have applied relatively similar policies and very quickly laid the foundations of a liberal market of quotas, which to all intents and purposes were released from the link with land. In both countries, there was a slowdown in the move towards milk production concentration compared to the period before the introduction of the quota system. The only difference lies in the fact that the Netherlands had to meet their obligations to cut back drastically on production volume, which had risen sharply in the period immediately before the introduction of milk quotas. Milk concentration in the Netherlands thus slowed down considerably between 1984 and 1988 before gathering momentum once more, whereas in the United Kingdom the rate of decrease in the number of dairy farms was more gradual between 1984 and 1988 and continued to decline subsequently. In both countries, the trend towards concentration resulted in an increased relative importance of large-scale farm units, but we should be careful not to make too much of this comparison bearing in mind that, from the outset, British milk production has been more concentrated than that of the Netherlands, the average farm units size being about 1.5 times higher. A liberal approach to milk quotas therefore makes it possible to maintain the trend towards the concentration of milk production in large-scale farm units, it being understood that in any event the milk quota system applies of its own accord a certain brake on this movement, due no doubt to a greater resistance on the part of small-scale producers linked to higher milk prices, together with the cost of acquiring quotas for expanding farmers A comparison between France and the United Kingdom also brings out another effect of the different policies pursued. The halt to the development of large dairy farms in France has tended to result in a certain move away from specialisation, that is to say towards mixed production systems (dairy - cereal or dairy - beef farm units). By way of contrast, the liberal British option leads to increased interest in specialisation, with certain large dairy units in eastern and south-eastern England switching over completely to cereal production instead of mixed farm systems. As to the question of production zones, the milk quota system has had a very clear impact. In Germany, the maintenance of the L a n d e r boundary limit imposed on the occasion of the 1993 deregulation has prevented the transfer of quotas away from L a n d e r where milk production is relatively weak to other leading milk producing regions, whereas production zones actually within the L a n d e r have tended to move. In France, a highly active administrative control has put a complete halt to the shift of milk production towards the western part of the country and has even succeeded in bringing back a few quotas to mountain areas. For all essential purposes, the departmental boundaries put an effective stop to all movements of quotas. But movements of quotas within the departments, and conflicts between zones, are by no means excluded due to the large volumes recovered by the reserve being distributed without consideration of the link with land, or paying only lip service to a link which all

The Effects of National Implementations on Dairy Farm Structures

103

producers agree to be particularly restrictive. In the United Kingdom, the de facto breaking of the link between milk quotas and farming land has led to large-scale transfers between the different regions. The only obstacle to such transfers was that represented by the boundaries of the Milk Marketing Board, for as long as these existed. Considering this question of shifts in production zones, at the end of the day the essential factor is perhaps not so much the link between quotas and land, since producers in all countries find it particularly cumbersome and seek to get round the handicap as best they can, as the definition of the administrative boundaries which act as a barrier to the movement of quotas and which are designed to ensure that considerations of competitiveness do not lead to drastic relocations within the milk sector.

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105

Part 2 The Legal Basis for Milk Quotas: Widely Divergent National Interpretations

The question of the legal basis for milk quotas is one that has inspired some very lively debate. Quotas were introduced under a common market regulation as an instrument for controlling the milk market. However, having been defined with regard to producers' historical reference levels and attributed more or less directly to producers, quotas have shifted from the realm of the market to that of property. This has raised the question of how to accommodate these new forms of asset within existing property arrangements. A survey of different national experiences casts light on the legal conceptions involved. It can be seen that landed property is the central factor in Germany, a point which has entailed numerous difficulties. The United Kingdom has adopted a more flexible approach, leaving scope for the dairy sector to evolve while maintaining the primacy of the landowner over the tenant farmer. France has made allowance for a conception of the agricultural holding that is comparatively independent of landed property, while at the same time maintaining tight administrative controls over holdings. In Italy, the agricultural holding is construed as a form of property in itself.

This Page Intentionally Left Blank

107

An Interpretation favouring Landowners in Germany Heike Gehrke

The implementation of EC decisions to create an additional levy in the milk and milk products industry (the 'milk quota regulations') has engendered a series of problems in German law about the legal basis of such quotas. These legal questions have had to be tested in the highest courts, while the regulation of 25 May 19841 on guaranteed milk quantities has undergone repeated amendment. At issue is clarification of the legal basis of milk quotas in such widely differing areas as constitutional law, procedural law, tax and administrative law and private law.2 The principle of attachment of quotas to a holding has raised many difficulties between landlords and tenants. This chapter outlines the changes in the status of quotas in (1) constitutional law, (2) procedural law, (3) tax and administrative law, and (4) private law. By way of conclusion (5.1), we attempt to analyse and explain the many points of contention and questions of legal principle to which milk quotas have given rise. 3 Some of these difficulties have led to a fundamental change in the system of quota transfer such reforms being effective since 1 April 2000 (5.2).

1. Constitutional law The protection of property and the principle of equal treatment at law, as enshrined in the constitution, are major issues for the legislation on quotas.

1.1. Constitutional protection of property Milk quotas as property protected by the Constitution A prominent feature of the European milk quota system is the right of the authorities to dispose of the reference quantities allocated. This may take the form of the reduction or abolition of quota or its reversion to a national reserve. If quota is constitutionally protected property, its seizure by the authorities requires specific justification. It must, accordingly, first be determined whether milk quota should be classified as property under the terms of the German Constitution. The European Court of Justice and the German supreme administrative

1 25 March 1996 Bundesgesetzblatt 1996I, p. 535 ff. 2 Constitutional law, the law of administrative and financial procedure, and administrative and tax law are subsumed under public law; and may be contrasted with private law. 3 Legislation on milk quotas in the new Landerof East Germany has not been covered. The structural transition from planned economyto market economyproduced a specific regime. Quotas were allocated provisionally,the clause on attachment to the land was not applied, and quota could not be transferred either with or without land, instead being siphoned off and redistributedthroughreserves.

108

Gehrke

tribunal (Federal Administrative Tribunal) 4 unanimously dismissed the claim that reference quantities had the intrinsic status of property. On the strength of its definition of sugar production quotas, the European Court of Justice 5 ruled that quota was an 'advantage' derived neither from the assets, nor from the trade or occupation of the person concerned; instead quota is distributed as part of the common organisation of a market. True, neither the European Court of Justice nor the Federal Administrative Tribunal have so far ruled whether the introduction of 'leasing '6 in 1991, the trading of quota independently of land in 1993, 7 or the fact that valuable consideration is paid for quota, have in any way altered the analysis in constitutional law. My own view is that the fact that milk quota can be acquired by a producer by means of a financial transaction in no way affects the legal characterisation of reference quantities set out above. Under Section 90 of the civil law, the civil law concept of personal property encompasses tangible assets alone and so is not applicable to milk quotas. However, milk quota is characterised as a personal right in public law. The Federal Constitutional Court has consistently ruled that rights of this type are liable to protection under Article 14 o f the Constitution (constitutional protection of property). There is, however, the proviso that at law the individual has the status of owner in personal and public terms. This status must be so unassailable that infringement without redress would amount to a transgression of the spirit of the rule of law embodied in the Constitution.8 Such a legal position must have been brought about as a result o f non-negligible efforts and work, and must not rely solely on unilateral attribution by the state. 9 This was how the Federal Administrative Tribunal brought laws relating to the welfare sector (e.g. retirement fights and unemployment claims) under the wing of the constitutional protection of property. Milk quotas are in no way comparable. The creation of reference quantities is still based on the recognition of a personal and public right in the owner who sells quota. The fulfilment of public objectives u here market stabilisation and the improvement of milk production structures u remains the purpose behind the distribution of reference quantities and the authorisation to transfer quota for money. The state made no allowance for the beneficiary turning it to account. The decisive feature about the legal framework is, however, that the purchaser of quota undertakes to make payment not to the state but to a private individual, l0 Ultimately milk quotas are similar to the different intervention measures for regulating the agricultural commodities market granted by common organisations of the market. These intervention rights do not come within the scope of the constitutional protection of property.

4 Bundesverwaltungsgericht (BVerwG), decision of 17/06/1993, 3 C 25 90, Entscheidungssammlung,Vol. 92, p. 322-326. 5 European Court of Justice (ECJ) decision of 22/10/1992, Case C 44/89 von Deetzen / Hauptzollamt Oldenburg E.C.R. 1991, p. 1-5119 (I-5156); ECJ ruling of 24/03/1994, Case C-2/92, Reg. v Ministry of Agriculture, Fisheries and Food, ex parte Bostock, E.C.R. 1994, p. 1-955 (I-984). 6 In Germany temporary transfers for the currency of a milk year are termed 'leasing' and may be conducted in return for remuneration. 7 See Art 8, (1), (4) of EC Regulation 3950/92. 8 Bundesverfassungsericht (BVerfG), Entscheidungssammlung, Vol. 4, p. 219 (241); Vol. 16, p. 94 (111 ft.); Vol. 45, p. 142 (170); Vol. 69, p. 272 (300). 9 BVerfG, Entscheidungssammlung,Vol. 72, p. 9 (18 ff.); p. 72, 175 (193); p. 76, 220 (235). 10 Gehrke, Die Milchquotenregelung, Cologne, Berlin, Bonn, Munich 1996, p. 373; G0tz, Volkmar, 'Die Neuordnung der Milchquotenregelung und der Eigentumschutz', Agrarrecht, 1997, p. 361.

An Interpretation favouring Landowners in Germany

109

This is what the Federal Constitutional Court clearly ruled regarding intervention in the cereals market. I l

Indirect protection of milk quotas by the constitutional protection of property In Germany, the volume of quota allocated to holdings is indirectly safeguarded by the constitutional protection of property against appropriations by the authorities. The Federal Administrative Tribunal has consistently ruled that the superlevy amounts to a restraint on trade in milk because of its prohibitive effect on milk produced for which the producer has no reference quantities. Thus, the withholding or withdrawal of sufficient reference quantities may interfere with the enjoyment of the productive assets of the dairy holding. 12 These productive assets include the dairy cattle, stalls, milking equipment, cowshed, sundry plant and equipment of the holding, and, above all, the land. As a result of this decision, many specific aspects of the milk quota regulation concerning the allocation and distribution of reference quantities were scrutinised by the courts in light of the constitutional right to property. A whole series of amendments to the regulation proved necessary. Milk quota is indirectly tied in with the protection of property through the assets of the holding and, above all, its acreage. Accordingly, the landowner has a constitutional right to recover at least some of the milk quota when tenanted land reverts to him on the termination of the tenancy. This follows from a landmark decision by the Federal Administrative Tribunal about the constitutional rights of landlords. 13 Until 1993, 'old-scheme landlords' (i.e. those who rented out land before the milk quota regulations came into force on 2 April 1984) received the quota attached to land that reverted only if the acreage in question exceeded five hectares, in which case they received only the quota associated with the part in excess of five hectares. The Federal Administrative Tribunal considered this five hectare limit to be an infringement of the clause guaranteeing ownership and equal treatment in law. Landlords recovering the land without the corresponding quota cannot, in the Court's view, farm or rent it again, simply because pastureland without quota is worthless. The possibility of (re)renting is an intrinsic part of the ownership of property. This judgement currently delimits the narrow margin for manoeuvre available to the drafter of delegated legislation with a view to improving the legal position of the active milk producer (tenant) as against his landlord. 1.2. Right to equal treatment at law Article 3, paragraph 1 of the Constitution provides for equal treatment of citizens in the eyes of the law and in the implementation of the different statutes. Quota allocation has been challenged in the courts by many producers asserting that they had knowingly been treated unequally by the existing regulations. It is true to say that, on the whole, the courts have not entertained such claims. 14 Reference to Article 3 of the Constitution in the many decisions on quotas reflects the paramount importance of equal treatment in respect of a broad spread of economic measures, including the milk quota regulations.

11 BVerfG, Entscheidungssammlung, Vol. 45, p. 142 (170). 12 BVerwG, Decision of 8/12/1988, Entscheidungssammlung, Vol. 81, p. 49 (61). 13 BVerwG, 11/11/1993,3 C 37, 91, Agrarrecht, 1994,p. 138. 14 See Gehrke, p. 235 ff. (footnote 10).

110

Gehrke

2. Procedural law

The German authorities' implementation of milk quota regulations has raised questions about legal procedure. The administrative procedure covering milk quota regulation is a twin-track affair. This previously entailed a series of practical difficulties for producers with regard to the choice of legal procedures and processes; but these have now been clarified. On the one hand is what is called the 'taxation procedure' whereby the reference quantities and arrangements for collecting penalties are set. The Federal Financial Administration and the dairies are the competent bodies in this area. Legal transactions relating to agriculture, such as farm tenancies, are subject to approval by the agricultural authorities of the LOnder. Such approval and certification procedures are required for quota transfers. Thus, depending on the procedure adopted, producers can take their case either to the financial courts or to the administrative tribunals. The distribution of competence has, in the absence of precedents, raised the issue of the legal status of dairies in the legal framework of European market regulation. Contrary to what happens with regulation of the sugar market, it is the producers and not the dairies who are subject to levies: this has been the case in Germany since 1984, because it was Formula A that was implemented. Levies are paid to the Federal Financial Administration which forwards them to the EU. The German regulator inevitably attributed certain prerogatives to dairies, as they form a 'bottleneck' where influence can be exerted. The dairies thus become the executive arm for the regulation in question, with the agencies of the financial administration exercising an auditing function only. It is, therefore, the dairies that calculate the amount of quotas, the butterfat content and the scale of penalties. The German dairies were averse to being assigned tasks that were the responsibility of the authorities; they wanted to be spared the legal wrangling and, indeed, the liability involved in setting reference quantities. The legislator reacted by including in the dairy quota regulation subsidiary mechanisms for contesting the allocations of quotas set by dairies. This ensures that the Federal Financial Administration alone finalises the volume of quotas and levies and is the sole defendant if a complaint is lodged. The Federal Financial Court expressed an opinion whereby the dairies are not authorised to act with sovereign prerogatives but only as the 'ancillary instruments of the authorities' in the context of an administrative procedure. 15 3. Characterisation of quotas in tax and administrative law 3.1. Law relating to taxation The characterisation of quotas in tax law The reference quantity is considered in the literature and published decisions as an advantage (privilege) 16, much like a subsidy, or tax exemption 17, and pertinent to tax law as the producer is exempted from penalties to the extent of the quota allocated. This position also results from the definition of reference quantity, which covers the quantity of milk, in kilograms, that the

15 Bundesfinanzhof(BFH) 16/07/1985, VII B 53/85, Entscheidungssammlung, Vol. 143, p. 523. 16 BFH dated 30/10/1990 VII R 101/89, vol. 162 p. 156; BVerwG, Judgement of 8/12/1988, 3 C 6/87, Agrarrecht, 1989, p. 244. 17 BVerwG, Judgement of 17/6/1993, 3 C 25 90, Entscheidungssammlung, Vol. 92, p. 322 (326).

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producer is able to deliver or sell directly without payment of levy during a twelve month period. Technically the reference quantity is, therefore, a means of estimating the quantity exempted from leviesl8, or rather a basis for measuring the levy. Fiscal treatment of dairy quota transfer In tax law, the value placed on quota was already clarified before the 1993 authorisation of the trade in quota independently of land. The reference quantity is characterised for tax purposes as a personal and intangible economic asset. 19 Accordingly, when its purchase is linked to land, quota is exempted from the tax applied to land transactions. The ground for this is that the reference quantity does not derive from any individual personal right related to property and attached to an object in the meaning of Section 96 of the Civil Code. Purchased milk quotas are viewed as intangible economic assets which can be enjoyed. For income tax purposes, it is important that (net) purchase costs can be amortised over a ten year period. These rules do not apply to holdings subject to the standard flat rate computation of taxable income. Leasing charges for quotas are deductible current expenses in calculating taxable income. The purchase and lease of quota are liable to value added tax. The holding that transfers quota is liable to income tax. Businesses that keep accounts may be at a disadvantage as gains are not calculated by standard flat rates. The proceeds from these sales, which are often high compared with the holding's usual level of turnover, are included in the accounts for the year as a current gain. In tax law, this is seen as a brake on such businesses selling milk quota. 3.2. Administrative law The reference quantity is not a subsidy in the narrow sense defined by administrative law. Such a subsidy is only a voluntary financial aid from the state aimed at encouraging 2~ citizens to engage in desired economic, corporate and social behaviour. There are protective subsidies, i.e. below which exemption from general tax charges applies. 21 These protective subsidies are also considered to be subsidies in the broad sense. 4. Private law Milk quotas have had value as 'quasi-production tools' ever since they were imposed. With the possibility of trading quota in Germany independently of land since 1993, this value, which was previously concealed in rents, for example, is now clearly apparent. Until 31 March 2000 milk quota could be sold without land or leased without being attached to land for at least two years. 22 Leasing had been possible from 1991, restrictions being lately introduced to confine it to active producers. 23 Milk reference quantities have thus become legally independent assets, which may explain the economic importance of private disputes over the right to benefit from milk quota. The formal introduction of quota impacts on the private law Bundesgerichtshof(BGH) Judgement of 26/4/1991 V ZR 53/90, Agrarrecht, 1992p. 55. 19 BFH,judgement of 17/3/1994, VR 39/92, H~SchstrichterlicheFinanzrechtsprechung 1994,p. 664. 20 Maurer Hartmut, Allgemeines Verwaltungsrecht, 9th edition Munich 1994,p. 403. 21 Maurer, op. cit. p. 402. 22 w Milch-Garantiemengen-Verordnung(cf. note 1). 23 w Milch-Garantiemengen-Verordnung(of. note 1). 18

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of land tenancy, the law of succession and the law of legal charges, raising a number of legal problems.

4.1. Agricultural tenancy law and public law rules relating to landlord and tenants' rights to quota Compared with other European countries, Germany has relatively flexible tenancy laws, making land readily transferable. The tenant, in particular, has a limited right to renewal. In order to improve comparatively unfavourable production structures, many holdings have to rent extra land. Some 48.2% of land in what used to be West Germany is tenanted, by far the larger part being leased as bare land rather than complete holdings. The principle of correlation between land and milk quotas resulting from European economic law has triggered many conflicts in the national law of land tenancy. The German lawmaker w contrary to what happens in other Member States 24 - - did not amend tenancy law in order to balance the respective interests of landlords and tenants. Farm tenancy law is set out in the Civil Code. Reliance is placed on existing legal instruments of this civil law, with the rules of public law left to decide who owns quota. In the legal relations between landlord and tenant on milk quotas, two positions must be distinguished: the position on termination of the tenancy and the position during the tenancy. Respective rights of landlord and tenant on termination of the tenancy Upon termination of the tenancy, landlords recover their property together with the corresponding quota under the principle in European law that quota is linked with land. Germany has used the possibility afforded by the European regulations (Art. 7 of Council Regulation (EEC) 857/84, Art. 7 w 2 of Council Regulation (EEC) 3950/92) to circumvent this principle in favour of 'old-scheme tenants' only, i.e. tenant farmers who had rented land before 2 April 1984, the date when the quota regulations were introduced. These would have had to return the allocated quota to the landlord along with the land, although no quota was attached to the land when the tenancy agreement was signed. Regulations applicable to milk reference quantities had to be amended time and again to remain consistent with court decisions in favour of the 'old-scheme landlords'. The German drafter of the regulations infringed European law to an extent by nullifying the connection between quota and land in favour of the tenants. Finally, there was an amendment in favour of 'old-scheme landlords' because of their property interest in agricultural land. 25 When the tenanted property reverts, provided the requirements relating to the tenant's protection are observed, they obtain half of the reference quantities, up to a maximum of 2,500 kg per hectare. Following reform, 26 this rule is valid for tenancies agreed before 1 April 2000. When tenanted land reverts to the landlord together with quota, the tenant cannot claim compensation for the milk reference quantities under the rules laid down by agricultural tenancy law. Quota, the Federal Civil Court 27 finally ruled, is not actual expenditure by the tenant during the tenancy within the meaning of sub-sections 590b and 591b of the Civil Code. Quota was not constituted by tenants through personal mobilisation of their assets in e.g. The United Kingdom, Gehrke Heike, 'The implementationof the EC milk quota regulations in British, French and German Law', Working Papers in Law, Florence 1993,p. 77. 25 cf. 1.1; overviewGehrke p. 315 ff., note 10. 26 See 4. 27 Bundesgerichtshof, Decision of 19/7/1991 Lw ZR 3/90 Agrarrecht 1991, p. 343.

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the form of labour or capital. The receipt of such dairy quotas is ascribable first and foremost to the legislator introducing quotas, together with their related advantages. Legal emphasis was thus placed on the classification of milk quotas under the heading 'land' as a production factor. A different characterisation by the legislator would probably have prevented these advantages from being attached exclusively to land ownership. Tenants of entire holdings (as opposed to blocks of bare land) consider regulation in public law and in farm tenancy law insufficient to maintain a balance between the contracting parties. These tenants, who leased entire holdings before 1984, are bound, in public law, to hand over the farm together with the quota attached to it to their landlords. According to the Civil Code, this group of 'old scheme tenants' has no greater entitlement to compensation for loss of quota than any others, as indicated above. They are, however, few in number compared with tenants of blocks of bare land, since in 1983 only 3% of tenancies in Germany involved entire holdings. This group is currently trying again to obtain legal clarification of their position.

Respective rights of landlord and tenant during the tenancy In the course of the tenancy, the tenant must obtain the consent of the landlord to transfer milk quota either under the dairy production outgoers' scheme or by sale or lease independently of the land. This obligation to secure authorisation, which is designed to ensure the landlord recovers his quota once the tenancy has expired, is only partly covered by the rules of public law applicable to the outgoers' schemes or to the transfer of quota without the corresponding land. The drafter of the regulations was criticised for knowingly contravening and infringing the protection of property. These charges were not taken up by the Federal Administrative Tribunal. The private law of land tenancy generally requires authorisation to be obtained for alteration of land use or a change in enterprise by the tenant (Section 590, ss. 1.2 of the Civil Code). This also covers any change in farming practice consequent upon the sale of quota or release of quota under an outgoers' scheme. The landlord is therefore adequately protected by the law of tenancy against loss of quota. The Federal Civil Court compelled the tenant participating in such a scheme without his landlord's consent to pay compensation if the land reverted without the transfer of the associated quota. 28 4.2. Law on transfer by inheritance There is a specific law of succession for agricultural holdings. Thus in North West Germany, the regulation on agricultural property succession (HOfeordnung) provides that farms be handed down to the person designated as the 'agricultural heir' without being broken up. The joint beneficiaries, who by the principles of civil law are equally entitled to inherit, are excluded from the succession as 'departing beneficiaries' and obtain comparatively less advantageous settlement. This is justified in the interests of maintaining agricultural structures: the agricultural property is not fragmented at the point of succession, making it possible for the successor to continue in farming.

28 This duty results from w ss. 1 of the B0rgerlichesGesetzbuch (Civil Code) because of the impossibilityof returning the rented property in its initial condition. There is a six month limitation period after the land had reverted (cf. Bundesgerichtshof, decisionof 25/4/1997 Lw ZR 4/96).

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According to the principle of the link between quota and land, quota is transferred automatically, in the event of succession, to the person receiving the land. So as not to give too great an advantage to the beneficiary, he is obliged to pay 'retrospective' settlement if he transfers the farm, isolated blocks of land or part of the agricultural equipment within a certain time frame (usually 20 years). The sale of milk quota is not as such subject to this compulsory retrospective compensation. The Federal Court of Justice (supreme civil court), however, for reasons of equity, approved that the 'departing beneficiaries' should share in the proceeds of the sale of milk quotas. 29 This filled a legal void; and should allow consistent application of regulations by the courts. The Federal Court of Justice relied in this respect on the economic importance of milk quotas. In the court's opinion, it would be incomprehensible and unfair for the proceeds of the sale of a herd of dairy cattle to be subject to compulsory retrospective settlement while the agricultural heir has the right to retain the full benefit of the far higher proceeds from the concomitant sale of milk quota.

4.3. Legal charges The economic value of reference quantities regularly incites creditors to attempt to secure charges on allocated milk quota. Case law says that milk quota itself is not distrainable as the rules of civil law do not provide for such procedures. Firstly, milk quota, which is not a tangible asset, is neither an 'accessory' in the sense of Section 97 of the Civil Code nor a right related to property according to Section 96 of the same code. For this reason it is not considered to be something that can be mortgaged 30 and cannot, therefore, be subject to a legal charge relating to tangible property. Secondly, Section 857, ss. 1.3 of the rules of Civil Procedure does not allow milk quota to be charged whether as a debt or a fight affecting property. Since milk quota cannot be sold to just anyone, but only to a producer, the principle is that it cannot be used as a means of payment of a debt to a creditor. But a claim by a transferor of quota for the purchase price can be charged. 5. Sources of problems related to the legal definition of quotas and reform in 2000 5.1. Conclusion on the period until 2000 A whole series of rulings within the legal fields mentioned has been required to clarify the legal position of quotas. The flood of trials that have swamped financial, administrative and civil courts does not stem solely from the need to clarify the principles of law in several areas. Dairy producers have been inclined, above all, to challenge decisions setting the allocation of quota. This was particularly the case of producers in 'difficult situations') who had, say, built a milking parlour during the reference year. 31 This reflects the economic importance of milk quota as a scarce production resource available in limited quantities. Milk production is the primary

29 Bundesgerichtshof, decision of 25/4/1997 BLw 1/97. 30 Bundesgerichtshof, decision of 26/4/1991, V ZR 53/96, Agrarrecht 1992, p. 55. 31 See Gehrke, p. 135 ff. (note 11).

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source of income for German agricultural producers, with a quarter of agricultural income coming from milk sales. The value of quota has become more obvious since 1993 with the authorisation in Germany of transfers of quota independently of land. Meanwhile, because of the changing structure of holdings, there are legal disputes about the basis of quota transfer between people who are no longer milk producers (e.g. in the case of inheritance, the transfer of quota that belonged to the parents). The legislator and the regulator did not adapt the civil law rules after the introduction of the regulations on milk quotas. A string of judgements has been necessary to clarify the law applicable to quotas under private law. This is also because the law governing milk quotas enjoyed no precedent. A transposition of the principles of law which are valid for other production rights (e.g. for sugar beet quotas) is not possible as such. In the area of the law of succession, and because of considerations of equal treatment at law, the Federal Court of Justice therefore filled in the legal gaps, given the great economic importance of milk quotas. In the context of tenancy law and the law relating to legal charges, it has not yet had cause to make comparable rulings. In tenancy law above all, for the sake of equity, it would be a good thing to provide financial compensation for tenants in respect of reference quantities that revert to the landowner. It is true that landlords have been granted a strong legal position with regard to quotas, in public law, in constitutional law and in private law on tenancies. Although milk quotas are not characteriSed as property in constitutional law, the rules for attributing and redistributing them are based on property law because of the constricting effect of the levy. For this reason, it has been recognised that landowners (also known as owners of the means of production) have a constitutional right to the reference quantities. It may be that relinquishing the connection between land and quotas could have produced a different legal outcome between the two contracting parties. The purpose of the connection between land and quota, which was to safeguard milk production in less favoured regions, could also be achieved by regional limits on transfers without land. This has been demonstrated in Germany, where milk production has increased in some regions where grassland is predominant. For all of these reasons, in the context of milk quotas, dissatisfaction is rife even today in legal relations between landlord and tenant. Rulings made in this area are not very convincing. 5.2. Reform in 2000

If we consider the legal position of landlords, it is easy to understand why the German system of transfer of milk quota, including tenancy law, was reformed on 1 April 2000. 32 For the acquisition and use of quota, increasingly high payment was being made by active producers to owners of milk quota who had discontinued production. It is estimated that half of the quota distributed in the L a n d e r of the former West Germany will be leased by the year 2000. Three factors are responsible for this development: restructuring, the principle of European law under which quota is linked with the land, and German milk quota law. As authorised by the Agenda 2000 regulations, the link between quota and the land has been abolished for future transactions. 32 For details see Federal Ministry of Nutrition, Agriculture and Forestry, Agrarpolitische Mitteilungen 'Neue Milchquotenregelung kann am 1. April 2000 in Kraft treten', No. 1/2000.

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The considerable flexibility afforded to Member States in the regulation of quota transfers has been limited to transfers through regional quota exchanges. Exceptions are foreseen e.g. for family transfers. Transfers through the quota exchanges take place three times a year. Quotas can no longer be transferred by quota leasing agreements or agricultural tenancies. The quota exchange system follows the Canadian and Danish model. A so-called 'equilibrium price' is calculated. The system is supposed to lower costs for the purchase of quotas by concentrating purchases, making them more transparent and replacing private quota brokers, who in the past earned high fees. Quotas can only be transferred within a defined region. There are currently 21 such regions. The exchanges are run by the Lander, which can appoint private organisations to administer them. Although for the future quota is detached from the land, it is possible to extend agricultural tenancies over land to which quota attaches in force on 31 March 2000. These provisions have been drafted for constitutional reasons as set out under 1 and 4. While the reform attempts to reduce quota costs and the proportion of leased quota, it also unifies the two different quota systems of West and East Germany (see footnote 3).

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Ever Tighter Administrative Control of Milk Quotas in France Jean-Marie Gilardeau

Production and marketing rights in general, and milk quotas in particular, are the result of endeavours by the European authorities to combat the adverse effects of overproduction of foodstuffs. It was with purely economic interests in mind that numerous mechanisms were introduced, all designed to restrict quantities available for sale. Law was thus pressed into the service of a specific objective, regardless of the possible impact that the measures passed might have on any existing rules. More specifically, in the dairy industry, the European legislator set 'speed limits' and laid down the penalties for exceeding them (payment of a superlevy) but overlooked the head-on collision that was likely to occur when quotas came into contact with a legal world where they were hitherto unknown. Generally speaking, any natural or legal person is entitled to produce whatever they want. When the creative process involves no physical medium, the act of production requires merely will and inspiration. When the product results from the processing or enhancement of property, then holding a title (in the case of an irreversible transformation) or right of enjoyment (in the case of continuity) to the material used is sufficient licence for any undertaking. The finished work belongs to its creator. Paradoxically, it is only when freedom of initiative is restricted that difficulties arise. True, the law of property is absolute in principle, but everyone knows only too well that it carries little weight compared with public policy. Individual interests yield to those of the majority. Health, safety, security, economic and social justice, conservation of natural resources, and so forth, are all valid grounds for potentially restricting liberty. Milk quotas fit into this rationale. To remedy the disorder engendered by the glut of milk on the markets, it was decided to impose production quotas. Previously (before 1984) any farmer could go into dairying and sell as much as he chose to. Now (after 1984), only a few, with the proviso of keeping within a fixed limit, are authorised to produce milk and milk products without incurring financial penalties. Overnight, agricultural landowners and tenants saw their right to enjoy their property diminished, becoming victims of yet a further public policy measure on the long list of those taken in the public interest at the expense of individuals. Whether it is having to endure overhead power lines, being compelled to abide by regulations on biodiversity, or being deprived of the possibility of marketing surplus quantities of milk, property rights are being infringed. Save a few hard-liners, there are few who dare challenge the mechanism derived from the EC regulation as unconstitutional. Moreover, insofar as quotas were allocated having regard to the pre-existing situation, farmers who did not obtain any quota were only deprived of a virtual right; which did not entitle them to any compensation claims. It is in other areas of law that the principal difficulties raised by the implementation and operation of milk reference quantities have taken centre stage.

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1. Who owns milk quota?

There are two separate cases, depending on whether dairy production is conducted as an individual or as a collective enterprise. 1.1. Dairying as an individual enterprise

It was essential in the first place to identify who held the title to quota. Initially France had opted for the so-called 'Formula B', whereby the producer was upstaged by the dairy. Legally, farmers had only a derivative right and quota attribution should have escaped from their control. However, it was unthinkable that organisations whose task was to collect milk should be authorised to juggle with quota as they liked, designating the lucky beneficiaries of the valuable 'passport' each year. From very early on, it was as if the producers were the real holders of quota, as evidenced by decree 87-608 of 31 July 1987 which, leaving the dairies aside, organised direct transfers of reference quantities from one holding to another. Council Regulation (EEC) 3950/92 of 28 December 1992, amended by Council Regulation (EC) 1256/99 of 17 May 1999, ended the debate with the suppression of 'Formula B'. From then on, quota could only be individual. It remained to be seen whether it was linked to the holding which gave rise to its allocation or to the producer engaged in dairying. The Community Regulation left room for doubt inasmuch as it referred in turn to 'the individual reference quantity available on the holding' (Art 4, Point 1) and to 'a producer who has provisionally received a specific individual reference quantity' (Art 4, Point 3),. A thorough analysis leads to the view that quota belongs to the producer, and the Conseil d'Etat (Supreme Administrative Tribunal) has had many an opportunity to assert that 'the milk reference quantity determining the volume of milk or milk products each producer is allowed to market without being liable to levy is allocated not to the holding but to the producer, that is, when the holding is leased, to the tenant', l However, the producer does not have an entirely free hand. The prerogatives of the quota holder are similar to those of an owner. These include the right to use and possess the property, to enjoy the fruits of it, and also to dispose of it. Of course, the quota holder can use that property by delivering or making direct sales of milk and milk products exempt from levy. He also has the option of alienating it. Giving up dairying, whether spontaneously or with the prospect of collecting compensation paid by the state, entails the loss of quota, or more exactly its return to the reserve. From this point of view, the dairy producer is in the same position as the owner who accepts that one of the elements composing his property be severed. Where the landowner farms the land, he is accountable to himself alone. He can change the use made of the property belonging to him at will and keep or alienate the milk quota. The tenant, bound to abide by the contractual obligations under the lease, is also perfectly at liberty to maintain, increase or dilapidate the quota received on the grant of the lease. The landlord cannot directly dictate to the tenant how to go about his business. To give up dairy farming in the course of the tenancy does not constitute a breach of any kind. 2 At most, where a radical change of farming activity is contemplated, the tenant is bound to give two weeks' notice of his intention to the landlord in a letter sent by recorded delivery. At a

1 CE 29 juill. 1994, d'H~rouville; RD rur. 1995, p. 113, concl. H. Savoie; 30 drc. 1998, Ralaigne. 2 Cass. 3e civ. 7 avril 1994, cts Freychet.

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basic level, any conduct by the tenant liable to jeopardise the proper exploitation of the tenanted land may be sufficient grounds for terminating the tenancy. However, one should not lose sight of the fact that the alienation of milk quota is never in itself sufficient to affect the legal tie between landlord and tenant. The tenant's obligations towards the landowner are today just the same as they were before milk quotas were introduced. 1.2. Dairying as a collective enterprise When dairy farming is conducted collectively, it is essential to identify exactly who is the holder of the quota. If the producers form a firm, it is without question the legal entity that holds the quota, regardless of the role played by each member and the distribution of capital among them. Quota is registered in the name of the grouping, which alone incurs the levy if the quota is exceeded. The rule holds whatever form the firm may take, although some commentators argue that it does not apply to GAECs (Groupement agricole d'exploitation en commun farmers' economic interest group). Article L 323-13 of the Rural Code states that 'participation in a GAEC must not have the effect of putting those members who are considered to be heads of holdings and their families in a worse position than other heads of holdings and other families of heads of holdings with regard to their economic, social and tax status'. This cannot be construed as meaning that GAEC members retain ownership of milk quota personally. Such a solution was confirmed by article R 323-48 of the Rural Code: 'where quotas are imposed on production or on marketing of agricultural produce, the rights accorded to GAECs consist in the sum of individual rights the members would have if they were not grouped', and also by Article 10 of Decree 94-47 of 22 January 1996 pertaining to the transfer of milk quota, which provided that 'when the coming together of dairy holdings results in the formation of a GAEC or the inclusion of a new member in such a grouping, the usual siphons are not applied. However, when recognition of the grouping is withdrawn, siphons are applied'. Like other business entities, the GAEC is itself the holder of quota. At most, it benefits, under certain circumstances, from deferment of levies which would normally be made when quota is transferred. This is not the interpretation made by the authorities, which assert that 'application of the transparency system leads to the view that quota remains linked to each original holding'. 3 The utmost confusion reigns on the ground. Is it right to abide by the position taken by the authorities or to follow what legal orthodoxy suggests? It will be for the courts to decide as and when a dispute does arise. As circulars do not have force of law, it may well be that, failing any amendment of the current regulatory provisions, the GAEC's status will be brought into line with that of other firms. Where a 'Euroholding' belongs to several people, on a death or because it was purchased in common, the milk quota is undivided. The same applies when joint tenants are in dairy farming together. As in cases of co-ownership 'actions to manage or dispose of joint property require the consent of all the joint owners' (Code civil, art. 815-3), unanimity is required for actions leading to the loss of quota (for example, signing up to an outgoer scheme).

3 Circular DEPSE/SDSEA/C96no. 7006, 13 f6v.1996.

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Attribution as between husband and wife is also intricate. A first solution would be to consider that quotas can no more be joint property than an agricultural tenancy. 4 They should belong personally to the spouse who is the producer, or be indivisible if both spouses carry out the dairy activity. Another option would be to separate the title and the right to financial proceeds, as has been done for shellfish concessions: 5 when the spouses have different occupations, the dairy producer alone has the power to manage and dispose of quota, whose pecuniary value - - if any - - would become joint property. Conversely, if husband and wife work together, the joint control principle would mean that each is entitled to dispose of the milk quota, save where there is liability for any misconduct. Doubt will subsist, until such time as a divorce or death allows the courts to rule on the matter.

2. Quota transfer 2.1. Principles While not always crystal clear during normal operation, matters become more complicated whenever there is a change in the structure of the holding upon which the dairying activity is based. Although there is no denying that quota is attributed to a natural or legal person, it is not completely independent of the property farmed by the producer. The quota holder has the power to destroy it m or more accurately to transfer it in full to the reserve; however, he is not allowed to assign it to whomsoever he likes. Milk quota alone cannot constitute the subject matter of a contract. It can only be transferred to others as an accessory item. Barring a few exceptions (protection of the environment, improvement of production structures, extensification), Community legislation provides that 'reference quantities available on a holding shall be transferred with the holding in the case of sale, lease or transfer by inheritance to the producers taking it over in accordance with detailed rules to be determined by the Member States taking account of the areas used for dairy production or other objective criteria and, where applicable, of any agreement between the parties'. 6 In France, difficulties in implementing the measure have been all the more acute as there is no statutory definition of 'holding'. The one generated for the occasion is unusual in that it is variable. Sometimes the holding extends to 'all the land, buildings on the holding and dairy herd', 7 sometimes it excludes 'woodlands, unproductive moor and heath, fallowland, ponds and perennial crops'. 8 On the transfer of a dairy business as a going concern, all the corresponding quota is also transferred, provided that the transaction benefits an incomer who previously had no quota. In all other cases quota is siphoned off. The form of the transaction and also the identity of the transferee are decisive to the fate of the quota formerly held by the transferor. The slightest reduction in the acreage of the holding is enough to deny the incomer the right to claim the benefit of the quota in its entirety. Likewise, the occupational history of the incomer may entail partial forfeiture to the Cass. Ire civ. 21 juill. 1980, JCP 1980, IV, 381" Bull. civ. I n~ 227, p. 183; Aix 18 f~v. 1993, JCP 94-I, 3785, n~ 3 obs. Simler. 5 Cass. lre civ. 8 d6c. 1987, JCP 89, II, 21336, note Simler; D. 1989, 61, note Malaurie. 6 Art. 7 of Council Regulation (EEC)3950/92, O.J. 1992,L405/1. 7 D6cret n~ 22 janvier 1996, articlel, alin6a 1. 8 Ibidem, article 2, alin~a 3.

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reserve. Neither the law of contract nor the law of property can explain the system adopted. The link between quotas and land sometimes invoked is without real substance; the parts played by the dairy herd and by the personal capacities of the transferee rule out this link. The adopted system in fact illustrates the will of the state to impose order on a market it did not wish to see governed by the law of supply and demand. The 'police control' character of this interventionism is exacerbated when a transaction other than the straightforward substitution of one milk producer by another is contemplated. A distinction is then operated between quota based on dairy activity in the reference period, which might be termed 'allocated quota', and that from the reserve, i.e. granted from the reserve to the producer, which we might call 'additional quota'. Both types of quota have in common that they must be uniformly distributed over the immovable property used for agricultural activity m and not simply the dairy e n t e r p r i s e - after deduction of all uncultivated plots, wooded land, and land excluded from milk production in the long-term (ponds, vineyards, orchards). It follows that changes in title to or interest in the land give rise to a corresponding transfer of quota. The analogy stops there. Depending on their origin, quotas go their separate ways; additional quota goes back to the reserve whence it came, while allocated quota is shared between the reserve and the new holder of the right to farm the land in a two-tier process: a straightforward 10% siphon on the quantity to be transferred, then possibly a supplementary siphon depending on the existing quota of the recipient, on a progressive basis m 0% for less than 200,000 litres, 30% between 200,000 and 300,000 litres, and 40% for more than 300,000 litres. The mechanism is fully automatic; neither transferor nor transferee have the possibility of diverting quota from the path marked out by the regulations. In other words, quota is transferable but the course is charted by the authorities rather than left for the parties to decide freely.

2.2. Transactions by legal entities A number of special cases are worth considering. The situation is not affected by the transferor or transferee being a legal entity. When the transferor is a firm, all of the property controlled by the grouping is taken into account, namely the land and farm buildings to which it has a title or in which it has an interest in the form of an agricultural tenancy or other arrangement, and also the dairy herd. If all this is taken over by one and the same producer-- for example, subsequent to the firm being dissolved n no siphon is applied if the transferee can show that he is starting up in milk production. However, the slightest break-up of the assets of the jointly-farmed holding inevitably entails quota being siphoned off to the reserve. This is the case in particular when one member pulls out. Even if the departing member is content to recover the property he Controlled before joining the grouping, the transaction would not escape the siphons applicable in the event of partial transfer of a dairy business. A change in the identity of the members or in the distribution of capital, however, does not affect the production and marketing rights which are held by the legal entity. Thus, when one of the members discontinues farming, is replaced by a third party, leaves without any allocation of land, or when any or all of the shares are bought by an investor, the asset base of the grouping remains intact. The position of the transferee is treated identically whether a natural or legal person. The levy thresholds (200,000 litres and 300,000 litres) are unchanged. In keeping with legal principle, the firm forms a screen between the outside world and its members. Regardless of the actual number of farmers, only the producer represented by the grouping is taken into

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consideration. The sole exception to this principle is to prevent fraud by an individual manoeuvring in front of or behind a corporate veil. Thus, when judging whether a grouping which is applying to take over a holding already has quota or not, any quota held in an individual capacity by the members actually and permanently engaged in the dairy activity is taken into account. Correspondingly, when the transferee is an individual, the quota held by firms of which the individual is a member is also taken into account. These specific cases aside, groupings receive neither better nor worse treatment than individual producers. Matters would be straightforward enough if a special regime had not been designed for GAECs. When new members join, the siphons usually imposed when dairy holdings combine are not applied. Where a Socidtd civile d'exploitation agricole (SCEA) or Exploitation agricole h responsabilitd limitde (EARL) would be liable to lose quota, the GAEC is authorised to take up all transferable quota. As an exception to the general principle, it should be narrowly construed; which would mean subjecting GAECs to the legal regime applicable to all transactions other than the limited ones covered by decree 96-47 of 22 January 1996, including, for example, the purchase of additional acreage and the corresponding quota. Thus, enlargement of the acreage farmed by the grouping without an increase in the number of members seems to warrant the siphoning of all additional quota, 10% of allocated quota and a further siphon of 30% or 40% depending on the final position of the GAEC. This logical solution is, however, contested by the interpretation of the authorities whereby, above and beyond the firm, reference should be made to the individual quota of each of the members in determining the claims of the reserve, as an extension of the statutory rule by which the economic standing of the GAEC members must be aligned on that of individual farmers. This interpretation would mean multiplying the levy thresholds by the number of members. Moreover, dissolution of the GAEC and withdrawal of a member are dealt with specifically, as, if either of these events occurs, 'siphons are applied to alterations effected between members in ownership or farming rights on blocks of land included in the grouping'. The period of activity of the GAEC is removed from the equation. The only quota returning to the reserve would be the difference recorded between the initial and final positions of the members regarding control of the land. The lack of clarity of this mechanism is regrettable. No-one is in a position to know the precise rules of the game at any one time. Mishaps (death, dispute) will need to arise before the courts untangle this web of contradictory legislation and covert practices. It is not certain that GAECs, which are already viewed with suspicion by France's European partners, will grow in stature as a result of the confusion caused by the determination to promote a kind of firm where the members can combine the advantages that they would enjoy if they farmed individually with those that they enjoy by joining forces. 2.3. Transactions of a family nature

Transactions of a family nature have earned scant attention from the authorities. With the exception of transfer by inheritance of a dairy holding, any family tie by blood or marriage between transferor and transferee does not alter the general transfer rules. When a father retiring from the business divides the holding he farmed until then between his children, the reserve takes back all of the additional quota and at least 10% of the allocated quota. The same applies when the estate passes in its entirety to a son or daughter already in milk production. True, in these cases, it is likely that the quota will be reallocated after a short spell in the reserve to whomsoever takes over the business from which it was taken, because they will meet the criteria for priority allocation of available quota from the reserve, but in the

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meantime the quota will have undergone a change" allocated quota will have become additional quota. A similar situation arises when two spouses engaged in dairying together separate. If one of them keeps all the dairy assets (land, farm buildings, herd), he or she will be allocated all the quota. However, if the holding is split, the reserve will apply its siphon. Only after the death of the quota holder can a family arrangement be envisaged. By mutual consent, the beneficiaries may decide to divorce the quota from the right to farm the land. The land may be divided equally, but the quota unequally. Likewise there is nothing to stop immovable property featuring in one share and quota in another. In these circumstances, the agreement between the parties, provided it is noted in an official deed, is legally binding. It should be noted that, despite the derogation open to the beneficiaries, the transaction is subject to a siphon whenever it involves a division of the holding or reconstitution of dairy enterprises. Moreover, only transfers by inheritance are covered expressly, which seems to exclude gifts inter vivos from the derogation authorising the separation of quota from land; just for once, it seems there is an advantage in not preparing the succession.

2.4. Quota transfer and the protection of tenant farmers Insofar as quota may be said to follow the right to farm into -whatever hands it passes, tenancy agreements have pride of place among those contracts which ensure that quota is mobile. The transfer of an interest in all or part of a dairy holding entails ipso facto the passfng of the corresponding quota. In practice, it is less the formation of the contract than subsequent events that cause difficulties. The grant of a tenancy agreement entails the same effects as a sale, gift or capital contribution to company assets. Although apparently one and indivisible, the agreement, in fact, conceals two separate elements. The subsequent performance of the contract constituted by the tenancy is one thing, the immediate contract by which entitlement to quota passes is another. The upshot is that the tenant has lasting obligations on the basis of the former, whereas, as transferee, he has no such obligations under the latter. While linked at the moment they pass, quota and the right to farm cease to be combined immediately afterwards, as attested by the dilution or concentration of all quota held by the producer on the total land area for agricultural use. In the course of the tenancy, the assignment of the agreement to a descendant or to the spouse of the tenant farmer, its transfer to a firm or the making available of the tenanted land to a group, all automatically entail a change of quota holder and a redistribution over the land area comprising the new 'Euroholding'. When the tenancy ends, for whatever reasons (expiry, recovery by the landowner, nonrenewal) the quota passes in accordance with the regulatory provisions. Chance may have it that the quota initially supplied to the tenant and the quota finally reverting to the landowner on termination are identical, but this is not usually so. Successive siphons and changes in the structure of the tenant's holding mean the incoming occupier recovers often a lower, sometimes a higher, amount of quota than that which passed when the tenancy agreement was granted. This phenomenon is not surprising given that the link between the right to produce milk under the quota system and the land comprised in the holding is made only for the requirements of transfer. As soon as the transfer has occurred, the quota becomes independent again. It is then only re-attached to the land in respect of which it is used in the event of a change in title to or interest in all or part of the agricultural area in favour of a third party. Milk quota is not a satellite of land; on the contrary it is a free electron, exceptionally subjected to the attraction of the holding or of some component part of it while a transaction

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is underway. In these circumstances, it would be mistaken to believe that the statutory protection accorded to tenant farmers could be invoked with regard to quota. Quite rightly, the French Supreme Court has asserted on several occasions that a reduction or increase in quota can never amount to dilapidation or improvement of the tenanted farm. 9 It would only be if the quota itself were rented or lent, which the regulations prohibit, that it would be meaningful to compare the positions at the beginning and end of the contract. As it is a matter of two immediate transfers separated by a variable length of time and subject to the risk of public policy measures applicable as and when they occur, there are no grounds warranting the opening of any kind of account between the parties. Each party acquires what exists at the date the successive transactions occur. As intended by the community and national authorities, the sale and letting of holdings have identical effects. The only specific features of tenancies are that, if the landowner exercises his right to recover the property, he may leave the milk quota at the disposal of the tenant, and, assuming there is a refusal to renew the lease or termination with a view to a change in the farming activity, milk quota is automatically retained by the outgoing tenant.

2.5. SAFER transactions Intervention by the SAFER (Soci6t~ d'am~nagementfoncier et d'6tablissement rural) is not such as to alter the fate of quota. Sometimes (when small plots are acquired) the transferor is authorised to contest any quota transfer. Generally, the SAFER, after keeping in stock the quota of which it becomes the holder at the same time as it appropriates all or part of a holding, is bound to release the quota to the eventual transferee. The reserve that the SAFER is authorised to set up has nothing in common with the national reserve, with the exception that the quota that they hold is temporarily unusable. Unlike the prefect, the SAFER does not have the power to redistribute quota in its keeping. It is under an obligation to keep a record of the source of quota so that it can benefit the assignee of the holding from which it came. The end result is that it is as though the beneficiary of the allocation held the rights directly from the assignor. Strategically, the SAFER probably missed out on a good opportunity to become involved in the management of quota, the transfer of which could eventually have been submitted to a regime similar to that of alienation for valuable consideration of agricultural immovable property. 3. The pecuniary value of milk quota In truth, the debate is less about the transferability of quota than its pecuniary value. After sometimes complex computation, it is always possible to divide quota between the transferor, the transferee and the reserve. However, the financial impact of the change of holder of milk quota is a matter that remains taboo. The profession and the authorities are amazingly united in rejecting the idea that quota has any value. Inexplicably, the recommended solution has not been enshrined in legislation, so that from a judicial standpoint the uncertainty remains. Proponents and opponents of quota as an asset that can be bought and sold churn out arguments to demonstrate the soundness of their position. In many instances, it is easy to skirt around the obstacle. Rather than openly posting quota prices, the parties conceal them in the

9 Cass. 3e civ., 23 mai 1995, RD rur. 1995,p. 327; Cass. 3e civ., 20 mars 1996,RD rur. 1996,N.B.p. 43.

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price of land or of the dairy herd; a procedure which may entail perverse tax effects but is unopposable in civil law terms. Sometimes the conflict of interest is such that the issue cannot be avoided. Subsequent to divorce or death, the spouses or the beneficiary receiving the quota claims that it should be added to his or her assets without value, whereas his or her adversary(ies) consider, on the contrary, that some value should be ascribed to it. In the final resort, it will be for the courts to decide. It should not be forgotten, though, that the issue becomes less acute with every passing day. Quota from dairy outgoer schemes, quota relinquished by producers and quota siphoned when holdings change hands all become additional quota. It follows that after reallocation, it is destined not to pass with the farm in respect of which it is used but to return as a matter of course to the reserve as soon as the title to or interest in the land farmed by the quota holder is assigned. With levy after levy, the category of allocated quota is destined to be hived off to that of additional quota. Eventually, except for the total transfer of a holding in favour of a new entrant to the dairy industry, there will be little quota that, after leaving the transferor's property, will go directly to that of the transferee. For the most part, it is only after a spell in the reserve that it will reach its final destination. In any event, the repeated application of decree 96-47 of 22 January 1996 is leading inevitably to a single pattern for the administrative control of quota. That will put paid to the uncertainty currently besetting the dairy industry. Having become simple bailees of quota, successive producers will be released from any financial contingencies.

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1. Introduction

In the United Kingdom the imposition of milk quotas has given rise to many novel issues of law. As in other Member States, these difficulties may in part be attributed to the distinctive national context in which the Community rules were implemented. For example, agricultural tenancies have traditionally been subject to statutory regulation, which provided inter alia that outgoing tenants should receive compensation for improvements; and inclusion of milk quotas within this statutory framework has prompted specific and complex legislation. By contrast, the relative absence of a written constitution has limited the extent to which milk quotas may be protected in national law by any 'right to property'. Perhaps most importantly, however, United Kingdom agriculture has in recent years become increasingly characterised by a willingness to embrace market forces. This tendency may be illustrated by such developments as the deregulation of the tenanted sector under the Agricultural Tenancies Act 1995 ('the 1995 Act') and by the liberal approach adopted towards Common Agricultural policy reforms under Agenda 2000.1 In the case of milk quotas themselves, it may therefore be regarded as no coincidence that they were swiftly treated as a tradeable commodity. Thus, by the second year of the milk quota system (1985/86), some 386 million litres were permanently transferred; 2 and there were temporary transfers of quota prior even to express sanction by Community regulation) The development of this trade may be regarded as the most distinctive characteristic of the operation of the milk quota system in the United Kingdom. Indeed, as confirmed before the House of Commons Agriculture Committee, the Government has deliberately implemented the transfer provisions in as flexible a manner as possible with the objective of securing an efficient dairy industry. 4 Farmers seeking to commence or increase production have been able to acquire quota to meet their requirements, while farmers seeking to reduce or discontinue milk production have been able to turn their quota to account. 5 1 See e.g. Ministry of Agriculture, Fisheries and Food ('MAFF') News Release 205/98. 2 Milk Marketing Board, Five Yearsof Milk Quotas: a ProgressReport, Thames Ditton, Surrey, 1989, p. 11. 3 Temporary transfers, commonly known as 'quota leases', first received express sanction under Council Regulation (EEC) 2998/87, O.J.1987, L285/1. Before its enactment they had been authorised in the United Kingdom as a form of quota management within Art.8 of Council Regulation (EEC) 857/84, O.J.1984, L90/13. 4 Third Report of the Agriculture Committee, Trading of Milk Quota, H.C.512, Session 1994-95, ix-x and QI16. 5 The presence of a market in quota has provided explanation for the lack of enthusiasm for outgoers' schemes. There are no current schemes, notwithstanding authority under Art.8 of Council Regulation (EEC) 3950/92, O.J.1992, L405/1, as amended by Council Regulation (EC) 1256/99, O.J.1999, L160/73.

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Further, maximum and efficient use of the national guaranteed total quantity has prevailed over other, more 'social', considerations, such as special provision for new entrants to the dairy industry. 6 Against this background two aspects may be considered: first, the extent to which a coherent analysis has been reached as to the nature of milk quota in United Kingdom law; and, secondly and more specifically, the treatment of milk quota in the context of agricultural tenancies. 7

2. Milk quota in United Kingdom law There have been numerous cases relating to milk quota; and they have embraced a wide range of issues, many of which may not have been contemplated by the Community legislature when implementing the milk quota system. This state of affairs may in part be attributed to the fact that what was originally envisaged as nothing more than an instrument of market management soon became in the United Kingdom a valuable 'asset' and fit prize for litigation. 8 Indeed, the Advocate General in Demand v Hauptzollamt Trier was of the view that 'The Community legislature must have believed that it could simply regulate these instruments according to their purpose, namely to control milk production within the Community, and leave it to the Member State to resolve the complex private-law issues which the introduction of the new scheme would inevitably raise', the consequence in England being 'a veritable "quota market"'. 9 Notwithstanding this weight of litigation, it remains difficult to reach a firm conclusion as to the characterisation of milk quota in United Kingdom law. A substantial factor contributing to this uncertainty is that the courts have as a rule been able to decide particular issues between the parties without recourse to detailed analysis of the underlying nature of milk quota. Moreover, to the extent that there has been detailed consideration, this has taken place in widely varying contexts. A clear illustration is provided by the case of Harries v. Barclays Bank plc. lo The bank took possession of a farm subject to a legal charge, made temporary transfers of the quota over a number of years and then sold the farm with the benefit of quota. The two questions to be considered were whether the bank could retain, first, the proceeds of the temporary transfers pending sale and, secondly, all the proceeds of sale, including any attributable to quota. Both questions were answered in the affirmative. The ability to retain the proceeds of the temporary transfers was an incident of possession; and, on sale of the farm, the quota of necessity passed to the purchaser under the Community and national 6 By way of illustration, the United Kingdom never allocated quota to young farmers pursuant to Art.3(2) of Council Regulation (EEC) 857/84, O.J.1984, L90/13. 7 For general works on milk quotas in the United Kingdom, see e.g. Cardwell, Milk Quotas: European Community and United Kingdom Law, Clarendon Press, Oxford, 1996; and Trotman, The Development of Milk Quotas in the U.K., Sweet and Maxwell, London, 1996. 8 For early expression of the view that milk quota is merely an instrument of market management, see e.g. the written observations of the United Kingdom Government and the Commission in Case 5/88, Wachauf v Bundesamtfftr Ernahrung und Forstwirtschaft, [1989] ECR 2609. More recently, in the context of the Agenda 2000 reforms, a stated objective was 'to strengthenthe reference quantities' character as a means of regulating the market of milk and milk products': Preamble to Council Regulation (EC) 1256/99, O.J.1999, L160/73, amending Council Regulation (EEC) 3950/92, O.J.1992, L405/1. 9 Case C-186/96, [1998] ECR 1-8529, at 1-8539 and 1-8540. 10 20 December 1995 (High Court); and [1997] 45 EG 145 (Court of Appeal).

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regulations. Accordingly, as between the parties the issues could be resolved without the need to determine what the judge at first instance termed 'the somewhat metaphysical question as to the true nature of the benefit of milk quota'. 11 In other words, yet again it proved possible to decide who was entitled to the 'asset' or its proceeds without achieving absolute clarity as to the nature of the 'asset'. That having been said, it is clear that much debate as to the nature of quota has focussed on the extent to which it is an interest in or part of land as opposed to constituting a separate entity. This debate may be examined in three contexts: first, in private law, with particular reference to land transactions; secondly, in constitutional law; and, thirdly, in tax law. 2.1. Private law Under Council Regulation (EEC) 3950/92 milk quota is in principle 'linked' to the holding; 12 and in the United Kingdom the national legislation broadly implements this principle. In particular, a decision has been made not to break the link with the holding, notwithstanding the derogation to the effect offered to Member States under the Agenda 2000 reforms. 13 Accordingly, a land transaction is generally required to effect a permanent transfer of quota. Indeed, the national provisions have long specifically precluded the permanent transfer of quota through the medium of mere licences or, in the case of England and Wales, tenancies of less than ten months duration. 14 This approach has also been adopted by the United Kingdom courts, perhaps the clearest illustration being the case of Faulks v Faulks. 15 Two brothers had farmed in partnership on tenanted land. The tenancy was vested in the elder brother but held on trust for the partners for the duration of the partnership. 16 On the death of the younger brother it fell to be decided whether the milk quota was a separate partnership asset or passed with the tenancy to the surviving brother. The court held that it passed to the surviving brother; and the decision has more recently been followed in the case of Davies v H & R E c r o y d Ltd. 17 Moreover, it has also been held that the land transaction must not be a sham. In the case of R. v Ministry o f Agriculture, Fisheries and Food, ex parte Cox emphasis was laid upon the need for some physical use of the land by the transferee: the mere right to occupy was insufficient. 18 This general requirement for a land transaction to effect a permanent transfer has, however, become somewhat blurred in the United Kingdom as a result of the extensive trade in 11 20 December 1995 (High Court) Lexis Transcript. 12 O.J.1992, L405/1, as amended by Council Regulation (EC) 1256/99, O.J.1999, L160/73 (in particular, Preamble and Art.7). 13 Art.Sa(b) of Council Regulation (EEC) 3950/92, O.J.1992, L405/1, as amended by Council Regulation (EC) 1256/99, O.J.1999, L160/73. For this decision by the United Kingdom, see Agenda 2000: CAP Reform - A New Direction for Agriculture, MAFF, 1999, at para.41. 14 S.I.1997 No.733, Reg.7, as amended. In the case of Scotland the lease must not be of less than eight months duration; and in the case of Northern Ireland the tenancy must not be of less than twelve months duration. In English law, as a general rule, a licence is a contract which, although it may authorise use of land, does not create an interest in land. By contrast, a tenancy has traditionally been regarded as both a contract and an interest in land (but see now Bruton v London and Quadrant Housing Trust, [1999] 3 WLR 150). 15 [1992] 15 EG 82. 16 Accordingly, the elder brother held the legal estate of the tenancy for the use of the partners for the duration of the partnership. 17 [ 1996] 30 EG 97. 18 [1993] 2 CMLR 917.

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milk quota through the medium of short term tenancies. As indicated, under the national legislation a tenancy of ten momhs in England and Wales is apprehended to be sufficient to trigger a permanent transfer with land; but in practice the main purpose is not the land transaction, rather a transfer of quota. Indeed, quota to be so transferred is frequently advertised for sale as if a separate commodity; and the mechanism for transfer was described as 'somewhat artificial' by the judge at first instance in Harries v Barclays Bankplc. 19 Further, since the inception of the milk quota system the Community legislation itself has expressly authorised numerous exceptions to the general rule that quota is linked to the holding. Thus, it is currently possible to effect permanent transfers of quota without land, or vice versa, under Article 8 of Council Regulation (EEC) 3950/92. 20 In the United Kingdom this derogation has been implemented to the extent that it is permitted to transfer quota without land, but not vice versa, with the aim of improving the structure of milk production at the level of the holding or to allow for extensification. 21 Use of this facility has, however, been relatively limited. For example, in the 1996/97 milk year there were only 313 permanent transfers without land, as opposed to 20,435 permanent transfers with land. 22 This may largely be attributed to the fact that permanent transfers without land must satisfy detailed statutory criteria as laid down in the national implementing legislation. In the face of these constraints, there has remained a strong preference for the trade in quota through short term tenancies, the mechanism for effecting such transfers being not only more familiar but perceived as less burdensome. With regard to temporary transfers, the United Kingdom has shown considerable enthusiasm for this further derogation from the principle that quota is linked to the holding. As indicated, temporary transfers took place prior to express sanction by Community legislation; and, more recently, the pool of leased quota was stated by the House of Commons Agriculture Committee to be 'a valuable resource, particularly for tenant farmers and new entrants', x3 Not least, the facility permits expansion without incurring the high capital costs of permanent transfers. Against this background it is perhaps not surprising that the volumes of milk quota temporarily transferred have been very significant. For example, in the 1998/99 milk year there were 27,531 transactions leading to the temporary transfer of 1,333.9 million litres of milk quota. Indeed, this amounted to some 9.5 percent of the national wholesale quota and 6.7 per cent of the national direct sales quota. 24 Accordingly, the United Kingdom legislation conforms with the general principle that milk quota is linked to the holding; and this characteristic will be seen further in the context of tenanted land. Nevertheless, in line with the emphasis on market forces, advantage has frequently been taken of derogations from the general principle where this maximises the use, and efficiency of use, of the national guaranteed quantities; and, in the context of the trade in quota, the general requirement for a land transaction to effect a permanent transfer is interpreted somewhat liberally. Against this background, it might have been expected that the United Kingdom would decide to break the link to the holding altogether, as authorised by the Agenda 2000 reforms. In the event, as indicated, any benefit to be gained by the removal of 19 20 December 1995 (High Court) Lexis Transcript. 20 O.J.1992, L405/1, as amended by Council Regulation (EC) 1256/99, O.J.1999, L160/73. 21 The Dairy Produce Quotas Regulations 1997 S.I.1997 No.733, Reg.11, as amended. 22 National Dairy Council, Dairy Facts and Figures: 1997 Edition, London, 1997, Table 38. 23 Third Report of the Agriculture Committee, Trading of Milk Quota, H.C.512, Session 1994-95, xvi. 24 National Dairy Council, Dairy Facts and Figures: 1999 Edition, London, 2000, Table 38.

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this general requirement for a land transaction was felt to be outweighed by the disadvantage of implementing a complicated and controversial change at a time when it was the intention of the Government to continue to argue for milk quotas to be phased out. 25 2.2. Public law The United Kingdom does not enjoy an extensive written constitution; and, accordingly, there has been no wide-ranging jurisprudence before the national courts as to the extent that milk quota may be protected by, for example, any entrenched right to property. In this a sharp contrast may be drawn with Ireland, another common law country, where none the less constitutional rights have frequently been in issue, for example in the cases of L a w l o r v Minister f o r Agriculture and Condon v Minister f o r Agriculture and Food. 26 It has, however, been possible to seek annulment of Government action by the procedure known as 'judicial review' and, where appropriate, subsequent reference to the European Court of Justice has brought into play the general principles of Community law and, in particular, the right to property. 27 In this context emphasis may be laid on the case of R. v Ministry o f Agriculture, Fisheries and Food, ex parte Bostock, which concerned the termination of agricultural tenancies. 28 On the termination of such tenancies the United Kingdom had permitted the general link with the holding to apply, with the result that the quota passed with the land to the landowner or other incoming occupier. 29 Since this operated very much to the disadvantage of tenants, the Agriculture Act 1986 introduced a scheme of compensation; but the scheme did not apply where the tenancy terminated before the Act came into force on 25 September 1985. Following an application for judicial review, the case was referred to the European Court, which held that the Community rules and the general principles of Community law did not require a Member State to introduce a compensation scheme for outgoing tenants; and that they did not confer a right to compensation on such tenants directly. Of some importance was characterisation of milk quota as an 'advantage'. However, the right to property did not include the right to dispose of such an advantage for profit. 3~ While constitutional rights have not as yet played a major role in the context of milk quotas, the position may soon be reversed following implementation of the Human Rights Act 1998, which came into force on 2 October 2000. Under this Act certain higher United Kingdom courts must take into account inter alia judgments of the European Court of Human Rights. Further, they may make a declaration that legislation is incompatible with a

25 See Implementation of the Agenda 2000 Milk Settlement on Milk Quota Management: a Consultation Document, MAFF, 1999, at paras.16-18. The Government was concerned that breaking the link would have complicated implications, for example, for quota rights and landlord and tenant relations. 26 Respectively, [1988] 3 CMLR 22 and (1993) 2 IJEL 151. In neither case, however, was the plaintiff successful. In the former the court held that the superlevy regulations in no way attempted to abolish the right of private ownership or the general right to transfer, bequeath or inherit property. In the latter the court held that national legislation applying a percentage deduction or 'clawback' to certain temporary transfers of quota was not unconstitutional. 27 See e.g. Usher, General Principles of EC Law, Longman, London, 1998, pp.88-99. 28 Case C-2/92, [1994] ECR 1-955. 29 No decision was taken to implement the derogation under which Member States could provide that, where the tenancy was due to terminate without entitlement to extension on similar terms, all or part of the quota be put at the disposal of the departing tenant if he intended to continue milk production: Council Regulation (EEC) 857/84, O.J.1984, L90/13, Art.7(4). 30 Case C-2/92, [1994] ECR 1-955, at 1-984. See also Case C-44/89, lion Deetzen v Hauptzollamt Oldenburg (lion Deetzen II), [1991] ECR I-5119, at 1-5156.

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Convention right; and, where a Minister considers the reasons to be compelling, he may by order make such amendments to the legislation as he considers necessary to remove the incompatibility. While the full ramifications of the new Act remain to be explored, it would seem to open new avenues of argument before national courts; and, in the context of milk quotas, particular weight may be placed on the right to property, as set out in Article 1 of the First Protocol to the Convention. 31 That having been said, there is no certainty that arguments based on the right to property will succeed. The courts may consider the restrictions imposed by milk quota to be in accordance with the general interest. Indeed, such an approach would be in line with the decision of the Irish High Court in L a w l o r v Minister o f Agriculture; 32 and the established jurisprudence of the European Court. 33

2.3. Tax law The nature of milk quota has proved highly controversial in tax law. Dispute has again tended to focus upon whether it is part of or an interest in land, since, if it so qualifies, the tax regime will generally be more benign, not least owing to the wider availability of reliefs. In this context three charges to tax may be addressed: Capital Gains Tax, Inheritance Tax and Value Added Tax. With regard to Capital Gains Tax, the Inland Revenue has long taken the view that milk quota is a separate asset. Moreover, quota appears independently of land in the list of qualifying assets for the purposes of rollover relief. 34 The major advantage for the Inland Revenue of this interpretation is that milk quota will not generally have a base value, having been received under the Community rules for no consideration. By contrast, if the quota is part of or an interest in land, much of the gain may be eliminated by reason of the base value of the land. 35 The view that for Capital Gains Tax purposes milk quota is a not a part of or an interest in land has been considerably fortified by the case of Cottle v Coldicott. 36 The taxpayer sold milk quota through the medium of a short term tenancy; and it was held that the quota fell to be treated as a separate asset, with the result that, on the facts, it enjoyed no base value. That having been said, the Special Commissioners themselves emphasised that their decision should be confined to a tax context; and that the main objective of the taxpayer had been the transfer of the quota, not the transfer of the land. Accordingly, to draw sweeping conclusions would be inappropriate. With regard to Inheritance Tax, the Inland Revenue would seem to have adopted a more pragmatic approach. 37 It would not seem to be critical whether or not milk quota is treated as 31 'The Convention rights' are widely defined, so as to include Articles 1 to 3 of the First Protocol and Articles 1 and 2 of the Sixth Protocol: Human Rights Act 1998, s.l(1). 32 [1988] 3 CMLR 22. 33 For a classical defenee of quantitive restrictions against challenge based on the right to property, see Case 44/79, Hauer v Rheinland-Pfalz, [1979] ECR 3727 (relatingto a temporary restriction on the grant of permits to plant vines). 34 For the current legislation, see Taxation of Chargeable Gains Act 1992, s.155. Rollover relief is applicable, subject to detailed criteria, where the proceeds of sale of trade assets are employed in the purchase of other trade assets. 35 In Faulks v Faulks Chadwick J. went so far as to suggest that the surrender of milk quota to the national reserve could amount to a part disposal of land: [1992] 15 EG 82, at 88. This suggestion was, however, made in a non-tax case. 36 [1995] SpC 40. 37 Inland Revenue, Tax Bulletin, February 1993.

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a part of or an interest in land. Rather, so long as the other detailed criteria are satisfied, it will attract either agricultural property relief if reflected in the value of the land or business property relief if valued separately. As a result relief will in principle be available, the form of relief depending upon the method of valuation. With regard to Value Added Tax, the key criterion adopted by Customs and Excise would seem to be whether the main purpose of the transaction is a transfer of land or a transfer of quota. 38 If the main purpose is a transfer of land, the supply is exempt (unless the option to tax has been exercised). If the main purpose is a transfer of quota, then the supply is chargeable at the standard rate. The operation of this criterion would not seem problematic where, for example, there is the sale of the freehold with the benefit of quota, which should be exempt (unless the option to tax has been exercised). Nor would it seem problematic where there is a transfer of quota without land under Article 8 of Council Regulation (EEC) 3950/92, which should be chargeable at the standard rate. More complex, however, is the treatment of the trade in quota through the medium of short term tenancies. Arguably, this could be regarded as two separate supplies, one of the land, which should be exempt (unless the option to tax has been exercised), the other of the quota, which should be chargeable at the standard rate. Alternatively, there could be a single supply of quota, which would be chargeable at the standard rate, on the basis that the supply of the land is incidental to the supply of the quota.

3. Landlord and tenant implications In the case of the United Kingdom milk quotas were imposed upon an agricultural industry with a substantial and highly regulated tenanted sector. Although the sector had seen a significant decline since the turn of the century, in 1991 some 36 per cent of agricultural land in England and Wales was still subject to tenancies. 39 Moreover, this proportion is expected to increase following enactment of the Agricultural Tenancies Act 1995. Applicable to the vast majority of tenancies granted on or after 1 September 1995, 40 it introduces a regime considerably more deregulated than the earlier agricultural holdings legislation; and there are already indications that it is playing a role in revitalising the tenanted sector. 41 Accordingly, in light of the number of tenants, and the value swiftly attributable to quota, the treatment of quota on the termination of tenancies has been of considerable importance. As indicated, in the United Kingdom quota has always passed to the landlord or other incoming occupier on the termination of agricultural tenancies, in accordance with the general

38 This is consistent with the general Value Added Tax principle that, where there are two elements to a transaction but one is incidental or ancillary to the other, there is a single supply: see e.g. British Airways plc v Customs and Excise Commissioners, [1990] STC 643; and Case C-349/96, Card Protection Plan Ltd v Commissioners of Customs and Excise, [1999] ECR 1-973. 39 MAFF and Welsh Office Agriculture Department, Agricultural Tenancy Law- Proposals for Reform: a Consultation Paper, 1991, para.2. 40 For the few exceptions, see Agricultural Tenancies Act 1995, s.4. 41 See e.g. Central Association of Agricultural Valuers, The Central Association of Agricultural Valuers Annual Tenanted Farms Survey 1999, Coleford, Gloucester, 2000. On the agricultural holdings legislation, generally, see e.g. Densham and Evans, ScammelI and Densham's Law of Agricultural Holdings, 8th Edition, Butterworths, London, 1997; and on the 1995 Act, generally, see e.g. Sydenham and Mainwaring, Farm Business Tenancies: Agricultural Tenancies Act 1995, Jordans, Bristol, 1995.

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principle that quota is linked to the holding. 42 However, consistent with the degree of protection traditionally afforded to agricultural tenants, two statutory compensation schemes have been enacted. The first of these was introduced by the Agriculture Act 1986 and applies to tenancies governed by the agricultural holdings legislation. The second was introduced by the 1995 Act; and in the case of the 1995 Act it is significant that, notwithstanding the general emphasis on freedom of contract, statutory protection in respect of quota was retained. The Agriculture Act 1986 sets out detailed eligibility criteria, one of them being that the tenancy terminates on or after 25 September 1985. 43 If these detailed criteria are met, the tenant may be compensated under one or more of three heads. First, if the amount of quota allocated to the tenanted land exceeded a 'standard quota' as determined under the Agriculture Act 1986 and ancillary statutory instruments, he may receive compensation for that excess. Secondly, he may receive compensation in respect of his provision of dairy improvements and/or fixed equipment, this being known as the 'tenant's fraction'. Finally, he may receive compensation in respect of 'transferred quota', where he has paid all or part of the cost of a transaction under which quota was transferred to him. Where he has paid all the cost, he is entitled to the full value of the quota; and, where he has paid part of the cost, he is entitled proportionately. This scheme of compensation, while very complex, has in large part been accepted as providing a fair balance between landlords and tenants. Such a view was taken by the Advocate General in Wachauf v Bundesamt f~r Ernahrung und Forstwirtschafi; 44 and in R. v Ministry o f Agriculture, Fisheries and Food, ex parte Bostock the dispute was not as to the merits of the compensation scheme but as to whether it was available at all. 45 Where the tenancy is governed by the 1995 Act, it is specifically provided that there is no entitlement to compensation under the Agriculture Act 1986. 46 None the less, as indicated, the 1995 Act may still afford a departing tenant compensation in respect of milk quota. Section 15 contains a wider definition of 'tenant's improvement' than that found in the earlier agricultural holdings legislation; and this wider definition is considered sufficient to cover milk quota. 47 Accordingly, milk quota would seem to fall under the general compensation scheme set out in the 1995 Act; and the provisions of this scheme are mandatory. Compliance with the detailed provisions may, however, present difficulties for departing tenants. In particular, it is essential that the landlord should have given consent to the improvement in writing. Where the tenant is aggrieved by the refusal of such consent, it is open to him to demand arbitration; but any such demand must be made before the tenant begins to provide the improvement by transferring quota onto the tenanted land.

42 For operation of the general principle in this context, see Case 5/88, Wachauf v Bundesamt fiat Ernahrung und Forstwirtschaft, [1989] ECR 2609. 43 As has been seen, this criterion did not breach Community law, even though it resulted in tenants whose tenancies terminated after the introduction of milk quotas but before 25 September 1985 receiving no compensation: Case C-2/92, R. v Ministry of Agriculture, Fisheries and Food, ex parte Bostock, [1994] ECR 1955. 44 Case 5/88, [1989] ECR 2609, at 2631. 45 Case C-2/92, [1994] ECR 1-955. That having been said, the scheme of compensation is not above criticism: see e.g. Creear v Fearon, [ 1994] 46 EG 202. 46 Agricultural Tenancies Act 1995, s.16(3). 47 See s. 15(b), under which 'tenant's improvement' includes 'any intangible advantage which- (i) is obtained for the holding by the tenant by his own effort or wholly or partly at his own expense, and (ii) becomes attached to the holding'.

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4. Conclusion Notwithstanding the considerable number of disputes before the courts, a comprehensive definition of milk quota is yet to be ventured. As indicated, the courts have been able to reach decisions on the particular facts before them without recourse to such a comprehensive definition. Indeed, they have expressly cautioned against general application of those decisions, showing deep awareness that milk quota may exhibit different characteristics in different contexts. Perhaps the clearest illustration is provided by the cases of F a u l k s v Faulks and Cottle v Coldicott. 48 In the former the quota was held to pass with the land and in the latter it was held to be a separate asset. None the less, it was emphasised in Cottle v Coldicott that the two decisions were not to be regarded as inconsistent. Rather, they reflected the different circumstances upon which adjudication was required. In turn, this may be regarded as a true reflection of the Community legislation, which itself imposes a general requirement for a land transaction to effect permanent transfers while authorising derogations from that general rule. Accordingly, in United Kingdom law, as in Community law, the link to the holding in large part finds expression through the general requirement for a land transaction to effect a permanent transfer. It is generally accepted, however, that this link is not so close as to render quota a conventional interest in land. 49 Factors which may be re-emphasised in this context are the extensive use of quota leasing and the trade in quota through the medium of 'somewhat artificial' short term tenancies. Further, in Swift v D a i r y w i s e F a r m s L t d the High Court recently held that, although there are limitations on how it may be held and conveyed, milk quota is 'property' capable of forming the subject matter of a trust. Submissions that it is not a sufficiently free-standing and freely marketable asset were expressly rejected. 5~ This inability to fit milk quota into any clear category of property interest is perhaps to be expected, in that it in essence remains a creature of Community law, whose characteristics are determined by that law in order to meet the demands of the common organisation of the market. What can, however, be said with certainty is that the method of implementation in the United Kingdom has consistently been motivated by the overriding objective of ensuring an efficient and competitive dairy industry. Indeed, taking this objective further, Government policy during the Agenda 2000 negotiations was to press for the phased abolition of milk quotas by 2006, so exposing the dairy industry far more fully to the effect of world market forces; 51 and, while this was not the outcome of the Berlin Summit, the Minister of Agriculture, Fisheries and Food has stated his satisfaction that a major review of the milk quota system is to take place in 2003, with the aim of allowing it to expire after 2006. 52

48 Respectively, [1992] 15 EG 82 and [1995] SpC 40. 49 See e.g. Rodgers, Agricultural Law, 2nd Edition, Butterworths, London, 1998, pp.475-477. 50 [2000] 1 All ER 320. For a similar approach, see the Opinion of the Advocate-General in Case C-186/96, Demand v Hauptzollamt Trier, [1998] ECR 1-8529 (at, in particular, 1-8539 and 1-8541). 51 See e.g. MAFF News Release 375/98. 52 Hansard (HC), 12 March 1999, Vol.327, Col.627. See Art.3 of Council Regulation (EC) 1256/99, O.J.1999, L 160/73: 'The Council undertakes to conduct a mid-term review in 2003, on the basis of a Commssion report, with the aim of allowing the present quota arrangements to run out after 2006'. As indicated, the fact that the United Kingdom Government is arguing for the abolition of milk quotas proved a key factor behind the decision not to implement so major a change as breaking the link to the holding.

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M i l k Q u o t a s b e l o n g to the D a i r y H o l d i n g in I t a l y Alberto German& Eva Rook-Basile

The dispute over Italy's allocation of reference quantities and difficulties in fixing producer quotas meant that Council Regulation 856/84 of 31 March 1984 was only finally implemented through statute 468 of 26 November 1992. So when in 19881 Italian doctrine first examined the issue of whether milk quota was linked to the land or to the dairy undertaking, 2 it could refer only to Community legislation and to the general principles of the Italian Civil Code on appurtenances of land (Article 817) and on farm assets (Article 2555). Community legislation was clearly ambiguous since Article 7 of Council Regulation 857/84 apparently ties quota to the land: 'where a holding [i.e. "all the production units operated by the producer"], is sold, leased or transferred by inheritance, all or part of the corresponding reference quantity shall be transferred to the purchaser, tenant or heir'. Quota is distributed under the terms of Article 7 of Commission Regulation 1546/88 of 3 June 1988 'among the producers operating the holding in proportion to the areas used for milk production or according to other objective criteria laid down by the Member States'.

1. Quota is not an appurtenance of the land

The reference to the areas used for milk production seems so stringent we might be led to characterise milk quota as an appurtenance of land. This is contradictory to Article 817 of the Italian Civil Code which states that only tangible property used for the land on a lasting basis a thing with physical s u b s t a n c e - can be characterised as an 'appurtenance'; rights or intangible property cannot. Moreover, the immediate forerunners of Italian pertinenze were the immobili per destinazione of the 1865 Civil Code, i.e. the statutory immovable property of the Napoleonic Code. This is movable property subject to the regime of immovable property because it is functionally attached to immovable property as a permanent fixture.

1 This was at a round table on 'Undertakings and business faced with the requirements of the new Community policy', held on 12 May 1988 at Camerino; see Capizzano (ed.), 'Impresa e azienda nel diritto agrario, Strumenti della PAC e ruolo delle Regioni' Atti delle Seconde giornate camerti di diritto agrario comunitario, Camerino, 1989. The question was analysed specifically by Germanb in 'Azienda agraria ?', p. 28 of the Proceedings. 2 Italian law has two separate concepts: impresa and azienda. The first relates to the business venture and is characterised by activity of the producer, that is to say subjectiveness. The second relates to the business assets as an organised entity and is characterised by tangible and intangible property, i.e. by choses in possession and in action, that is to say objectiveness. This distinction also applies to the impresa agricola (Articles 2082 and 2135 of the Civil Code) and to the azienda agricola (Article 2555 of the Civil Code). We propose to translate these last two concepts here by 'agricultural undertaking' and 'farm business'.

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This ambiguity is compounded by the fact that young farmers (Article 3, w of Regulation 857/84) and farmers whose main activity is agriculture (Article 4, w1, (c)) may obtain increased quota. Here the essential condition is the producer's status and not the acreage used for dairying. The Regulation further provides for compensation for those leaving dairy production (Article 4, w1, (a)). In this instance, they derive pecuniary advantage from their entitlement to quota, not their title to the land. Finally, the Regulation provides for the allocation of extra quota to producers implementing a development plan for dairy production under Directive 72/159 (now repealed). The extra quota was therefore tied to the holding restructuring scheme and so to the business undergoing expansion and not the quota holder, whose identity might change. In each case, quota proves to be one of the items managed by the farmer in the exercise of his activity, i.e. a business asset and not an appurtenance of real estate or a characteristic of the land. For a dairy farmer, it is obviously important in economic terms to be the holder of the entitlement to milk quota: the more quota held, the greater the value of the business if the holder decides to sell. Obviously then, quota has a pecuniary value when the farmer decides to transfer his farm. We must therefore analyse the transition of an asset from the realm of economics to that of law, the objectivisation by which it becomes property in the legal sense of the word. Obviously, our answer is based on Italian positive law. The expression 'property in the legal sense' amounts to a synthesis of law: the legal concept of property implies the involvement of the legal order, which recognises a legal person has an interest in an economic entity. This correspondence between economic entity and entitlement created by the legal order can be summarised under the notion of 'proprietary interest'. The law recognises a concrete interest because there is a legal entitlement conferred on a legal person. In this sense, the fact that milk quota can pass separately means it can be more easily characterised as legal property. 2. Quota as property that may be sold or leased separately

Under Community law, the starting point is the milk quota transfer regime. Regulation 3590/92 of 28 December 1992 provides for two distinct cases: transfer of the holding with q u o t a (Article 7) and temporary transfer of quota alone commonly called quota leasing (Article 6). According to Article 8 of the said Regulation, Member States may authorise permanent transfer of quota without transfer of the corresponding land, with a view to completing restructuring of milk production or to improving the environment. As the milk and milk products industry is organised on a 'territorial' basis at Community level, the temporary transfer of quota a l o n e is not viewed favourably. Consequently such transfers were left to the discretion of the Member States in several respects: whether they should be implemented at all, the different transfer operations possible depending on the different categories of producer, whether restrictions imposed on the purchaser (dairy) within regions, as well as whether such transfers should be renewed. If Member States decide to allow temporary transfer of quota without the transfer of land, the Community imposes a limit from which no departure is possible: such transfers can last 12 months only and must be carried out before a specific date, at the latest 31 December (Article 6).

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Conversely, with regard to the transfer of 'reference quantity available on a holding', in the event of 'sale, lease or transfer by inheritance' of the business, the Community norm provides simply t h a t - unless the Member States lay down other objective c r i t e r i a - the purchaser, lessee or beneficiary take over the quota of the vendor, lessor or deceased in taking account of the areas used for dairy production (Article 7). This is commonly referred to as 'transfer of the holding with quota'. The distinguishing feature is the transfer of a set of assets where a land transaction is the prerequisite for the less restrictive conditions laid down by the Community rule for the transfer of milk quota. In substance, to prevent quota from being moved to other parts of the country, even if with business assets other than land, the Community laid down a specific rule (more favourable because there are no restrictive terms) when quota retains a link with the land (already) used by the transferor for milk production. Examination of Italian statute 468/92 (which preceded approval of Regulation 3590/92 by a month) shows that no specific provision is made for transferring the 'holding' with quota, leaving this to Community legislation. Community legislation from the outset (1984) had provided for transfer of quota with land in proportion to the areas used for milk production, similar wording being used in Article 7 of Regulation 3950/92. Consequently, Italy did not use the option of determining 'objective criteria' other than proportionality between transferred quota and transferred areas for milk production. The regime for transfer of the farm business with quota therefore derives from the combination of the Community Regulation and those general norms of the Italian Civil Code compatible with the said Regulation, as well as the regulatory norms of decree 569/93. Article 21 of decree 569 of 23 December 1993, implementing statute 468/92, provides for the transfer of the 'holding' with quota. It establishes a series of obligations upon the new producer to notify a change of quota holder in the event of transmission by inheritance, breakup or re-organisation of land, purchase or lease of the 'holding' or of any legal transaction or set of circumstances entailing a change in owner of the farm business. More specifically, it can be seen that in the case where the 'holding' is transferred, quota is transferred automatically insofar as the incomer takes over areas previously used for dairy production (Article 7 of the Regulation). This is effective immediately, i.e. it occurs as of the date of the deed of sale or lease agreement or transfer of the 'holding' or other events entailing a change in owner of the farm business (Article 21 of decree 569/93). Notice of the new quota holder must be given to the AIMA (office for agricultural market operations), to the Regional Council, to the agricultural producers' group to which the contracting parties belong, and to the dairy industry (i.e. the purchaser). The AIMA must check the notice is in good order (decree 569/93, Article 21, w If we confined ourselves to this hypothesis, the ambiguity reported before would persist, since quota, which passes with the land, could still be characterised as an incident of the land, just like its fertility or the fact that it can be irrigated. But Italy has used the option available to Member States under Regulation 3590/92 to provide for the transfer of quota without the 'holding' on a permanent basis (sale) or temporary basis (lease). Taking sale o f quota (alone), it can be seen that Italian law, under Article 10 of statute 468/92, provides that: the sale must be effected by 31 December in any year at the latest (Article 10, w statute 468/92) by an officially recorded deed (Article 10, w a, statute 468/92, amended by Article 4 of legislative statute 552 of 23 October 1992); -

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notice must be given to the AIMA and the Regional Council using the special forms (Article 10, w statute 468/92; Article 1, w 6, statute 79/2000); - the sale takes effect from the period (milk year) following signature of the agreement (Article 10, w statute 468/92); - it is subject to control by the Regional Council, which must check that the transferor has not already used the entire quota transferred (Article 10, w statute 468/92, amended by statute 662/96); it is subject to a series of conditions relating to the territory, the agricultural area used and observance of the pre-emptive rights of others (Article 10, w 3, 4, 5, 7, 8 and 9, statute 468/92); - it is liable to a 15% levy (or 10% for transfers by producers whose output does not exceed 60,000 kg of milk), so as to constitute a special reserve for the allocation of quotas to young farmers (Article 10, w10; this paragraph was revoked from 1997-98 by Article 1 w of legislative decree 11 of 31 January 1997). Italian decree 569/93 (Articles 17, 18 and 19) confirms the previous points and specifies -

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that: - anyone abandoning dairy production during the preceding milk year is precluded from such sales (Article 17, w the sale (which is effective from the following milk year; Article 18, w is valid subject to review by the Regional Council and AIMA (Article 18, w12). It can be seen then that Italian law handles the details of transfer of quota without land by imposing specific and, restrictive deadlines, geographical zones and production conditions, including a requirement to submit the deed to the Regional Council and the AIMA for validation. But there no requirement to demonstrate the genuine structural or environmental improvement to which the Community legislation links the transfer of quota without transfer of corresponding land (Article 8, Council Regulation 3950/92, as amended by Council Regulation 1256/99 of 17 May 1999). The recent Italian statute 79 of 7 April 2000 forbids the transfer without land of quota allocated to producers by Regional Councils from the additional total reference quantity (600,000 tonnes) granted to Italy by Council Regulation 1256/99 of 17 May 1999 and distributed among the Regions by the Ministry of Agriculture. Where quota previously allocated is transferred without land, this new quota is withdrawn and reverts to the national reserve (Article 1, w2). The same statute 79/2000 confirms the ability to effect temporary transfers, without land, of milk quota allocated to producers before 1999 (on the basis of the statute 468/92), subject to following new terms: livestock leases and gratuitous loans for use (or 'commodata') of the cowshed shall be authorised only for the currency of a whole milk year; - temporary transfers of quota shall be authorised only for the currency of a milk year; quota shall be leased out by 31 January of each year at the latest, and notice must be given to the Regional Council by 15 February; the transfer is subject to control by the Regional Council; the contracting parties must be active milk producers; each of them must have delivered at least 50% of their respective quotas; the dairy 'holdings' of the contracting parties must be located in the same area (Article 1, w 6). -

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3. Milk

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Examination of Italian law on milk quota involves two other issues. First, we should recall Article 10 w1 of statute 468/92, according to which 'title to the milk quota belongs to the producer as owner of the farm business'. The Constitutional Court, in a decision relating to an agricultural tenancy granted in the 1970s, i.e. before milk quotas were introduced, recognised that this rule was not unconstitutional (Decision 100 of 6 April 1998). The Court identified the producer, i.e. the dairy farmer, as the holder of quota, since he is 'holder of the agricultural business' even when he farms on rented land. The quota was therefore linked to the farm business as a business entity and not the land, which may belong to someone else. Such did not contradict Community law which, to regulate quota transfer, requires a connection between quota and land. It follows that in Italian law, four arrangements for movement of quota with the business must be distinguished: - sale of the dairy farm business by the owner of the land; - permanent transfer of the dairy farm business by the tenant of the land; - lease of the dairy farm business by the owner of the land; - temporary transfer of the dairy farm business by the tenant of the land. Accordingly, the concept of a dairy farm business o r - generally speaking m 'a business' must be explained. This second aspect concerns the meaning of the term 'azienda' (business) in Italian law. It is important to dispel misunderstandings whereby land is thought of as the fundamental entity characterising the farm business. The definition provided by Article 2555 of the Civil Code, because of its position in Book V 'On labour', after the chapters relating to the business operator in general (Article 2082 and following), the farmer (Article 2135 and following) and the trader (Article 2195 and following), refers both to the commercial venture and to the agricultural undertaking; and therefore, with regard to the farmer, to all the property managed by the person engaged in arable farming, forestry or livestock farming. The business, as the corpus of property managed by the entrepreneur in running the undertaking (Article 2555), comprises both things that have physical embodiment, i.e. tangible assets, and intangible property such as trademarks, patents, administrative concessions, contracts, claims and debts. This can be inferred from the provisions on the movement of business claims (Article 2559), business debts (Article 2560), business contracts (Article 2558), employment contracts (Article 2112) and consortium agreements (Article 2610). These provisions are general in character. They are, therefore, applicable and actually applied to commercial ventures and agricultural undertakings alike. The teleological connection between undertaking and business laid down by Article 2555 of the Civil Code establishes a distinction between what is agricultural and what is commercial, referring respectively to the farmer and his activity (Article 2135) and the trader and his activity (Article 2195). In addition, because of the existence of three different types of agricultural undertaking (crops, forestry, livestock), three different types of farm business can be distinguished: the crop business, the forestry business, the livestock business. What characterises these agricultural businesses is the presence of a fundamental form of property conditioning all the other property managed by the farmer, namely land for the crop business, forests for the forestry business, and the herd for the livestock business. Accordingly as

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regards the legal regime for the milk and milk products industry, cattle (and not the land they are farmed on) is the necessary and sufficient component of the livestock business. This is confirmed by the fact that, when the European Community introduced the milk quota system in 1984, 1981 milk production was taken into account (1983 for Italy) recognising for each breeder the output over the reference year, even if he only had the dairy cattle in a cowshed and no one land. Inasmuch as, for a dairy farm business, quota is one of the essential assets of the business, it can be concluded that the dairy farm business comprises a set of assets that the farmer manages in running his business (dairy cattle, cowshed, milking parlour, silage, agricultural machinery, employment contracts, freehold or leasehold property and quota). It is this business as a set of managed assets that interests the buyer in the event of transfer of the entire 'holding'. 4. The business as a single entity

It is now possible to concentrate on the rules of business transfer in order to demonstrate the specific aspects of milk quota transfer. First it should be said that Italian doctrine always asks whether the business is a bundle of goods that are only a unit economically or whether they should be considered as a single entity in legal terms too: in this case they form a 'universitas', a concept not generally found. There is no doubt that in economic terms the business is not simply the sum of its assets, but a 'bundle' and a 'synthesis' of managed items: accordingly, it is the functional destination of the various assets in the exercise of an activity that makes them an economic unit. The concept of 'universitas' highlights the unity of the assets in legal terms: the specific norms governing the business as a whole m perceivable chiefly at the time of t r a n s f e r - are the givens of positive law which permit the conclusion that, in Italian law, the business is a new object falling within the category of 'universitas'. It may be noticed that the Civil Code speaks of ownership or enjoyment of the business (Article 2556), usufruct of the business (Article 2561) and lease of the business (Article 2562); and the Code of Civil Procedure provides that distress may be levied on the business. The Italian legislator, therefore, considers the business as a single unit and not as the simple sum of its miscellaneous items. In addition, legal regulation of the business m o d i f i e s the regime governing its constituent items: (a) while normally the different assets pass without specific formality requirement, when they are part of a business, written evidence is required (Article 2556, w (b) while normally the different assets pass without being subject to any type of notice, publicity is required when they are business assets (Article 2556, w (c) deeds for disposing of business assets are subject to competition restrictions (Article 2557); (d) the assignment of claims of the business obey a different regime to that provided by Article 1264 of the Civil Code (Article 2559); (e) employment contracts can be transferred automatically when the business is transferred (Article 2112); (f) the transfer of business contracts is subject to different 9conditions from those indicated in Article 1406 of the Civil Code for the ordinary assignment of contracts (Article 2558). In substance, it can be considered that there is a unitary regime. Comparison may be made with a flock of sheep, a library or a picture-gallery: although consisting of several things

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they are regulated by the legal order as a compound thing, like a car or a watch. The argument that the business is a 'universitas', i.e. as a new item of property, can, therefore, be accepted. In this way, consequently, it can be seen that the right to the business is very different from the right to each of its constituent items making it up. If the business has a unitary existence in legal terms, that occurs independently of the fact that the managed assets are the property of the entrepreneur. In other words, the unifying force represented by the allocation of the assets to the exercise of the business activity is so great that it creates a new and separate property of the entrepreneur, independently of his title to each single item of business. Regardless of the solution to the question of characterisation of a right to the business, it is certain that title to the business belongs to the entrepreneur or business owner.

5. Quota belongs to a dairy business independently of the land For Italian law, the dairy business is centred on cattle and not on land, while, for Community law, transfer of land on which the dairy farming is carried out is indispensable for quota to move with the dairy business. When the land is owned by the dairy farmer, it is not very important to characterise quota as property, since in this case the quota is transferred with the dairy business and the land: the presence of quota increases the value of the business as a whole, including the land on which the dairy farming is carded out. There is, therefore, no difficulty when a dairy farmer, who also owns the land where dairy farming is carried out, sells all the property, including quota. Problems may arise, however, when he leases his dairy business (including the land), since the legal order recognises that the tenant of an agricultural holding has freedom of cropping. Thus, where the tenant continues on dairying on the agricultural holding, as at the expiration of the lease (which is a lease to a business and not simply to land), he must retum the business to the lessor with all its components and retaining its structure, as granted by the lease (Article 2562 of the Civil Code). It is obvious then that, even in this case, quota, as a fundamental component of the dairy farm business, remains tied to the land on which the dairy farming activity is conducted. More serious problems arise when the farmer is tenant of the land on which he carries out his dairy farming activity having, on the tenanted land and after the grant of the tenancy, set up the dairy business, composed of cattle, cowshed, milking parlour, agricultural machinery, employment contracts and quota. As already indicated, when a tenant set up dairy farming, Article 10 of Italian statute 468/92 recognises his title to quota. It follows that by virtue of the principle of freedom of enterprise he can break up his farm business and freely transfer the quota belonging to him, given that ~ as has also been said ~ Italian law also provides for the transfer of quota alone. However, the question arises as to whether an agricultural tenant who has set up dairy farming can transfer his actual business, namely the cattle, quota and tenancy agreement on which the dairy farming is carried out. In this case, the problem relating to the transfer of quota with the business is related to that whether it is possible to transfer the agricultural tenancy agreement. Italian law provides a solution to this problem through joint reading of Article 2558 of the Civil Code and Article 21 of statute 203 of 3 May 1982. It is considered that the assignee of the dairy business is subrogated to all the contracts and agreements

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already made by the assignor in order to run his undertaking (Article 2558) including the agricultural tenancy, which in Italian law (Article 21, statute 203/82) is no longer deemed not assignable, as it was in the past, when doctrine believed that the lease was personal. Consequently, it may be concluded that the agricultural tenancy agreement can be transferred with the other items of the business (cattle, cowshed, milking parlour, forage, agricultural machinery, employment contracts and quota). In this case, the unity of the dairy business is maintained, quota being one of the components having a pecuniary value. It should, however, be emphasised that there is a school of thought which still considers that the transfer of an agricultural tenancy agreement is prohibited. This is on the basis that Article 21 of statute 11 of 11 February 1971, the provisions of which are reiterated (except for the prohibition on assigning the contract) by Article 21 of statute 203/82, is still in force. In any event, the transfer of quota w i t h the holding can be confirmed by reference to the rules provided by Community law. The transfer by the milk producer of the non-land assets or the dairy business (cattle and quota) is reinforced by the transfer of enjoyment of the land on which dairy farming is carried out, through the termination of the lease to the outgoing producer and the making of a new lease between the landowner and the purchaser of the cattle and quota. In short, even in the latter case, in compliance with Community law (by virtue of which the dairy farm business should remain linked to a clearly defined piece of land), what is transferred is not a bundle of separate items but a single entity made up of the same items managed together. This is by reason of the transfer (at the same time and for the same purpose) of the property owned by the milk producer on the one hand and the land of the landlord on the other. In the legal sense the transactions just described attribute to quota the nature and value of property of the business. It passes with the other items of the dairy farm business, thus complying with the European Regulation whereby quota is transferred 'with the holding' when the land on which the dairy fanning is carried out is transferred. But it is clear that quota is a good which can also be sold or leased alone, as provided by Italian law. In this case, it is obviously a separate asset with its own market, even if it must be recognised that the market is kept within national boundaries because of the restrictions imposed by Community law.

145

Part 3 Suckler Cow and Sheep Premium Rights: A Comparative Study of France and the United Kingdom

In the 1980s, the organisation of the beef and sheep meat markets was based on an intervention system, whose scope was gradually shrinking, and a system of incentive and support premiums for producers whose impact was on the increase. The reforms made to the CAP in 1992 resulted in the fall of intervention prices on the beef market and changes to the premium system in the shape of limits on quantities. The 1999 reform continued the trend towards lower intervention prices and increased premium amounts within a roughly similar system (Reg. 1254/99 of 17 May 1999, Reg. 2342/99 of 28 October 1999). 1. Suckler cow premium

This premium had been in existence since 1980 and was reserved for non-milk producing farmers. In 1990 it was extended to mixed producers delivering less than 60,000 kg of milk. As from 1993, each farmer's right is calculated in the light of his particular historical circumstances on the basis of the number of animals for which premiums were held in 1991, 1992 or 1993 under the previous premium system, the choice of year being at the discretion of each Member State. Mixed farmers may benefit provided that their milk yield is now less than 120,000 kg. As from the year 2000 Member States have had the right to abolish this limit, the producers' individual reference being equal to the number of rights held by the producer on 31 December 1999, subject to an adjustment (hence possibly a deduction) designed to ensure that the Member State respects its national quota, and to the national suckler cow premium quotas themselves being reduced. Eligible suckler cows are female bovine animals of a meat-producing breed which are actually on the farm when the application is filed. They must also remain on the farm for at least 6 months. At least 80% of these cows must already have calved while the rest may be heifers. This premium right is designed to encourage extensive livestock farming inasmuch as it is linked to a factor of animal stocking rate. Animals taken into account in determining this ratio are male bovine animals benefiting from the suckler cow premium scheme or the special male bovine animal premium, sheep and goats eligible for premiums, together with dairy cows required to provide the producer's milk reference quantity. The areas concerned are the forage areas available for livestock farming on the farm. The ceiling above which the premium is not

146 paid was fixed at 3.5 LU/hectare in 1993 and then gradually lowered to 2 LU/hectare from 1996. l The stocking rate factor does not apply to farms of less than 15 LU. The amount of the suckler cow herd premium was fixed at 70 ECU per cow and per year in 1993, rising to 120 ECU in 1995, 163 euros for the year 2000, 182 euros for 2001 and 200 euros beyond that date. Member States are entitled to make a complementary payment within the limits of the envelopes defined at European level, to be paid per head and/or according to the area. The maximum amount for the year 2002 is 50 euros (with intermediate values for 2000 and 2001). An 'extensification payment' is allocated to producers situated below the maximum stocking rate factor. This payment amounts to 100 euros in the case of farms where the 'CAP stocking rate' is less than 1.4 LU/hectare, with Member States having the option of dividing this payment into 40 euros for farms having a density of between 1.8 and 1.4 LU/hectare and 80 euros for those with less than 1.4 LU/hectare (with an intermediate system for 2000 and 2001). 2 The Member States may also make supplementary payments per head and/or per hectare, within the global limits set by the European regulatory system. These payments may apply to suckler cows, male bovine animals, dairy cows, heifers, or may be added to the slaughter premiums.

2. Sheep compensation premium In the case of sheep, a variable premium is granted for ewes. The amount depends on the difference between the average market price recorded in the Community in the course of a year and the basic price fixed each year by the Council. This difference is expressed in ECU/kg, is calculated in the course of the first quarter of the following year, and determines the amount of the premium paid per ewe: the difference is multiplied by 16 in calculating the premium per ewe paid to producers of heavy lambs (each ewe producing an average of 16 kg of lambs per year). In the case of ewes producing light lambs, the premium is 80% of the premium for heavy lambs. As with suckler cows, the premium limit is fixed by reference to each producer's historical circumstances, i.e. the number of premiums granted for the 1991 production year (following applications made in 1992). This premium may be increased for Member States in which the number of premiums distributed in 1989 and 1990 was higher than that of 1991. In addition, a complementary premium of 5.5 ECU per ewe is allocated to producers in mountain or disadvantaged zones. In order to qualify, a producer must assume the risk and/or organise farming for at least 10 ewes (or goats in mountain areas), present for at least 100 days in the year. A ewe is eligi-

1 The expression 'Livestock Unit' has its origins in animal husbandry in which discipline it is used to standardise the counting of animals in terms of what they consume. It is therefore a source of confusion in the sense that we are here confronted with the notion of 'CAP stocking rate', i.e. a ratio calculated on the basis of quantities of premiums and not animals. A cattle farmer may thus be below 'CAP stocking rate' density ceilings whilst having a much greater zootechnical load because only part of his herd benefits from the premiums. 2 With regard to the application of this measure, only animals eligible for premiums (i.e. not dairy cows) and fodder areas not eligible for arable crop aids are taken into account. These fodder areas must include at least 50% of pastureland.

147 ble for the premium if it has given birth to at least one lamb or if it has reached the age of 12 months before the end of the retention period. 3. Constitution of a national reserve

For suckler cow and sheep premium rights, a national reserve was set up to allow certain producers to receive additional premium rights. This national reserve was to be created in 1992 and to contain between 1 and 3% of the total of the producers' individual references of the Member State in question. These original quantities of the national reserves were constituted through levies on the premium rights of individual producers. The Member State made use of the reserve when allocating - - within the limits of the reserve - - premium rights to producers: - having applied for a premium before 1992 and shown that the application of ceilings endangers the viability of their farm, given the operation of an investment plan before 1993, - having submitted an application, for the year 1991, for a premium which, due to exceptional circumstances, no longer corresponds to the present situation, - not having applied for a premium in 1991, - having acquired part of the land used for cattle or sheep farming by other producers. The 1999 reform retained the principle of a national reserve, to be supplied by unused premium rights and levies on any transfers organised by the Member States. The reserve is used for the benefit of new farmers, young farmers and other priority producers. European regulations also require Member States to take the necessary steps to ensure that premium rights are not transferred away from sensitive areas or from regions where beef (or sheep meat) constitutes a crucial element in local life. 4. Loss of rights

Community regulations insist that a certain percentage of the premium rights be used in the course of the year for which they are allocated to the producer. The use of a premium right is constituted by the application for a premium or by the loan of a premium right to another producer. EEC Regulation 3886/92 ruled that a producer must use at least 50% of his rights for himself in the course of at least two consecutive years over a five-year period, failing which the unused part is paid into the national reserve without compensation. In the light of the worsening situation on the meat market, aggravated by the BSE crisis, the system was made more restrictive in order to reduce the number of rights available and thus indirectly the supply of meat. During the 1995/96 production year, the minimum percentage of fights which producers were obliged to use was raised to 70% over a year. From the 1996/97 production year, and up to 2000, suckler cow premium rights were taken back if the rate of use failed to reach 90%. They were frozen in the national reserve and could not be reassigned. As from the year 2000, the minimum rate for the use of rights is set at 70% over one year; this rate may be increased up to 90% by the Member States. The increase in the percentage of rights which have to be used if they are not to be surrendered to the reserve has given rise to a situation in which cattle farmers tend to farm more cows than the number of premium rights in their

148 possession in order to withstand the normal vagaries of animal husbandry without running the risk of losing rights.

5. Transfer system The European regulatory system provides for two transfer systems - - one for total and one for partial farm transfers. - If the farm in its entirety is transferred to another producer, all the premium rights may be transmitted with the farm. - In the event of partial transfers, it is stipulated that Member States may authorise the transfer of rights directly between producers or indirectly through the national reserve; they may also impose a levy of as much as 15%, paid into the national reserve, on quantities transferred. - Finally, provision is made for the temporary transfer of premium rights, applicable on that part of the rights which the producer does not intend to use. A temporary transfer may be renewed for three successive years. As with partial transfers, Member States have the right to insist that temporary transfers pass through the national reserve.

6. Contrasting policies To illustrate how the system works in practice, we set out below details of the situation in France and the United Kingdom. We have chosen these two countries in preference to Germany and the Netherlands as the latter have few suckler cows or sheep and are not particularly concerned by the system. In the case of France, which possesses the largest number of suckler cows in the EU, suckler cow premium rights are of crucial importance, particularly for certain highly specialised regions. In keeping with its general approach to the agricultural sector, France has opted for a policy involving the maximum amount of administrative control. It has made use of the highest permitted rates of levy, both initial and during transfers, in order to give as much power as possible to its national reserve and consequently to the departmental commissions responsible for implementing the system. It has also defined a very low administrative value for premium rights, which, of course, is not respected by producers in their direct transactions. For its part, the United Kingdom, which possesses the second largest suckler cow population in Europe, has inclined towards a moderately liberal approach somewhat at odds to its attitude to management in the field of milk quotas. Two factors have contributed to this state of affairs. In Great Britain, suckler cow farms, and in particular sheep farms, are of vital importance in underprivileged areas, notably in Scotland. The British Government has chosen a fairly strict interpretation of the request for protection of sensitive areas as formulated in the European regulatory system. Moreover, since premium rights are allocated to producers, tenant farmers are in a position to sell them, thereby depriving the lands reserved of all rights. Partial transfers are 'siphoned' at the highest rate (15%) in order to provide allocation for the reserve, which is thus in a position to offset these losses through fresh allocations.

149 In passing, it may be noted that in Germany premium rights are managed in a very liberal way. The prices of transferred rights are roughly 50% of the annual amount of the premium (Meinhardt, Pr6tt, Schmidt, 1996, p. 72), slightly less than the figures for France and the United Kingdom.

This Page Intentionally Left Blank

151

S u c k l e r Cow Premium Rights: an Issue o f Regional Importance in France Denis Barthdlemy, Andr~ Leseigneur

1. T h e

national

context

The introduction of cattle premium rights must be seen in the context of a structural modification of the cattle herd. In France, as in the other countries of the European Community, the implementation of milk quotas in 1984 led to a reduction in the number of dairy cows: producers reacted to the limits set on their milk deliveries by intensifying through a reduction in the number of cows. Between 1983 and 1993, the dairy cow population fell by 36%. The same trend was at work with male bovine animals whose numbers dropped by 20%. In compensation for this, specialised beef meat farming has developed, with the number of suckler cows increasing by one million (Table 1).

Table 1 Cattle population in France (thousand head) -

D~) ~ow'~' Suckler cows Male bovine animals ,

,

1 9 8 3 '1990 1991' 1992 - 1993 '1994.... 1995 1996 1997' 1998 i999 7,195 5,271 4,968 '4,642 4,615 ""4,75z~'4,672 4,5~i7 4,453' 4,433 4,419 2,901 3,666 3,772 3,932 3,951 4,005 4,109 4,151 4,077 4,049 4,068 4,565 3,638 3,578 3,505 3,498 3,629 3,584 3,559 3,389 3,435 3,471

Source: AG'PESTE , -- Livestock surveys'.

In total, beef meat accounted for 14% of French agricultural production in 1990, i.e. 31% of animal production. There are 61,400 farms predominantly involved in beef meat production, that is a little more than 10% of the total number of farms. In point of fact, leaving aside the question of the organisation of the beef meat sector at a time when consumption in France and in Europe as a whole is on the decline, production remains an important issue at regional level. Suckler cow farming is chiefly concentrated in the permanent pasture areas of the Massif Central, the Centre of France and the Vend6e where it has traditionally predominated and where few if any possibilities for alternative systems exist, especially now that access to milk production is blocked. Cattle premium rights constitute a support to a production which is the sole means of preserving agricultural employment over vast stretches of land.

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Barthdlemy - Leseigneur

2. The implementation of suckler cow premium rights in France 2.1. A system favouring extensive farming When the Community regulation was introduced in 1992, France chose 1992 as its reference year from among the three years proposed. In order to give itself as much latitude as possible, the French Government decided to apply the maximum 3% levy rate, to which was added the 1% earmarked for the disadvantaged zones. Thus the national fund was well stocked from the outset. France has always availed itself of the right to add a national complement to the amount paid by the EU. For the year 2000, the maximum sum of 37 euros is paid for the first 40 cows of the herds, a reduced rate of 12.6 euros being applied to the rest. Slightly higher amounts are scheduled for 2001 and 2002. Table 2 Premium amounts per producer in 2000 by stocking rate and herd size

Stocking rate categories per

Amount of premium (FF) EU funding

hectare

Total for each of the

French supplement

first 40 cows

First 40 cows

Next

> 2 LU/ha

1,069.21

242.70

82.65

1,311.91

1.6 to 2 LU/ha

1,069.21 +216.00

242.70

82.65

1,527.91

< 1.6 LU/ha

1,069.21 +433.00

242.70

82.65

1,744.91

Source: Chambres d'Agriculture.

In addition, France has created a special 'grass premium' for farmers whose stocking rate is less than 1 LU per hectare, according to a definition based on the number of animals present, l Producers whose stocking density lies between 1 and 1.4 LU per hectare are also eligible provided that the pastureland represents at least 75% of the farmland. Farmers must pledge to maintain their farming activity for five years, not to reduce their pastureland and to keep application of fertilisers below a certain level. Furthermore, the premium rate drops when the stocking rate falls below 0.6 LU per hectare (and drops even further when the rate is less than 0.6 LU per hectare). This is designed to prevent a measure in favour of extensive agriculture from being transformed into a support for wasteland. The grass premium was 200 FF per hectare in 1993 and 250 FF in 1994. It climbed to 300 FF as from 1995 with an upper limit of 30,000 FF per farm. This premium was originally scheduled to last until 1997, but has in fact been regularly renewed since then. 2 This national premium comes into the category of agri-environmental measure and as such is quite distinct from suckler cow premiums. It is a premium per hectare, based on an effective stocking rate and allocated irrespective of the presence or otherwise of suckler cow premium rights. The existence of these rights must, however, be taken into account as their complementary role is far from being negligible, notably in the case of farms which have

1 This 'technical stocking rate' allows all herbivores to be included in calculations, with bovine animals aged between 6 months and 2 years counting for 0.6 LU, and thereafter 1 LU. 2 In 1999, 65,000 farmers working an area of 4 million hectares participated in this 'grass premium'.

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Suckler Cow Premium Rights: an Issue of Regional Importance in France

already adopted an extensive production system in order to take maximum advantage of suckler cow premium rights and their complements. By combining these different means at their disposal, farmers - - and particularly those operating in extensive farming zones in most cases below the 2 LU per hectare threshold J can amass substantial premiums, in the region of 1,600 to 1,900 FF per suckler cow. This figure is set to increase slightly in the coming years as premium amounts will increase until 2002. In 1998, to take the example of the suckler cow farms of the highly specialised Allier department, premiums represented 40% of the gross farm product, i.e. 160% of disposable income. 2.2. Transfers True to its logic of administratively controlled production rights, France has opted for a system in which partial transfers have to be made via the national reserve, associated with a 15% levy of rights transferred into the reserve. In other words, a farmer wishing to divest himself of part of his premium rights, or of all of them independently of the other components of his farm, must transfer these rights to the national reserve. He will be paid for 85% of these rights, the other 15% constituting a 'free' levy. These rights are then reassigned to applicants classified in order of priority. The rights corresponding to the 15% levy are allocated free of charge while the compensated 85% are attributed at the acquisition price. The decree of 1 December 1993 fixed the transfer compensation at 5.4% of the amount of the suckler cow premium (Community and national contribution). As we shall see, this is an extremely low price. The same compulsory passage by the national reserve is found in the case of temporary transfers. In this context, the French Government also insists on free loans. 3. The departmental management of the national reserve

The concern expressed in the European regulation to protect sensitive areas against the loss of rights only serves to reinforce the French administratively controlled system's natural tendency towards departmentalisation, that is to say the placing of power in the hands of the departments. The creation of milk quotas and a corresponding national reserve in 1984 gave rise to impassioned debate and eventually to the choice of administration at department level, with effective power entrusted to joint departmental commissions. The same solution was adopted for suckler cow premium rights, each department acting as though it possessed its own production rights and thus having considerable powers of control and action at its disposal. As from 1993 (decree of 24/11/93 and Ministry of Agriculture circular 7032 of 10/12/93), the management of the national reserve was entrusted to the departmental administrative services, backed up by the joint commissions. 3 Their first task was to distribute the premium rights placed in the national reserve among the two categories of priority cases. Until 1 July 1995, the following categories were considered as super-priority cases: young farmers meeting the criteria for aid and having submitted a Projected Installation Study (E.tude Prdvisionnelle d'lnstallation) before 1/07/92; producers possessing a Material Improvemenl 3

Superseded in 1995 by the Departmental Agriculture Guidance Commissions ( C D O A

ddpartementale d'orientation agricole).

-

Commissiot

154

Barthdlemy - Leseigneur

Plan (Plan d'Am~lioration Mat&ielle); producers able to show that their allocation is insufficient and is endangering the viability of their farm in the light of the investments they have made, producers whose historical 1992 reference was rendered inadequate as a result of exceptional circumstances; farmers in difficulty benefiting from a financial recovery plan drawn up prior to 1/07/92. These categories are followed by a list of other potential priority cases: young farmers whose Projected Installation Plan was submitted after 1/07/92, producers applying for a premium for the first time in 1993, producers liable to find themselves in difficult circumstances through under-use of their capacity, producers recovering land previously used cattle farming, producers receiving land ceded by Rural Development Companies (SAFER). The departments are free to choose their priorities provided that pride of place is given to super-priority cases, within the limits if the quantities available. At the outset, the departmental reserve, that is to say the departmentalised national reserve, was constituted by 3% of the rights levied on the individual references, increased by 1% in the case of disadvantaged zones. To this has been added, in the course of time, the amounts (15%) levied on partial transfers, and the fights retrieved from producers for non-use. The reserve must also simultaneously administer compensated rights, that is to say the proportion (85%) of partial transfers for which financial compensation is paid. Finally, the reserve is also responsible for the administration of temporarily loaned rights (for one year, renewable). Against the complex and cumbersome nature of the system must be set its undeniable success in mobilising the farming community thanks to a real local interest and the commitment of professional representatives. It is no accident that the rate of use of suckler premium rights has always been higher in France than in other Member States : the figures in 1997 for France and the other Member States are respectively about 95% and between 85 and 90%. And when, in 1996, it was decided at Community level to raise the individual lower limits of use of premium rights to 90%, with recovery and freezing of the non-used fraction of the rights in the reserve, most of the French departments concerned by this measure conducted an extremely active policy. The Departmental Boards of Agriculture moved quickly to contact producers in danger of finding themselves in a situation of under-use in order to warn them that they were liable to have to surrender their rights to the reserve and to advise them to transfer or loan these rights temporarily if they did not intend to use them in the near future. In the context of sustained local union activity in favour of the protection of departmental production potential, this initiative was rewarded with very positive results.

4. Departmental administration: issues and practice The list of priority cases eligible for premium rights, as fixed by decree at national level, is at once long and relatively vague. This deliberate lack of precision, the result of discussions between the Ministry of Agriculture and the national farmers' federations, is designed to give the departments ample room for manoeuvre, encouraging them to adapt national policy and to assume their responsibilities. It therefore comes as no surprise to learn that different French departments have in fact adopted widely different approaches both at theoretical and practical level. This divergence comes out very clearly from a comparison of the policies pursued by the Allier and the Sa6ne-et-Loire departments. These are the two leading French departments in terms of the number of suckler cow premium rights and both of them are characterised by the preponderance of specialised suckler cow farms.

Suckler Cow Premium Rights: an Issue of Regional Importance in France

155

4.1. Determination of local standards

Differences emerge first of all in the order of classification of priority cases. Both departments give pride of place to young entrants, but whereas the Sa6ne-et-Loire grants equal status to farmers in difficulty benefiting from a financial recovery package, this category is ranked only seventh in the Allier, behind those involved in expansion through taking back land and cattle from a person ceding his rights to the reserve (partial transfer). Elsewhere, the Allier ranks mixed dairy-meat farmers in 14th and 15th positions (out of a total of 19) whereas this category is not specified in the Sa6ne-et-Loire, the equivalent of putting them in the category open to all active producers, i.e. in 6th and last place. (The decision to create fewer categories gives the commission greater latitude in dealing with individual applications.) The same diversity is apparent in the different methods used to calculate priority thresholds and the quantities of premium rights which can be allocated to applicants, depending on their particular situation. The Sa6ne-et-Loire has opted for a system of shares. Each share corresponds to a level of support fight enabling a farmer to attain an income considered desirable by the departmental commission: one share is equal to 36 hectares of land eligible for premiums in the case of cereal and protein land or 67,000 litres of milk quotas or 21 suckler cow premium rights. The number of shares to which each applicant can lay claim is determined on the strength of his status: two shares are automatically allocated to each farm to cover financial needs, plus one share for the head of the farm, one share for the spouse if she/he works full-time on the farm (reduced in the case of an outside activity), and possibly one share in the case of salaried labour. The particular circumstances of each situation are thus taken into account in calculating the maximum quantity of rights to which the applicant may lay claim. The Allier has applied different methods over the years. In 1994, the allocation ceiling was determined in proportion to the forage area or the quantity of labour present on the farm, weighted by a coefficient reflecting the classification level on the priority list. Starting in 1996, a premium rights ceiling was calculated by referring to a bovine animal stocking density per unit of forage area (based on the animals present) and/or a bovine animal stocking density per unit of labour available for bovine animal farming, i.e. minus the work share deemed necessary allowing for crops and intensive livestock farming present on the f a r m - all weighted as before. In 1998 the department opted for an income-driven system closer to that pertaining in the Sa6ne-et-Loire, taking into account those actively involved in the farm (but applying a different set of criteria to those in force in the Sa6ne-et-Loire) and an equivalence table of income generated by the various productions, retaining those eligible for support rights and intensive poultry and pig farming. Both departments show their commitment to extensive farming by including among their criteria a final maximum density of 0.7 and 0.8 rights per hectare of forage land in the Allier and Sa6ne-et-Loire respectively (corresponding roughly to a global stocking rate of less than 1.4 LU per hectare). By way of comparison, we may look at the situation pertaining in the Loire (65,000 premium rights) which borders on both these departments and which has not implemented such equivalencies. The Loire is notable for a high proportion of mixed dairy-meat farms, giving rise to tension with specialist suckler cow farmers. In this department, everything centres around one principle: a young entrant may obtain milk quotas up to a final limit 150,000 kg of milk or references allowing him to attain a maximum of 60 suckler cow premium rights. The diversity of farming systems makes the determination of production equivalencies

156

B a r t h ~ l e m y - Leseigneztr

a hazardous undertaking with possible legal complications. Moreover, those specialising in suckler cow farming, particularly concentrated in the north of the department, are worried about a shift of rights towards the mixed herds of the south, and lobby for allocations calculated to preserve their type of farming. In short, the departments make full use of their freedom to define priority cases and the criteria for distributing the rights of the reserve. This freedom is exercised within a fixed legal framework but is also sometimes stretched to the limit, as we have seen in the case of the Allier where priority candidates include those acquiring land and cattle from farmers ceding their premium rights to the reserve: the possibility considered corresponds to the definition of partial farm transfers obliging the transferor to offer his premium rights to the reserve, but including land and cattle in the priority list runs counter to the spirit if not the letter of the 1993 decree. At other times, the departments actually go beyond the limits. According to the decree, the transfer of an entire farm (what is called 'transfers-acquisitions') must involve all the land, whose area must not have been 'reduced by more than 15% in the three years preceding the transfer' (thus a reduction carried out before the transfer), farm buildings and the corresponding cattle population. Along with many other departments, the Sa6ne-et-Loire interprets this rule in a wide sense, authorising transfers-acquisitions including premium rights and covering 85% of the land and a cattle population corresponding to 90% of the transferor's original stock, but choosing to ignore the previous three years. Moreover, a young farmer setting up through entire transfer is not under any obligation to purchase animals. 4.2. Practices: issues and divergences The diversity of departmental policies may be seen at work in areas other than the list of principles and action criteria adopted by the Departmental Agriculture Guidance Commissions. Farmers' representatives sitting on these commissions themselves reflect various strands of opinion in the agricultural world. Broadly speaking, there is a division between those who seek a strict administrative management designed to promote the prospects of young entrants and the medium-sized family farm unit, and those who wish to see looser controls which would enable farmers to expand and become more competitive. Within the Departmental Agriculture Guidance Commissions, professional representatives tend to use the means at their disposal to promote their own preference. In view of the emphasis placed on the need to help young entrants, and given the extent of the institutional and financial resources made available, it would nowadays be unthinkable for a person with professional responsibility not to subscribe to such a priority. However, a uniform official discourse does not preclude different commissions from acting in different ways at a practical level. In the Sa6ne-et-Loire, there is a fairly broad consensus among farmers' federations in favour of encouraging young entrants and the strengthening of the medium-sized farm unit. Between 1993 and 1999, 78,000 of the department's 213,000 premium rights were transferred definitively, i.e. almost one third of the reference quantities. As about a half of these operations passed through the reserve, it is easy to see that the management of the reserve is far from being a matter of minor importance. In 1993, the Sa6ne-et-Loire reserve was constituted by the 3% levy on individual references plus the 1% contribution by Brussels for disadvantaged zones, giving a total of about 8,000 rights. In the same year, a little more than 2,000 rights were allocated to young entrants. The remainder was not distributed but left in abeyance pending clarification of situations and a

157

Suckler Cow Premium Rights. an Issue of Regional Importance in France

definition by the commission of priority cases and allocation criteria. Subsequently, the reserve was stocked by 27,100 rights from partial transfers, while 43,100 rights were transferred directly by transfers-acquisitions between farmers. Lastly, as we have already had occasion to note, the Sa6ne-et-Loire took effective steps as from 1997 to encourage producers who were not making use of their rights to lend them rather than allow them to be frozen (Table 3).

Table 3 Movements of suckler cow premium rights allocated by the reserve or transferred by entire transfer in Sa6ne-et-Loire and the Allier Dept

Transfer type

1993

1994

1995

1996

1997

1998

1999

All

Sabne

From

Temporary 4,387

et Loire

reserve

Def'mitive* 2,236 11,569 5,799 4,699 3,905 3,886 2,973 35,067

210,000

4,748 2,632 2,300 5,119 6,089 6,042 31,317

Entire transfers

12,112

5,267

4,591 6,879 6,915 7,343 43,107

rights

Total def'mitivetransfers

25,917

11,066

9,290 10,784 10,801 10,316 78,174

Allier

From reserve

190,000 rights

Temporary 6,994

Definitive* 5,764 Entire transfers 9,578

463

3,359 1,974 2,137 3,330 3,217 21,474

9,630 6,022 6,714 3,505 2,823 2,884 37,342 6,154 8,328 9,874 8,736 8,167 7,514 58,351

Total definitive transfers 15,342 15,784 14,350 16,588 12,241 10,990 10,397 95,692 compensated Source: ADASEA and DDAF 03 (Allier) and 71 (Sa6ne-et-Loire).

In contrast to the situation in the Sa6ne-et-Loire, the farmers' federation in the Allier was split into two camps, one of which advocated a similar approach to that adopted in Sa6ne-et-Loire while the other sought a more liberal approach. The resulting neutrality of the Departmental Agriculture Guidance Commission has given greater power to the Departmental Board of Agriculture in handling transfers by the reserve but not to the extent of allowing it to define and impose a line of action on its own. The outcome has been a policy tending above all to favour concentration-- at any rate more so than in Sa6ne-et-Loire. The global reference of the Allier is about 190,000 rights, of which 95,000 were transferred between 1993 and 1999. The initial reserve was made up of roughly 7,000 rights from the 3% levies and the 1% contribution for disadvantaged zones. On this quantity; 2,700 rights were allocated to priority cases as defined at national level and a further 2,000 were used to satisfy all the applications made at that time without reference to any particular criterion. The remaining quantities were made available for temporary loans. In 1994, the Departmental Board of Agriculture set up a first system of allocation based on the pasture areas and the total amount of labour, as previously mentioned. This system aroused criticism on account of its lack of precision and was also considered difficult to put into effect, the result being that it was replaced in 1996 by another scheme which limited the labour taken into account to the workforce involved in bovine animal farming. It was not until 1998, and the progressive reduction of the quantities available in the reserve, that the Departmental Agriculture Guidance Commission finally got round to defining the method for distributing the premium rights. During this period, 30,300 rights found their way into the reserve via partial transfers, while twice as many, i.e. 58,000, were transferred by entire transfer (Table 3). It is also inter-

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esting to note that the Allier shows far less inclination than Sarne-et-Loire to encourage its farmers to loan their rights rather than to allow them to be frozen. Overall, therefore, 37% of the departmental reference was definitively transferred in Sarne-et-Loire between 1993 and 1999 as against slightly more than 50% in the Allier. Similar percentages apply for the rights transferred by the reserve in both departments, but the volume of rights transmitted by entire transfer is almost one-and-a-half times higher in the Allier. The accepted opinion on the ground is to the effect that the control of business structures 4 in the Allier, providing a means to putting a brake on entire transfers leading to too great a concentration of areas (and rights), is applied more loosely than in Sabne-et-Loire, with the result that farms are allowed to expand more quickly. An analysis of the dossiers attributing definitive rights from the reserve during the period between 1995 and 1997 also brings to light a fairly pronounced difference in practices. In the Sarne-et-Loire department, 14,403 rights were ceded to 3,881 beneficiaries, an average of 3.7 rights per allocation. In the AUier, a similar quantity of rights (16,241) was distributed among 1,648 beneficiaries, i.e. an average of almost 10 rights per dossier.

5. Premium rights, extensification and land ownership Unlike milk quotas which are linked to farming land, suckler cow premium rights are allocated directly to the producer, independently of any other attachment. The producer is free to transfer these fights - - whether definitively or temporarily, partially or in whole. In the event of lease, the producer is the tenant which means that he keeps the premium rights even if the owner recovers the land in question. There is, however, an indirect link between premium fights and the land. As we have seen, the suckler cow premium right is linked to a stocking rate which works in favour of extensification. The French 'grass premium' creates a situation in which, in order to derive maximum benefit from the premiums, a producer needs to have access to extensive land areas, the result being dependent on the land available. Suckler cow farming areas went through a particularly difficult time in the 1980s. The declining demand for meat and the lack of adequate support led to sizeable cuts in income for producers. In the suckler cow areas of the Massif Central, the departments were chiefly worried by the disappearance of farms and the abandonment of the land. The landowner was confronted by the very real worry of not being able to find a new tenant to replace the departing tenant farmer. The situation has changed completely since 1992. Farmers have sought to expand their land so as to reduce their cattle density and thus qualify for the maximum number of premiums. They have been encouraged to do so by the departmental commissions, which have included stocking rate ceiling criteria for the beneficiaries. The outcome has been a pronounced increase in demand for agricultural land, whether for purchase or rent. The rush to get rid of land has been replaced by a race to acquire acres leading to a rise in rent prices and land values. In 1982 the average national price of meadowland was 19,150 FF per hectare. By 1994 it had fallen to 14,000 FF per hectare, a drop of 25%. Between 1994 and 1998, it increased by The enlargement of a farm resulting from the reduction in size of a small farm, or leading to certain limits being exceeded, is submitted to a 'control of structure', in other words an authorisation from the Departmental Agriculture Guidance Commission. 4

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5%, particularly towards the end of this period. In Sarne-et-Loire, the price fell by 37% over the first period before stabilising in the second, whereas in the Allier, the price of permanent pastureland dropped by 45% between 1982 and 1994, rising by 18% in the years between 1994 and 1998. We may see the same trend in action on the rental market, with the initial fall in prices subsequently being stabilised. Landowners do not derive any direct benefit from premium rights and cannot act on them. Nevertheless, the bias towards extensification built into the system works in their favour. 6. The value of suckler cow premium rights The French system of administrative control is in essence one in which production rights have no value. With the suckler cow premium rights this system was confronted by a regulation obliging it to pay the premium rights acquired by the reserve through partial definitive transfers. 5 The 5.4% compensation of the premium amount fixed by the French authorities worked out at 62 FF in 1998 and 71 FF in 2000, a paltry sum compared to the value which farmers are prepared to accept. However, the low level of the sum, fixed by decree of the Ministry of Agriculture, cannot be challenged in the courts since there is no free market in suckler cow premium rights which would make it possible to draw comparisons and to prove that the administrative compensation does not correspond to what would be paid by direct transfer between producers (in the case of total transfer, there is no way of individualising the price of premium rights precisely because the entire means of production is transferred en bloc). In actual fact, the transfer compensation is purely and simply the result of the need to adhere to the European regulation. From the French point of view, it is quite clear that premium rights should have been completely free. On paper, therefore, the value of suckler cow premium rights is as indicated above. In actual fact, however, values are upgraded. As with other production rights such as sugar beet and milk quotas where market forces are not allowed full rein, roundabout ways are found to establish value: for example, additional value is attached to other elements transferred at the same time as a way of making up for the absence of price assigned to premium rights. In Sarne-et-Loire, for example, land transferred at the same time as premium rights is leased at between 1,200 and 1,400 FF per hectare and per year, whereas grassland without premium rights fetch about 1,000 FF per hectare only. In the Allier, farm rents have tended to rise, moving roughly from 600 to 1,000 FF per hectare, peaking at 1,500 FF per hectare; the highest values correspond to the largest amounts of premium rights. 6 Similarly, animals may be overvalued when they are transferred at the same time as premium rights. In the normal course of events, prices of cattle transfers are fixed on the basis of market rates, but farmers consider that when a suckler cow is transferred along with its premium fight its additional value should lie between 300 and 1,500 FF. 5 The 1992 regulation stipulated that, in cases where the Member State insisted on the partial transfer of suckler cow premium rights being made in favour of the reserve, the reserve should pay an amount equal 'to that which would have been engendered by a directpaymentbetweenproducers'. 6 The prefectorial decree fixing the range within which rental prices must be comprised does not take premium rights into account. It should also be noted that, in practice, the maximum values attained for land carrying premium rights are well above the maximumstipulated by the decree.

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Farm buildings represent another way of providing added value. Since it is virtually impossible to attribute an objective value to this type of building, the way is open to attach a value to premium rights despite the legal barrier to such a practice. All in all, and allowing for the fact that it is difficult to advance figures for these essentially 'under-the-counter' transactions, we may perhaps talk in terms of a value of about 300 tO 500 FF per premium right in Sa6ne-et-Loire, as against 1,000 to 1,500 FF in the Allier where competition is fiercer and farm supervision perhaps less active. This constitutes a cost representing between one-half and one year of premium. 7. Outlook 7.1. The difficulties of the administratively controlled system The administratively controlled management of suckler cow premium rights is brought face to face with certain contradictions, and has increasingly to contend with difficulties. Quite naturally, the aim of the departments is to secure as much finance as possible. Since the total of premium rights is to all intents and purposes fixed, attention tends to focus on the complementary finance to be derived from the extensive element, with density criteria being included in the allocation systems. At the same time, in order to process the allocation requests from the reserve with as much economic fairness as possible, the departments make a point of taking into account all aspects of the farmer's situation. In other words, they count potential income from other assisted productions and even all farm productions. In this way, premium rights are seen, in a manner of speaking, as a vehicle for offsetting the applicant's revenue shortage. The logic behind this practice is that it is best not to have other sources of income if one wishes to obtain the maximum quantity of rights; farmers are all the more inclined to follow the dictates of this logic given that assisted productions are, almost by definition, less risky undertakings than other types of production. The tendency is, therefore, for departmental management to favour the specialisation of extensive systems, i.e. with about 50 to 60 suckler cows per 60 to 80 hectares, producing unfattened animals. This system, overwhelmingly typical of French suckler cow farming, gives rise to intermediate products, namely animals which are fattened elsewhere, in many cases in Italy. The administrative and professional authorities are thus confronted with a contradictory situation. On the one hand, they are responsible for allocating fights in favour of extensive farms, but on the other hand they disapprove of the excessive specialisation of their regions in this kind of farming, wishing instead to encourage the development of local fattening for increased added value. In short, they find themselves drawn into a process which makes the departments increasingly dependent on premiums and increasingly geared to extensive farming which, at the end of the day, means fewer farmers. Another element to be taken into account is the gradual reduction of the reserve through exhaustion of the initial allocation and the reduction of contributions. In the two departments of Sa6ne-et-Loire and the Allier, definitive transfers have been considerable since, in the space of seven years, they covered respectively 50% and 37% of the departmental reference. Rights transferred directly between producers, by entire transfer, account for the bulk of such transfers. In 1995, contributions to the reserve linked to partial transfers corresponded to about 6,000 fights in both departments, falling by about 50% in both cases between 1995 and 1999. Over the same period, the proportion of transfers by entire transfer held up well. Quite understandably, farmers prefer to transfer their farm in its entirety since they can then exploit

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their premium rights whereas in the case of a partial transfer they have to cede these rights to the reserve for a derisory price. Thus, after the initial influx resulting from the levies of 1993, the departmental reserves are tending to diminish. There is a considerable traffic in premium rights but it is tending to escape administrative control. There are no national figures for direct transfers by entire transfer, only contributions to the reserve and allocations being recorded. Generally speaking, departments try to combat the concentration of rights: the average yield from partial transfers, which dropped from 15 rights in 1994 to 10 in 1999, was used to give an average allocation of six to seven rights over the same period. Table 4 National reserve: definitive contributions and allocations

. . . . . . . . . . . Initial 'allocaiion .

.

.

contribuiions.

Aliocations

~54,200 .......

1993 1994 1995 1996

64,370 66,800 44,950

101,190 109,670 95,100

1997

68,300

114,400

1998

73,700

71,700

1999

68,700

68,000

Total

.

.

.

.

.

575,100 . . . . . . . .

565,400

Note: thetableis incompleteand distorted due'to lack of informationco'ncemingtlae contributionsand alloca- tions for 1993. Source: CNASEA and personal estimations.

Quite clearly, administratively controlled management is finding its ability to act increasingly curtailed. The national table of contributions to the reserve and allocations (Table 4) shows that the departments have been relatively slow to exhaust the means made available by the initial levies: the suckler cow population is low in a certain number of departments and there are fewer applications for premium rights. Moreover, contributions to the reserve, to a large degree no doubt the result of transfers related to pre-retirement aid programmes in recent years, are tending to diminish. (The upsurge of 1997 and 1998 must be seen as an exception explained by the threat of a freeze on unused rights and the consequent pressure exerted by the departmental authorities to retrieve these rights.) Unless changes are made to the transfer regulations, the available resources of the reserve, and thus the departments' scope for action, will in the long run be only half, and perhaps even less, of what they have been since 1994. In any event, although the Berlin reform has not modified the position in this respect, French farming federations are now keen to raise the matter again so that Member States can decide to insist on premium rights passing through the reserve in the case of total far-m transfers (as is already the case with partial transfers).

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7.2. C a n a suckler cow herd be m a i n t a i n e d ?

France has the distinction of possessing the largest European bovine animal population, within which the suckler cow herd is a greater proportion than the male bovine animal herd (Table 5). The difference between Germany and France could hardly be more pronounced, the former possessing an essentially dairy or mixed livestock sector and raising male bovine animals from this population, and the latter possessing a suckler cow population which is in the process of overtaking the dairy herd population. In 1999, France's 3,855,000 suckler cow premium rights represented 37% of the European total and almost double the number of its male bovine animal premium rights. It would be possible to change towards a production based more on dairy-herd products but at the price of a shift in production to the dairy regions of western and north-eastern France and a fatal crisis in the grassland regions of the Massif Central. In the Berlin negotiations, France defended its suckler cow population, i.e. suckler cow premium rights over bovine animal premium rights. Table 5 1999 bovine animal population in the six EU countries with the largest cattle populations (thousand head)

Bovine category "'

13.

D

UK

I

IRL '"

E

'EU(15)

Dairy cows

4,419

4,644

2,438

2,135

Suckler cows

4,068

780

1,906

664

Male bovine animals

3,471

3,251

2,789

1,585

2,402

437

16,637

20,'196

14,488"'

1i,281

7,357

6,708' '

6,203

82,229

TOTAL

"'

i,261 ...... 1,236 -' 21,095 1,132 1 , 8 1 2 11,941

,

,

.....

Source:Eurostat.

The compromise worked out in Berlin to compensate for the programmed 20% drop in the support price of bovine meat results in an increase in both kinds of premium (suckler cow and male bovine) in roughly equivalent proportions (and to the creation of a slaughter premium). The volume of suckler cow premium rights is set at the highest level of use for 1995, 1996 or 1997, increased by 3.7%. 7 This corresponds to a reduction of the overall volume, but in relative terms tends to work to the advantage of France, given the effective pressure exerted at local level to use these rights during these three years. At the same time, the Berlin reform provides for an extensification premium for producers enjoying male bovine or suckler cow premiums (as well as for dairy farms in mountain areas). The density factor adopted for this premium takes into account the animals actually present on the farm and insists that at least 50% of the land considered should be pasture. This additional extensive premium favours suckler cow farming which tends, almost by definition, to be extensive.

7 It is worth noting that, where France is concerned, this 3.7% diminution is applied by a reduction of 1.25% for departments with mountain zones and 3% for the rest. The corresponding 75,000 rights are taken from the departmental reserves, which for practical purposes means that the scope for attribution by these reserves in the year 2000 is virtually nil.

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A Moderately Liberal Approach in the United K i n g d o m Jean-Pierre Boinon, Edward I1. Perkins

1. The national context

As in the other countries of the European Union, sheep and suckler cow premium rights were paid to British producers between 1989 and 1991. The ceiling placed on premium rights in 1993 resulted in a levelling out of both sheep and suckler cow herds which had previously been on the increase (Table 1).

Table 1 Livestock development in the United Kingdom (in thousands of head) Number ....

Average....Average 1991' 1992 1993 " 1994 1995 i996 1997L i998 '1999 2006 84-86 86-88

Dairy cows 3,189 3,0-31 2,770 2,682 2,667 2,715 2,602 2,587 2,473 89 2,440 2,353 Suckler cows 1,335 1,368 1,669 1,699 1,781 1,806 1,836 1,859 1,856 1,947 1,924 1,879 Sheep 16,946 18,346 20,334 20,385 20,727 20,707 20,668 20,383 20,543 21,260 21,458 20,888 _

_

............................

Source:MAAF,June Cens'u's.

In 1999, beef represented 14.5% and sheep meat 7.4% of final agricultural production in the United Kingdom. In 1996, farms based on the production of beef or sheep meat accounted for 34% of UK farms, i.e. 42,000 out of a total of 117,000 farms. In 1997, the United Kingdom supplied 25.3% of sheep production and 7.6% of beef production in Europe. 2. The 1992 reform 2.1. Suckler cows

In the wake of the 1992 reform, the British Govemment decided not to finance complementary aid out of its own budget. Moreover, the suckler cow premium rights were initially allocated to producers who had filed an application in 1992 with a reduction of 1%--- the minimum specified by the European regulation m as a means of constituting the national reserve. Thus, in 1992, the United Kingdom disposed of 1,805,323 suckler cow premium rights, i.e. 15.9% of the premium rights for the 15 EU Member States. In 1995, the UK used 88% of these rights (1,590,866), slightly below the average rate of use for the EU as a whole (90.5%).

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As from 1997, there have been three levels of suckler cow premium rights, depending on the stocking level per hectare: - If this level is above 1.4 LU per hectare, the premium (1999) is worth just over s a head, including s a head from the national envelope introduced to help offset beef price cuts and a compensation to offset the abolition of the old agrimonetary system which unfroze the green rate of exchange. The amount of premiums paid is limited to 2 LU per hectare if the stocking exceeds this threshold. - If it lies between 1.0 and 1.4 LU per hectare, a premium supplement of s is granted. - If it is below 1.0 LU per hectare, the premium supplement is s In a suckler cow farming system with spring birth and sale of calves in the autumn, the suckler cow premium represented (in 1995) 60% of gross margin in the lowland farming areas of England (Nix, 1996). In the less favoured areas (LFA) of Scotland, the suckler cow premium amounted to 60 to 70% of gross margin (SAC, 1996). 2.2. S h e e p p r e m i u m

In the sheep sector, the United Kingdom chose 1990 as the base year for establishing the national quota (20 million ewes carrying premiums, i.e. 25.4% of the sheep premium rights of the 15 Member States of the EU), but opted for the year 1991 for establishing each producer' s individual quota. In view of the fact that the number of premiums distributed in 1990 was higher than that of 1991, the UK was able to set up a national reserve with 320,000 sheep premium rights in non-LFA zones and 130,000 rights in LFA zones. The national reserve represented about 2.2% of the total of sheep premium fights. In 1993 and 1994, the premium was paid at the full rate within a limit of 1,000 animals per producer in LFA zones and of 500 animals per producer in other zones. Beyond these limits, the premium was reduced by 50%. Since the 1995 production year, this ceiling has been removed by the European regulation but has not led to changes in national premium quotas. The only solution has been to reduce the number of premium rights allocated to each producer. Until 1995, there were two periods available for sheep premium applications. The first period, in October/November was discontinued in 1996. In the case of lowland areas where lambs are usually born earlier than in the mountain areas, this first period allowed farmers to benefit from the premium whereas they were not eligible, due to the retention criterion, for the second period which was retained. This no doubt is one of the reasons why demand for sheep premium fights is weak among lowland sheep farmers. The sheep premium is paid in three instalments" in August (30% of the principal premium plus virtually all of the supplement for LFA zones), in September (30%) and in April of the following year (the outstanding amount). In 1994 and 1995 the principal premium came to about s For 1996 (last instalment in April 1997) the premium was s (per ewe) to which was added s per ewe for LFA zones. In the LFA zones of Scotland the premium in 1995 was between 60 and 80% of sheep gross margin (SAC, 1996). In the lowland zones of England, it represented 45% of sheep gross margin in 1995 (Nix, 1996). Currently the basis premium is s for the year 1999, and s for the year 2000. Starting in 1997, the rules goveming the award of the sheep premium for LFA zones were strengthened. Hitherto, this supplementary payment was granted in cases where 50% of

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the farming land was in a LFA zone. Nowadays, an additional condition stipulates that this land must be used for sheep production, in the form of pasture or fodder production. In the case of suckler cows, the premium quota is allocated to the producer, irrespective of the legal status, whereas sheep premiums are attributed individually to each producer. Thus, in 1992, the members of an agricultural partnership (with the exception of private companies) had to divide up the premium quotas allocated to the partnership according to the shares held in the partnership. This measure was prompted by the fact that, in 1993, there was only a limited number of sheep premium rights available at the full rate. In the case of large farms enjoying partnership status, the allocation of a quota of individual premiums to each member of the partnership therefore had the effect of raising the threshold beyond which the premium amount was reduced by half. The limit per individual was changed in 1995" so that the premium rights exceeding the level of 1,000 in the LFA zones or 500 in the other zones, were converted into full rights by a reduction of 50% in the number of premium rights in excess of the threshold limits. 3. The national reserve

In the United Kingdom, in addition to the initial 1% levy, the national reserve has been supplied through a 15% levy on transfers of sheep or beef premium quotas. In 1996 and 1997, the reserve was also swollen by quotas which had not been used and to which the beneficiaries could therefore no longer lay claim. According to Ministry of Agriculture figures, the quotas added to the national reserve from this source would amount to about half the volume of the levies resulting from transfers. In the context of government policy in favour of sheep or beef meat production in sensitive areas, seven geographical areas were defined. Transfers of premium rights can only take place within each of these areas, and the national reserve (both in terms of levies and reallocations) is managed at the level of these areas: LFA zones of England, LFA zones of Wales, LFA zones of the Scottish Islands and Highlands, other LFA zones in Scotland, the rest of Great Britain, LFA zones of Northern Ireland and the rest of Northern Ireland. Producers in these areas, participating in environmental programmes imposing the extensification of their production system, are entitled to lease or sell quotas to producers in non-LFA zones and in reverse. In actual fact, however, this particular situation has not arisen despite the fact that it was specified at the outset, the reason being that the demand for premium quotas has been highest in the LFA zones because of the lack of alternative kinds of production. The proposed division, based as it was chiefly on the notion of LFA zone, was characterised by the plethora of boundaries between the numerous zones which in tum gave rise to difficulties in managing premium quotas for producers whose farm land was spread among several areas. In such cases, the regulation stipulates that the farm unit is considered as being entirely within the zone in which more than 50% of the land is situated (all farming land is taken into account, not simply the land given over to sheep or bovine farming). If the farm land is spread over several zones, none of which contain more than 50% of the land, all the areas are considered to fall within the LFA zones. If the farm has more than 50% of its land in a LFA zone, premium rights are allocated to the LFA zone in which the largest proportion of the farming land is situated. Thus, changes in farming land can result in changes in the farm attribution zone. Since the premium rights held by the producer were attached to the zone to

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which he originally belonged, he is not eligible for rights in the new attribution zone. He must sell the premium rights held in his previous attribution zone and buy premiums in the new zone. This injects a certain rigidity into the management of the system. Farmers often realise too late that their farm is no longer in the same zone and that they have therefore forfeited the premium for one year. On top of that, given that a premium transfer is required in order to rectify the situation, they lose the 15% levy made to the national reserve. Since 1997 the two zones in Northern Ireland have been merged in a single zone, and in 1998 the Ministry of Agriculture consulted the professional organisations with a view to reducing the number of zones. It was proposed to scrap the distinction based on the notion of LFA zone and to replace it by a single zone for each country (England, Wales and Scotland), but not for the time being to introduce total mobility of premium quotas with the United Kingdom. Such a reappraisal would have made it easier to manage the different national reserves and to satisfy a greater number of requests in the LFA zones. This would have resulted in an increase of sheep production potential in the LFA regions where a downward trend is observed in other areas of production such as milk. In November 1998, the Ministry of Agriculture, acting on the advice of producers and organisations, decided not to modify the zones. Such changes might have had negative repercussions for sheep producers in LFA zones by provoking an influx of cheaper lowland rights and hence diluting the value of the 'premium right' asset. At the same time, however, such a reform, if adopted, would not have had the same consequences for sheep producers in English LFA zones as it would for their counterparts in Scotland and Wales. In England, sheep premium rights in lowland areas represent 53% of total sheep premium fights, whereas the proportion for Scotland and Wales is respectively 10% and 9%. There would have been greater scope for retrieving sheep quotas for producers in LFA zones in England than in the other countries. Besides, it should not be forgotten that other income support measures for other types of production are bound up with the zoning system, and a merging of lowland and LFA zones would have necessitated a review of the regulations for these productions. There are several other difficulties. A farmer who has received quotas from the national reserve must use them over the next three years and may not sell or lease them. If, in the course of these three years, changes in the farming land leads to a change in the attribution zone for the farm, the quotas awarded by the national reserve will be lost and will not be compensated. Moreover, all producers claiming a suckler cow premium right or sheep premium supplement for LFA zones must submit a declaration of land use by 15th May of each year. This declaration will be the basis for determining a producer's attribution to a particular zone. The deadline for sheep premium claims is 4th February, which is also the deadline for leasing or selling premium quotas. A producer making changes to his land between 4th February and 15th May (when such modifications result in a change of the farm attribution zone) must obtain premium rights in his new attribution zone and submit his premium application in this new zone before 4th February, failing which he loses the premium. Proposals have been put forward with a view to making it possible to exchange premium rights held in one zone against those held in another zone without the obligation of national reserve levies.

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4. The beneficiaries of the national reserve

Premium quotas originating from the national reserve are allocated by the local Ministry of Agriculture offices. These offices handle the dossiers and allocate premium quotas to applicants according to a priority list which distinguishes six categories of beneficiary (seven in the case of the initial reserve of 1993). Applications from the producers belonging to the first category are dealt with first of all, followed by those from the second category, if there are premium quotas left, and so on until all the quotas available in the national reserve have been used. If, with respect to the last category to be satisfied, the total number of applications exceeds the quantity available in the reserve, each application is met with a reduction (for each beneficiary) proportional to the ratio between the applications and the balance available in the reserve. The professional farming organisations play no part in individual decisions regarding the allocation of premium quotas. The officials of the National Farmers Union, the leading agricultural union in the United Kingdom, do not wish to participate in the allocation commissions which are similar to those existing in France. On the other hand, they are involved at national level in formulating and classifying the different categories of beneficiary. Proposals from the National Parliaments had been made in 2000 to create a legal system composed of agricultural and government representatives to examine the appeals of farmers concerning the premium allocations and other questions involved in the livestock scheme. The order of these categories was established in late 1992 following consultation with the principal professional farming organisations. A first classification was drawn up for the allocation in 1993 of the premium quotas assigned to the initial national reserve. In 1994 and ensuing years, this order was altered either through the omission of categories whose presence was no longer justified once the quota system had been set up or through the addition of new categories of beneficiary. The first category concerns producers who, by virtue of their involvement in environmental programmes, had undertaken to reduce their number before 1991 or 1992. If the person adhering to such a programme in the form of contractual obligations over a limited period of time does not wish to renew these environmental agreements, he may obtain premium quotas from the national reserve in compensation for the reduction of his herd, and thus of his premium quotas, in the course of the reference year. This category was created as a way of warding off the sort of difficulties encountered with milk quotas, necessitating the creation of SLOM quotas. In actual fact, according to statistics made available by the Ministry of Agriculture, no applications were ever made (and hence no quotas ever allocated) in this category. This category has remained a priority since 1993. The second category, specifically mentioned in the European regulation, concerned producers who had received no (or insufficient) quotas as a result of the choice of reference year. In view of the fact that the United Kingdom had chosen for individual references the year 1992 for suckler cow premium rights and 1991 for sheep premium rights, producers who had regularly applied for premiums in 1990 and 1991 (bovine animal premiums) or in 1990 and 1992 (sheep premiums), but who had omitted to apply for the reference year are eligible for premium quotas under the second category. This category also includes producers who, owing to exceptional circumstances in the reference year, obtained no or insufficient premium quotas. Other beneficiaries in this category were sheep producers who had applied for the premium for the first time in 1992 and had received insufficient quotas during the initial share-

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out. The applications of second-category beneficiaries were satisfied from the first year, on the initial response. Three groups of producers are covered by the third category: - Producers taking over land on which the premium quotas have been removed by the outgoing tenant. Thus, when a tenant farmer leaves land without premium rights at the end of his lease (for example, he has sold these rights before the end of the lease), the incoming tenant may receive quotas from the national reserve. In 1994, this subcategory became the second category (the original second category applying solely to the year 1993). - Producers applying for premiums for the first time in 1993. - Producers with development plans, i.e. those providing proof of an investment plan launched before the implementation of premium quotas, since limitations to their premium quotas for the reference year might endanger their farm's viability. Producers in this final group were required to produce accounts and/or other documents showing why additional quotas were essential to maintaining their farm's viability. This situation had been anticipated in the Community regulation and it was the mission of the initial national reserve to meet such additional requirements. Nevertheless, the British Government imposed very restrictive conditions: the applicant had to supply written documents drawn up before 1 January 1993 and certified by an accountant, a management consultant or financial adviser. Such documents had to provide evidence of an investment plan committing the producer to increase his bovine or sheep population. In the wake of a legal action brought by 170 farmers and the NFU, the High Court, by a decree of 22 June 1995, ruled that these conditions were illegal. It is true that large number of producers were unable to provide such documents although they had in fact embarked on investment programmes prior to 1993. In the first instance, the Ministry of Agriculture decided to cancel all the allocations of 1993 in favour of producers who had obtained quotas thanks to a procedure deemed to be illegal. But quota allocations for producers lower down the priority list were also cancelled. In the summer of 1995, the Ministry decided to re-examine all applications from producers in this category and the other categories lower down the list so as to ensure that the new allocations complied with the legal ruling. The NFU reacted very strongly to this decision which resulted in the quotas allocated two years before being withdrawn from producers who had launched investment plans and had adapted the size of their herd to the number of premium quotas originally allocated to them. It asked the Ministry of Agriculture to look into the possibility of obtaining new premium quotas for investing farmers who in 1993 had fallen victim to the excessively restrictive regulation, subsequently declared illegal. It suggested that the national reserve could buy quotas or offer financial compensation to this category of producer, or ask the European Commission for additional quotas. As a result of the pressure exerted by the NFU, the Government went back on its original decision to withdraw the quotas allocated beforehand. A special reserve was set up based on the unused quotas of 1993 and 1994. This special reserve was designed to meet the demands of producers who had made investments necessitating an increase in their herd as from 1993 and who would now make an application under the new, less restrictive rules. If the quantities available in the national reserve should prove insufficient to meet these new applications, it was stipulated that quotas should be withdrawn from producers in categories

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169

3 to 7. In these circumstances, it was arranged that such producers would receive a compensation at a rate allowing them to buy equivalent rights on the market. The last two groups in this third category are w as with the second category - - producers who needed new quotas owing to their special circumstances at the time when the premium quota system was introduced. Here again, of course, these sub-categories disappeared after 1994. The fourth category, becoming the third category as from 1994, concerns producers in lowland zones who expand their sheep or suckler cow herds as a result of environmental programmes leading to the change of arable land into pasture. In 1994 a second group emerged in this third category: new farmers under the age of 40 who are not eligible to claim quotas under the preceding categories. New farmers over the age of 40 are included in the fourth category, starting in 1994. The fifth category of 1993 concerns farmers embarking on a organic agriculture aid programme. These farmers remained in fifth position from 1994 onwards. The sixth category of 1993 concerns farmers acquiring land previously used for sheep or bovine production but temporarily not put to agricultural use. These farmers remained in sixth position from 1994 and their ranks were swollen by the introduction of new sheep meat or beef producers who did not fit into any of the preceding categories. The seventh and last category of producers applied only to the year 1993. It consisted of producers who had enjoyed premiums for at least two years since 1987 but who did not meet the conditions required for quotas under category 2. To sum up, we may say that, since 1994, the priority system has worked above all to the benefit of producers setting up on farms whose premium quotas had been sold or transferred to another farm by the previous occupier. We have been able to obtain from the Ministry of Agriculture certain statistics, covering England, Wales and Scotland, concerning the re-allocation of sheep and suckler cow premium quotas from the national reserve per beneficiary category between 1994 and 1998. As far as suckler cow premiums are concerned, the national reserve has each year been able to re-allocate a little more than 1% of the global quota. This figure represents about 14,000 premiums annually awarded to the different categories of beneficiaries out of a total of 1,345,000 premium rights held by British producers (excluding Northern Ireland). Generally speaking, applications from all categories have been satisfied (with the exception of the last lowland category in which only 10% of applications were satisfied in 1997). Annual allocations from the national reserve represent 1.4% of the premium total in the lowland zones, 1% in the LFA English zone, 0.8% in the LFA zones of Wales and Scotland and 0.4% in the Scottish Islands and Highlands. It seems that the lower allocations in the LFA zones is merely the result of smaller demand. There would therefore appear to be no problems in the management of suckler cow premium quotas, and this is confirmed by the relatively low market price of premium fights, whether for purchase or rent. The picture is somewhat different where sheep premiums are concerned. Each year the national reserve has re-distributed a little over 0.6% of the quota volume in the lowland zone, and 0.3% and 0.5% in the LFA zones of Wales and the Scottish highlands respectively. In 1994, in the lowland zone, only 56% applications from the second category of beneficiary (producers acquiring land whose quotas had been removed by the previous tenant) were satisfied. On the other hand, between 1995 and 1998, the reserve was able to meet all the applications from all the categories. In the LFA zones, for 1994 and 1995, only applications from

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170

category 2 were satisfied partially: depending on the year and the zone between 28% and 82% of the volumes requested for this category were met. As from 1996, only 70% of category 2 applications have been satisfied in the English LFA zone, category 3 applications being partially satisfied. This data reflects a shortage of sheep premium quotas, particularly in the LFA zones.

5. T r a n s f e r s

of premium

rights

Each holder of a premium right may lease or sell this right to another person independently of any transfer of land. Quotas may be transferred or leased to another producer or to someone who will become a producer in the course of the year in which the transfer takes place. In order to guard against speculation on premium rights, transfers may not be made to nonproducers. In the case of a definitive transfer of premium quota, there is a 15% levy for the national reserve except in cases where there is a total transfer of all the premium rights held by the transferor and where all production means (land, buildings, livestock) are also transferred. Where sheep premium rights are concerned and in the case of a farm partnership where the rights are held individually by each associate member, no levy is made on behalf of the national reserve during transfers between associates provided that both parties to the transaction sign a declaration undertaking to remain members of the farm partnership and to remain eligible for the sheep premium in the course of the year of transfer and the three following years. If a partner cedes all his shares and premium rights to the other partners, once again there is no deduction for the national reserve. Where the leasing of quotas is concerned, there is no deduction for the national reserve, but strict rules are applied to insist on the temporary character of the rental. Thus the lease period may not exceed three years and the quota owner may not renew the lease without a delay of one year (if the initial lease is concluded for one or two years) and a delay of two years (if the initial lease is concluded for three years). Thus, at the end of the lease agreement, the owner of the premium rights must reuse them personally. The leasing out of quotas facilitates the adjustment between the premium rights held and the number of ewes or suckler cows giving rise to the premium entitlement. However, it stands in the way of an investment strategy grounded in the permanent leasing of the quotas held.

Table 2 1998 sale and lease price of premium quotas (in s _

Type of right and type of transfer Suckler cow premium quotas - sale

Lowland

Welsh LFA zone Scottish LFA Zone Scottish islands and Highlands

145

142

129

144

- lease

64

48

40

42

Sheep premium quotas - sale

17

26

23

25

8

11

7

- lease

8 _

Source: broker'"ssurvey.

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171

Thus, a market for the lease and permanent transfer of premium quotas has grown up. Over the past three years in Great Britain (England, Wales and Scotland), according to the Ministry of Agriculture's figures, there were 16,000 permanent transfers and 19,500 lease agreements each year for sheep premium rights. The average number of quotas per transfer is about 30, leading to an estimation of roughly 1 million quota units transferred or leased each year, in other words 6% of all sheep quotas held in Great Britain. With regard to suckler cow premium quotas, the estimate is of 5,400 permanent transfers per year and 5,900 lease agreements giving a total in the region of 90,000 quota units, i.e. about 7% of the total quantity of suckler cow quotas held in Great Britain. We are indebted to the NFU for details of the sale and lease prices of premium quotas. These prices have been confirmed by the brokers with whom we have conferred in England and Scotland (Table 2). The main Scottish broker in sheep premium quotas has supplied us with his personal estimations of average prices over the period between 1993 and 1999 (Table 3).

Table 3 Sale and lease price of sheep premium quotas in Scotland between 1993 and 1997 (in s Year

. . . . Lowland

1993 1994

30 25

37 33

35 30

1995 1996 1997 1998

22

29

15 9 6 16

45 33 23 32

1999

Sale . . . . . . . . Scotland ScottishIsles (LFA) and Highlands

Lowland

Lease Scotland ScottishIsles (LFA) and Highlands

29

5 9.5 7

8.5 10 10.5

6 8.5 10

45 33 25 24

6 2 3 9

15 9 6 13.5

15 9 7 12

Source:broker's survey. Several observations may be made in the light of this survey of the premium quota market. With reference to suckler cow premium quota sale and leased prices, no significant differences emerge between the zones. The lower prices in the LFA zones of Scotland reflect the higher production costs in these areas. The premium purchase price represents between 85% and 115% of the premium paid in 1997, depending on the zone and the extensification premium. The annual lease of a suckler cow premium quota represents approximately 25% of the premium. As for sheep, the premium purchase price represents 58% of the premium amount in lowland zones and between 136% and 184% in LFA zones. Sheep premium leasing payments represents 18% of the premium amount in lowland zones and reaches 42% in the LFA English zone. These figures betray a strong demand in the LFA zones fuelled by the lack of alternative types of production. By way of contrast, demand is low in the lowland zones where otheI forms of production are possible.

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This imbalance is confirmed by the preceding analysis of the redistribution of sheep premiums by the national reserve. The number of sheep premiums available in the national reserve is not equal to the task of meeting all the applications from the LFA zones. Zoning had originally been introduced in order to prevent premium quotas moving away from the LFA zones towards the lowland areas. In view of the fact that sheep farming represents the only possible type of production in certain LFA zones, e.g. in Scotland, zoning is designed to ensure that such zones do not lose their sheep premium quotas and in the process all prospect of agricultural activity. Now, the market prices would seem to suggest that, if there had been no obstacles in the path of premium right transfers, the movement of sheep premium rights would in fact have been the opposite of what was originally feared.

6. The impact of premium rights in relations between landowners and tenant farmers The premium right is awarded to the producer independently of the farming area and as such is not linked to the land. It follows that in the case of a farm tenancy, the premium right is held by the tenant farmer who may dispose of it as he pleases. There is nothing to stop a tenant farmer in financial difficulty or on the point of retiring from selling all or part of his premium quota without the landowner having any possibility of compensation since the premium quota, unlike the milk quota, belongs to the tenant farmer. Such a sale implies for the farm a significant reduction in its ability to generate income. Since the 1995 reform of the farm tenancy statute, the lease agreement can make provision for the possibility of keeping premium quotas existing at the beginning of the lease on the farm. In LFA zones where sheep and beef production is the only viable activity, a landowner might have difficulty in attracting a new tenant or purchaser if all the premium rights have been sold before the previous tenant's departure. The idea of a quota for non-producers was floated, allowing an owner to buy and hold quotas. This would enable him to offer such quotas to the incoming tenant, amounting in practice to the outgoing tenant's quota being purchased by the incoming tenant. The owner would be able to buy the quota (through a right of first refusal) when the occupier first puts them up for sale or failing this at the end of the lease, and would be entitled to hold the quota without assignment. In such a case, however, two 15% deductions would be made for the national r e s e r v e - when the quotas are purchased by the owner and when they are resold to the new tenant m which tended to remove much of the interest of such a solution. In 1993 English landowners demanded that the premium quota be attached to the land so that the owner could obtain full compensation (at the time of sale rather than at the end of the lease) for each quota sold. The level of compensation should be such as to offset the devaluation of the land linked to the absence of quotas. The Ministry of Agriculture was well aware that the introduction of a quota system would alter the balance between the interests of tenant farmers and landowners, but given the European regulation it was powerless to attach these quotas to the land. Owners and farming and land experts therefore proposed that the maximum possible amount be levied, i.e. 15%, for the national reserve at each permanent transfer of quotas. Tenant farmers setting up on land previously used for sheep or bovine production, but whose premium quotas had been sold by the previous tenant farmer, would then have priority in obtaining quotas re-allocated by the national reserve. This solution was adopted and, in the opinion of the Ministry of Agriculture, has provided a solution to the problem.

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7. Conclusion

At the outset, it was supposed that sheep and suckler cow premium rights would be easier to manage than milk quotas. However, all those interviewed, particularly quota brokers, are at one in affirming that producers find the formalities exceedingly complicated, complaining that the premium application and quota transfer forms take a long time to fill in. What is more, the deadline for premium applications does not correspond to the deadline for declaring surface areas which is a prerequisite for obtaining the premiums. There are difficulties connected with the application of European regulations concerning the national reserve, in particular the need to mark the boundaries of the LFA zones which the British Government has used out of a concern to maintain and support extensive livestock farming in these zones. Management of these rights is the sole responsibility of Ministry of Agriculture officials, and although the professional farming bodies play a part in defining rules, they have no wish to participate in the management of the system which, in the producer's view, appears excessively painstaking and bureaucratic. Several of those we spoke to were at pains to point out that British farmers found the premium quota system unwieldy owing to the large amount of red tape and bureaucracy involved. The upshot is that, through negligence or oversight, British farmers tend to lose their premium rights. In spite of this, there have been few legal actions conceming the application of this regulation (Blezard, Shepherd, 1998), with the single notable exception of the extremely restrictive rules initially imposed by the Ministry of Agriculture for farmers in the process of development prior to 1993 hoping to benefit from the national reserve. A comparison of British and French policy in this area brings out the fact that the former displays a certain measure of interventionism. It does not go so far as to distribute national complements to the European premiums but it nevertheless exacts levies on the transfer of rights (despite the absence of any obligation to do so) out of a desire to maintain the situation with regard to land property and production stability in sensitive zones.

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175

Part 4 A Centralised Market in Quebec versus Administrative Equivalences in France

One of the primary issues in the debate about production rights is whether it is better to have a liberal or a collective form of control. Under the first option, an attempt is made to implement the principles of the market economy in the most direct manner possible so as to bolster the development of holdings and the quest for competitiveness. Markets in production rights are allowed to form wherever possible and efforts are made to reduce restrictions on transfers. The United Kingdom has gone quite some distance down this road, although certain restrictions on the movement of milk quotas or levies on suckler cow and sheep premium transfers have been left in place so as to maintain production in certain parts of the country or to protect landowners. This is also the approach that has been adopted in the Netherlands. Germany introduced collective control of milk quotas from 1984 to 1993, before adopting a more liberal course of action thereafter. It is now setting up milk quota exchanges, as are already found in Denmark and, an ocean away, in Canada. However, Germany imposes penalties on sellers seeking excessive auction prices and bars the formation of a lease market. France has taken a resolutely collective approach based on the principles of asserting that production rights have no market value and of making levies on production rights acquired by the largest holdings for redistribution to smaller holdings or new entrants. From this point of view, it can be said that the multiplication of production rights has provided a particularly propitious medium for the development of this collective economy in France. This part juxtaposes the two extreme positions of these policies. Liberal comrol is exemplified by the Canadian province of Quebec where milk quotas were first introduced in the late 1960s, and where a centralised exchange has gradually been set up to promote more efficiem market organisation. The form of control found in France lies at the opposite end of the spectrum. Here, non-market equivalence standards have had to be established in order to manage the numerous levies and attributions of production rights that are deemed to have no market value. As one might imagine, the advantages and drawbacks with the two solutions come head-to-head. The flexibility afforded by the Quebec quota exchange is offset by the very high prices that can be commanded. By contrast, the implementation of a non-monetary collective form of control in France has led to a particularly complicated and rigid system of control.

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177

Market-Based Regulation of Milk Quota Transfer in Quebec Daniel-M. Gouin

Ever since dairy quotas were introduced in Canada and Qu6bec in the late 1960s 1 responsibility for managing and distributing individual quotas between dairy producers has been almost exclusively in the hands of the farming unions. In Qu6bec, under statutory provisions for the marketing of agricultural produce, the farmers' union can exercise administrative control over the production sector through a 'joint scheme' under supervision of a government agency, the Rdgie des march~s agricoles (Agricultural Markets Authority). The dairy industry is one of the best organised agricultural sectors under these statutory provisions and the farmers' union administers a joint scheme conferring on it extensive powers over the marketing of the product and the regulation of quota transfer between producers. Dairy farmers in Qu6bec are in direct competition with each other to obtain the right to expand, and it is primarily the rationale of a market of perfect competition, that of quotas and not of the product, that determines the pace of structural change in the productive sector. 1. Quota transfer regulations in Quebec 1.1. A private quota transfer market As soon as the earliest provincial joint schemes for milk marketing were adopted, regulations laid down the first standards for allocating marketing quota. Although initially comparatively straightforward, these regulations became complex as demand grew and the number of quota transactions between producers increased. 2 It was clearly stated in the initial regulations that quota was negotiable between producers. To transfer quota, a producer needed simply to complete a pre-printed form and secure official approval for the transaction from the producers' federation. The quota could be assigned alone, i.e. with no other asset. However, quota transactions could only be effected within pre-set regional limits. Between 1970 and 1975, the regulations evolved relative to the initial situation. During this period when Canadian milk production failed to fully meet the national quota, quota was readily available. The process of specialisation-modernisation of Qu6bec agriculture was also bringing about overall restructuring of the production sector, freeing large quantities of quota. There was therefore little tension in the allocation of quota to producers. The years 1974-75 saw a fundamental shift in Canadian dairy policy and in the regulations for individual quota management. To boost output in the face of repeated underachievement of the national quota, the support price for milk was increased rapidly, almost 1 For an analysisof changes in Canadian dairyproduction, of. Gouinand Morisset 1988,pp. 37-56. 2 Bibliographical references about the implementation of regulations under the joint plans are taken from the Official Gazette of Qu6bec.

178

Gouin

doubling over the three production years from 1972 to 1975. Moreover, quota was issued for more than 116% of the domestic market requirements with a corresponding increase in all individual quotas as a result. Producers were not slow to respond: encouraged by prices and enjoying normal climatic conditions for the year, they massively kept to their quota leading to a renewed surplus of dairy products on the Canadian market. This substantial overproduction in 1975 led to a drastic 20% cut in quota at the start of the 1976/77 production year. This major planning blunder was largely attributed to political interference in the management of the system which was severely tightened subsequently. But the music had to be faced! These major shocks caused by the national dairy policy were soon to work through to the regulation of individual quotas. The cut in quotas led to unprecedented increase in demand for quota. The regulations in force could not withstand the pressure. Private transactions had the effect of preventing the creation of an official reference market: there was no circulation of information, with prices varying from one transaction to another and not diffused. Quota was only mobile regionally and even only locally since personal contacts between producers were primordial in allowing them to acquire extra quota. Moreover, with the unprecedented upturn in demand, brokers were touting their services to put potential sellers and buyers in contact, taking a cut for their trouble and so increasing transaction costs. Private quota transactions between dairy producers were discontinued in 1976 and the regulations completely overhauled. To cope with the new situation in which virtually all producers found themselves with unused production capacity, the quota regulations were amended.

1.2. Administrative management of quota transfers The private system of quota transactions between producers was replaced by an administrative system whereby a 'reasonable price' was set for quota. Initially the reasonable price was fixed arbitrarily at a little more than 10% of the support price for milk. To spread supply among takers, the F~d~ration des Producteurs de Lait du Quebec (FPLQ) (Quebec Milk Producers Federation) established the following rule: 'producers who in the course of 1975-76 obtained a loan from a lending society to expand their holdings may come in for special consideration from the Federation in the attribution of quota' (Qu6bec Official Gazette, 14 July 1976, p. 3970). With such loose distribution criteria, the system came in for fierce criticism. To redress the situation, the FPLQ simply opted for equal distribution of available quota. However, demand for quota far outstripped supply and only minimal quantities of quota could be sold to each producer. In order to encourage some producers to abandon production by turning to account the resale value of the quota they held and at the same time to select producers in 'genuine need' of extra quota, the quota value was increased to the equivalent of 60% of the milk support price (FPLIQ 1978, p. 6). Given the difficulty for the farmers' union of defining criteria by which to select those producers to be given priority, the hike in quota prices showed that readiness to pay was becoming the primary factor in determining real needs for quota. The form of competition between producers for the right to expand could then be based on this apparently objective factor. Despite higher quota prices, the annual quantities available for redistribution still did not reach the equivalent of the production of a single cow for applicants. Thus, a large number of farmers already in dairy production got around the Federation's administrative system of

Market-Based Regulation of Milk Quota Transfer in Quebec

179

quota redistribution by making sham transfers of complete holdings: after a regulatory period of one year, the land was assigned back to the original vendor who, in actual fact, had never left his holding, with only the quota actually being transferred. This section of the regulation, which in fact linked the quota to the holding's assets, could be got round, as is common practice in several other national contexts at present. Faced with unprecedented levels of demand for quota, some brokers specialised in this type of transaction, creaming off substantial commission for their services and thereby turning quota trading into a highly lucrative business. The administrative system, although allowing some scope to market forces with regard to quota, was unable to withstand the serious contradictions it was engendering: redistribution of minimal quantities of quota to buyers and the establishment of a hidden market. Finally, the administrative management of quota transfer was to some extent causing the opposite effect to that intended. Restrictions placed on quota prices encouraged those producers who were prepared to pay more to outsmart the system. Rather than successfully maintaining the value of quotas within specific limits, the Federation was instead heading for some loss of control over the quota market. 1.3. Public sales

From 1979 the primacy of the market as the mode of quota transfer between producers was finally consecrated by a system of public sales of quota. Only quota transactions within the same family and quota transfers linked to the sale of a complete holding were outside the scope of official public sales. Public sales were organised in each region, once a month and simultaneously. The sale took place in the chronological order in which quota supply was deposited, with the quota going to the highest bidder. No sale price adjustment was made among sellers, with each receiving a different price for the quota on sale. Producers did not need to set about finding quota sellers individually, the information available on this being the same for everyone. Information on prices and quantities of quota available on the market was clearly improved compared with the private sale system. Indeed it was on this aspect that the Federation assessed the new system after one year's operation: 'the programme is successful because all interested producers know what quota is available and can attend on the day of the sale and purchase the volume of quota they need' (FPLQ 1977, p. 18). Initially supply and demand for quota could only come from producers within the same region. This regional constraint was soon removed. Quota supplied by a producer was put up for sale in his region, but potential buyers from any region could attend the sales although these were all held at the same time each month. A producer wanting to buy quota had to choose where to go beforehand and hope to get the best deal there. A little tweaking was done subsequently to cope with periodic shortages of quota. But more fundamentally, the public sale system contained a number of internal problems that led to it its eventual replacement. First, as quota supply was neither perfectly mobile nor centralised, quota market equity, from a union standpoint, was far from being achieved because different prices prevailed in different places, doubling in extreme cases. Secondly, transaction costs were high with producers travelling several hundred miles to attend sales in different regions. Moreover, the possibility of a producer returning empty handed from his trip could push up the price of available quota.

180

Gouin

Finally a number of problems of collusion between producers to influence the outcome of public sales, up or down, had occurred. For example, some sellers might agree with accomplices to raise the bidding prices during the sale of their quota. In addition, on harsh winter days, there might be insufficient purchasers at a given venue to take up the entire supply given the maximum monthly purchase limits. This obviously led to prices plummeting as soon as the buyers realised the situation. Some sales were even nullified because of explicit collusion among quota buyers looking to share the quota up for sale equally among all the participants and to make only a nominal bid in the auction. This system of public sales still entailed too many operating difficulties. 1.4. A single centralised market The FPLQ directors therefore recommended a thorough overhaul of the public sales system and the adoption of a system of sale similar to that applied in Ontario. 3 The systbme centralisd de vente de quota (SCVQ) (centralised quota sale system) in force since October 1985 does not question the market nature of quota, but on the contrary confirms it. Transaction costs have been reduced since no travelling is required and supply and demand for quota are centralised electronically. A single equilibrium price is fixed every month for each category of quota for the whole of Qu6bec, guaranteeing a single market. Buying and selling quota has thus become entirely anonymous and quota mobility enhanced as it can circulate freely over the entire territory, completely independently of the individual suppliers. Information about market results is widely diffused the week after each sale. The system operates on two basic principles: 'a seller who accepts to sell his quota at a given price necessarily agrees to get a higher price for it; a buyer who accepts to pay a given price for quota necessarily agrees to pay a lower price for it' (LPDLQ 1984, p. 8). The producer wanting to buy or sell quota has to submit a bid to the FPLQ for a given month. 4 Once a month, the Federation computes the intersection point between supply and demand (cf. Table 1). Table 1 shows that sellers offer to give up a total 1,884.5 kg fat/day quota for a maximum price of more than $29,000. 5 On the demand side, buyers are ready to purchase up to 863.2 kg fat/day quota if the price is set at $25,000 or less. For each price level there is a corresponding cumulative quantity of quota equal to offers for sale at a lower or equal price and conversely for bids made for a higher or equal price. The intersection point is fixed at the price providing the best match between the cumulative quantities supplied and demanded, at $26,500 per kg fat/day. The difference between supply and demand is bought or sold, as the case may be, by a quota reserve created for the purpose. Quota prices are usually higher in Qu6bec than elsewhere in Canada. The quota market still operates on a provincial basis only, despite the agreement by some provinces to set up an inter-provincial quota market for a more closely integrated milk market in Canada. In fact, after experimenting a single market with Qu6bec, Nova Scotia and Ontario pulled out after

3 Ontario is Canada's second largest dairy province after Qu6bec. 4 Alongside this centralised system, the possibility of buying or selling a complete holding with quota has been maintained. 5 To convert to litres per year: 1 kg fat/day * 365 days / 3.6 kg/hl * 100 - 10,140 litres annual output.

Market-Based Regulation of Milk Quota Transfer in Qudbec

181

massive loss of quota to Qu6bec producers. In February 2000, quota traded at $20,751 in Ontario, at $26,250 in Nova Scotia, and at $27,400 in Qu6bec. 6

Table I Milk quota price setting ($ per kg fat content/day) by the centralised quota sale system for July 2000, Quebec. SUPPLY Price (CanS)

Cumulative numbers on offer

Quantity

Cumulative quantityon offer

difference

DEMAND Cumulative quantity in demand

Cumulative numberin demand

< 25,000

53

165.0

698.2

863.2

266

25,001 - 25,500

58

225.6

571.6

797.2

254 245

25,501 - 25,999

65

354.5

410.7

765.2

26,000 - 26,499

97

612.4

133.1

745.5

239

26,500

101

653.7

-6.1

647.6

213

26,501 - 27,449

146

1,108.2

-486.6

621.6

200 158

27,450 - 27,999

169

1,449.0

-969.1

479.9

28,000 - 28,999

195

1,735.7

-1,300.4

435.3

137

-1,787.2

97.3

34

> 29,000

204

1,884.5

Source: FPLQ, in La Terre de Chez Nous, 13-19July 2000, p. 30.

2. T h e c u r r e n t situation

The one-off attempt to substitute some measure of egalitarianism in quota distribution in place of the market rationale was very short-lived, from 1976 to 1979. Aside from this three-year interval during which it was nonetheless marketable, quota has consistently been traded in Qurbec on a market leaving supply and demand a free hand, with price being the main arbiter of distribution among producers. From a means of exchange where personal contacts were paramount in the search for available quota, the organisation of quota transactions has shifted to a completely anonymous system. All producers are subjected to exactly the same market conditions and are guaranteed to pay or receive an identical price for the quota up for sale. This system has still not been called into question by users and yet the rapid rise in quota prices over the last year is somewhat puzzling (cf. Graph 1). The period 1980-99 has seen a comparative increase in dairy quota prices. Parallels between changes in quota prices and changes in the milk support price at national level in Canada need to be treated with caution as the support price does not correspond to the price actually paid to the producer, all the more so as until 1996 there were two milk purchasin~ pools. However, by comparing the series of milk support prices with quota prices, a cleaJ 6 The discrepancy can be explained by the wider range of production possibilities in Ontario because o: comparatively favourable agricultural and climatic conditions. In other words, Qurbec dairy producers have comparative advantage in this industry compared with their counterparts in Ontario (Gouin and Proulx, 1992, p 396.)

Gouin

182

progression can be observed with quota being worth the same as the milk support price in the early 1980s, about twice as much in the early 1990s, and 2.5 times as much in the mid 1990s. Even taking the requisite precautions, there is a relative trend towards higher prices with a marked continuation of the rise in the last year. The ratio of quota value to milk support price even reached more than four to one in 1999.

Graph 1 Changes in the price of milk quotas in Quebec (1980-99)

980

= 100

700 -, 600 500 400 200 ,r 100

- v"

,

x. .

,

,

.

,.

,

,

.

- - , ,

,

,

,

=,

,

.

,,

,

....

,

,

.

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99

Sources: Martin et aL, 1999, pp. 63&64; and our computations.

This increase must be put into perspective. Many commentators thought that the North American Free Trade Agreement (NAFTA) and the latest GATT talks, now the WTO, would signal the demise of import controls and so necessarily of milk production quotas in Qu6bec. However, the actual position is quite different. NAFTA is subject to WTO agreements on agriculture. In this area, it is therefore the Uruguay Round agreements that prevail. These agreements meant that import quotas protecting the Canadian market had to be converted into tariffs. But Canada set the tariffs at around 300% for the various dairy products thereby blocking, for all practical purposes, any possibility of importing dairy products beyond the minimum access threshold guaranteed to certain countries. Consequently, despite the apocalypse announced throughout the Uruguay Round, Qu6bec milk producers have managed to keep virtually all the industry regulation mechanisms intact. In particular, protective measures for the Canadian market with respect to imports, production quotas, and price setting in line with production costs are all still in force. That said, it seems obvious enough that the new Round of talks set to begin in 1999 will put back on the agenda the bulk of the previous agreement about market access, internal support and export aids, in the shape of direct subsidies or double pricing policies. On these three points, the quota policy is under threat. Greater market openness through a substantial cut in tariffs or through an increase in minimum access guarantees would call into question the feasibility of maintaining an effective quota policy. A fall in domestic support, and there-

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fore in the price of milk, would make the constraint of limiting production less worth while for milk producers. This constraint is acceptable for producers in exchange, as at present, for a production price that is maintained above the open market price. A reduction in possible aid for export would increase pressure on the regulation system, virtually blocking any possibility for growth in the dairy industry, with the internal market having already reached maturity. In this context, how can one explain the rise in quota prices, conveying as it does a confident expectation on the part of producers that the dairy industry regulation mechanism will continue long enough to allow them to recoup and earn a return on their investment. The apocalyptic talk of the early 1990s which turned into few concrete results for holdings probably explains much of the scepticism of producers towards the same language during the new round of negotiations. Meanwhile, the centralised system of quota sale will seemingly have to be maintained without major changes, and concerns about the high value of quota are the stuff of analysts' discussions, not of the actual behaviour of players on the market.

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185

Non-Market Equivalence between Production Rights in France Pierre-Alain Roussel

France has opted for a non-market regime of administrative control of production rights. This choice entails the establishment of meaningful, objective economic criteria for managing production rights in a cohesive and consistent way. The more numerous these rights become, the more diversified the regulations, and the more important it becomes to draw up a system of equivalents defining the non-market value of production rights. This is an essential feature of the scheme as it affects the scope of the regime for administrative control of production rights France wants.

1. From controlling acreages to controlling production rights The move France made in the 1960s towards a policy of farmland consolidation led to the introduction in 1968 of the 'minimum establishment acreage'. This minimum acreage corresponded to the viable farm size above which a household could earn a minimum income. The minimum establishment acreage was central to the 'structure control' policy whereby farming rights were limited by holding area in order to promote and sustain the largest number of viable medium-sized farms. In 1980 statutory provision was made for drawing up 'departmental agricultural structure development schemes'. These development schemes stipulated not only the minimum establishment acreages but also the coefficients for converting the acreages of each natural region and of each crop type into minimum establishment acreage equivalents. This was how the idea of equivalence made its first appearance in French rules and regulations. Thereafter the prevailing economic model of the 1960s and 1970s gradually changed. In 1984 Europe brought in quotas to control milk production. The 1992 CAP reform introduced producer premiums for beef and sheep and for the arable sector. This development of premiums and quotas made obsolete the model of control based solely on acreage. The 'commissions ddpartementales des structures' responsible for controlling farming rights lowered their guard. Expansion accelerated and new entrants dwindled. The European regulations are broad enough to allow Member States to complete the legislation with national measures. The choice lies between the liberal approach based on market rationale and the interventionist approach based on the strengthening of administrative power and the non-recognition of any market value of production rights. In order to avoid mergers of holdings and to develop a model of farming 'on a human scale' throughout the entire country, France has gone for intervention. It has progressively defined a non-market,

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departmental (local administrative level) policy on production rights which has supplemented and reinforced the regulations on acreage-based farming rights. 1

2. The French model of control The objectives of the model relate not only to control over the transfer of land and the allocation of entitlements but also to the assertion of the non-market and non-asset character of production rights for owners and producers alike. The model is based on the 1995 legislation on the modernisation of agriculture (loi n~ du l e r f d v r i e r 1995) and the 1999 legislation on agricultural guidance (loi n~ du 9juillet 1999 - d. O. du 10/07/1999).

2.1. The basic principles Section 15 of the 1995 legislation lays down the framework for controlling reference yields and premium entitlements for the various production alternatives. The section confines itself to production rights introduced from 1984 onwards under the CAP, viz. milk quotas and sheep, beef, durum wheat and tobacco premiums. Sugar beet quotas and vine planting rights are not covered. The principal administrative regulations are discussed below. Guaranteeing 'inexpensive' production rights The legislation specifies that 'the financial terms for transferring or granting reference quantities or entitlements to aids must not constitute an obstacle to new entrants or to the development of recent holdings'. This statement of intent is not followed up in any of the enacting clauses; however, the terms of transfer are so designed as to prevent the creation of a market in production rights. The special legal status of agriculture compared with other industries is such that the individualisation of a large proportion of potential intangible assets is prohibited or prevented. 2

Creating a 'departmental agricultural guidance commission' In order to meet the new needs for interconnection between the land issues and the control of production rights the 1995 legislation set up 'departmental agricultural guidance commissions' superseding the earlier commissions (joint commissions, commissions for agricultural structures, and commissions for farmers facing difficulties) composed of representatives of the authorities and farmers' representatives. These bodies are responsible for drawing up 'departmental agricultural projects' that determine the direction departmental agricultural policy should take and lay down the rules as to priorities for attributing production rights. It is in this capacity that the departmental commissions seek to define parities between these different rights in order to harmonise their different actions. Alongside this, their control of farming rights (structure control) is exercised on the basis of the agricultural structure development schemes which have been maintained. The 1999 legislation has extended the make-up of the departmental commissions to include representatives of landowners, tenants, the processing and marketing industries, artisanal producers, consumers and accredited environ1 This study is based on an analytical review of parities laid down by the departmental agricultural guidance commissions of eight departments of eastern France. (Pierre-Alain Roussel, Attribution de droits ~ produire et bourse d'dchange 9la question des dquivalences non marchandes, l~conomieet sociologierurales, INRA-Dijon, Document de Recherche no. 49, 1998). 2 Denis Barthdlemy,Evaluer l'entreprise agricole, (PUF Collection Gestion, Paris, 1997),p. 149.

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mental protection associations in an attempt to better reflect the multi-purpose nature of agriculture.

Localising production rights In order to prevent the movement of rights from one region to another the 1995 legislation specifies that transfers and trading must take place within the same geographical zone. While the legislation comes out clearly against relocation, it fails to stipulate any geographical demarcation lines. It also provides for some degree of transfer between zones via national reserves.

Establishing parities between production rights 'For agricultural holdings to evolve, parities may be defined between production reference levels and entitlements to aids for different agricultural sectors depending on the income generated by those agricultural sectors.' Here the legislation ties together the concept of production equivalents and the control of production rights. Application of this measure has been construed in either of two ways: For the ministry of agriculture: 'Parities will serve to restructure holdings and bring about changes in agricultural sectors'. In this way, it is argued, parities give farmers the opportunity to relinquish or freeze production in exchange for other production rights obtained via government. A milk producer, say, could give up or put on hold his milk reference in exchange for suckler cow rights from the reserve. This measure is aimed at orienting production, taking up surplus production and facilitating the development of production where there is a shortfall provided there are rights available in reserve or that new rights can be obtained at European level. This may be termed a macro-economic interpretation insofar as control of production rights is a matter of mobility of enterprises between government and producers. To date, French regulations have not come up with any measures relating to such general reorientation of production. For agricultural operators: 'Parities will be used to bring about changes in holdings and not in enterprises by allowing farmers to chose their enterprises through trade'. In their view, relinquishing or freezing an agricultural sector locally is inconceivable. Only anonymous, non-market exchanges between farmers to optimise their enterprises can make production rights mobile. In this way, a dairy producer wanting to move into beef should be able to give up milk quotas and obtain equivalents in suckler cow premiums. France's main union, the Fddtration nationale des syndicats d'exploitants agricoles (FNSEA), is considering using parities in this way to define the value of production rights on a trading exchange. The union perspective is more micro-economic. 3 The mobility of rights involves trading of agricultural sectors between farmers only.

2.2. Arrangements for attribution and transfer Two categories of production rights can be distinguished depending on how they are attributed and transferred.

Production rights managed by the departmental commissions These are production quotas (milk, sugar beet) and premiums directly attributed to producers (sheep and suckler cow premiums). Production quotas are ascribed to the holding and are 3 I.S.A.,Structures et droits des entreprises, no. 13, 21/04/1995.

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transferred with the land. Premium entitlements are assigned to a specific legal entity or individual and authorise their holder to produce, sell and possibly receive compensatory payments. Economically they can be viewed as intangible assets belonging to the business. Recognising them as assets in this way confers an economic value on the rights which is not officially acknowledged for milk and sugar beet. While European regulations officially recognise that suckler cow and sheep premiums are valuable assets, France arbitrarily limits that value. Farmers consider premium rights and reference yields to be non-negotiable administrative authorisations made available free-of-charge to producers as long as they remain in farming. Each category of rights is part of a specific reserve with its own rules of control since each derives from specific regulations. Production rights not under direct control of the departmental commissions These are the beef special premium and the arable scheme aids for cereals, oilseeds and protein crops. Production of young bovine animals is open to all producers. Premiums are subject to an individual ceiling (90 head of cattle per producer for male bovine animals). The national reference is not individualised for producers, with production being limited solely by the ceiling. The departmental commissions have no involvement with them. Arable scheme compensation aids are dependent on the eligibility of the areas farmed. A parcel of land is eligible regardless of what it is used for and who the producer is. Arable aids are inseparable from the land. They cannot be individualised in the business and, like the beef special premium, can less readily be considered as business-owned assets. They may, however, be subject to indirect control by the departmental commissions through 'structure control' as this concerns the right to farm on the holding areas. 3. The current situation

Production rights are controlled by the departmental agricultural guidance commissions which are responsible for sharing out and attributing those production rights passing through their reserves in line with the priorities laid down at departmental level. Entitlements that are unused, transferred or levied when holdings are transferred are assigned to productionspecific departmental reserves. They are then redistributed among eligible producers within the limits defined. Alongside this, the departmental commissions issue authorisations to farm to the relevant producers as part of their mission to control farm areas. In support of their decisions they may refer to production references and production fights held by applicants. In carrying out their missions fully and effectively, the departmental commissions are confronted with the need to establish objective criteria for defining producer eligibility, entitlement attribution priorities and ceilings (how much is a litre of milk quota worth in terms of suckler cow premium?). The departmental commissions must also assess the economic potential of holdings no longer simply in terms of acreage farmed but also in terms of the package of production rights held. These control methods are largely based on the concept of the equivalence criteria to be considered when evaluating the economic potential of a production right whether in the context of redistribution, trade or land attribution.

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4. Parities between agricultural sectors 4.1. The significance and potential uses of parities In order to understand the system of production right parities it is essential to know what the rights are based on and what they can be used for. Being unable to attribute a saleable value to the rights by reference to a market, the French authorities have had to lay down standards under the departmental agricultural project scheme (PAD), for assigning an 'administrative' value to production rights. This economic value is established by comparison with the income that can be earned from holding the entitlements. Establishing an equivalence between agricultural sectors amounts to defining the number of rights for each sector that would bring in an equivalent income. The three main applications currently envisaged are:

Distributing available production rights The departmental commission distributing the rights from the reserve will be able to apply the equivalence scale to evaluate the production potential of holdings and so establish priorities and standards of attribution. Prospective new entrants and existing holdings whose theoretical incomes fall below the set limits will be able to claim extra entitlements in the hope of reaching the limits. Attributions will be calculated from sliding scales within available limits. Departmental reserves are replenished from levies on transfers and discontinued enterprises.

Trading production rights among producers The concept of'entitlement trading' is to be understood as the supply of a category of production rights to one reserve specifically for exchange within the departmental reserve of such rights, and the attribution of different rights from another reserve. Direct trading between producers (on an amicable basis) is not provided for as regulations stand at the moment in France. Within the administrative framework, parities will serve only for calculating the number of rights that can be traded for each agricultural sector on a 'production rights exchange' controlled by the departmental commissions. As France has opted for non-market control, a scale is required for setting a maximum value of the entitlements to be traded. In addition, the regulatory provisions are insufficiently harmonised: it is extremely difficult for a producer to trade his milk quotas against suckler cow premiums insofar as milk quotas are linked to the holding and he has not as yet any reference level for suckler cows. The authorities have just introduced an experimental 'trading' mechanism for suckler cow premiums and milk quotas in eleven departments. This mechanism initially concerns just mixed producers (milk/beef) who hold both suckler cow premiums and milk quotas and who are looking to specialise in one or other of these enterprises and relinquish the other. The procedure takes into account existing national and Community regulations (beef and dairy) without departing from them. It operates exclusively through departmental reserves on an anonymous basis. To do this, the mechanism relies on the principle of milk quota being separated from the land by the producer relinquishing the quota he holds. For beef rights, France's option for administrative control implies that any movement of fights must go through the reserve. As a result, no transfer can be made directly between producers. Practically, the mechanism is based on the producer undertaking to give up his production rights in exchange for new ones in line with a departmental scale.

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Application of parities in this way will enable producers to envisage streamlining and optimising their enterprises, but with the constraint of a fixed departmental scale. Controlling land transfers As a result of the generalisation of production rights, the idea of farm size as in minimum establishment acreage fails to take account of the economic potential of a holding. Parities may be useful for assessing the level of priority of holdings under the structure policy (disposal, authorisation to farm, etc.). Application of an equivalence scale provides a better description of the agricultural holding in terms of an administered economic system on the basis of all production right equivalents it holds per unit labour. For example, to earn a gross operating profit of 169,200 FF per unit labour in the Meurthe et Moselle department requires 60 equivalent units, which corresponds to 60 ha of crops eligible for arable premiums, 162,000 litres of milk quota, 78 suckler cow premiums or 660 breeding ewe premiums. As the different uses show, the main challenges are related to the way parities are calculated and the consequences they may entail for the practical control of production rights. 4.2. Methods of calculating parities In order to establish parities between agricultural sectors, the relevant enterprises and the criterion for comparison must be defined. Relevant enterprises The 1995 legislation on modernising agriculture provided initially that the equivalence process should apply exclusively to production rights introduced since 1984 (milk quotas, rights to premiums). However, many disparities between departments relate to the agricultural sectors to be selected. Some take the view that selecting quota-regulated enterprises only, including quotas brought in before 1984 (sugar beet quotas) would leave scope for producers wanting to expand. Others favour a comprehensive approach covering all agricultural sectors, including non quota-regulated enterprises. Technically, selecting all the enterprises of a holding provides a more accurate picture of its economic standing, especially in the context of attributions and structure control. This approach seems unrealistic, though, in the context of a production rights exchange. Equivalence criteria Selecting an equivalence criterion requires knowledge of its shortcomings and of the associated precautions in using it. The main workable criteria are gross margin by enterprise, gross operating profit, farm income, available income or gross cash flow per unit labour.

Table 1 Parities between production rights by selected criteria (Meurthe et Moselle, 1997). Milk quoia Sucklercow Sheep premiums ' Eligil~le " (litres) premiums acreage (ha) 1'1 3,600 ~3 Gross margin .... 1' 2,700 1.3 11 Gross operating profit 1 2,000 1.5 15 Farm income 1 4,000 2.5 21 Disposable income per labour unit Source:Cen'tre d'dconomie rurale de Meurthe et MoseHel

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As a guide, table 1 shows 1997 parities for Meurthe et Moselle by the different workable criteria. Discrepancies arise between parities with the different criteria mainly depending on whether or not allowance is made for the return on all the production resources of the business (land, capital and labour). The approach to parities in terms of gross operating profit or gross margin favours production to the detriment of the producer and freezes deviations in income for each type of enterprise. These criteria fail to allow for outlay on unpayed labour and on capital. The parities obtained in this way prioritise cereal holdings, which use comparatively less labour and often less capital than dairy or beef and sheep farms. Calculating parities from disposable income per labour unit seems a more appropriate way of defining an equivalence between production alternatives with a view to controlling attributions, given that it makes allowance for the return on all the production factors. The choice of criterion is different where trading is concerned. For a farmer, the decision to trade part or all of his enterprise stems from an assessment of the opportunity costs and economies of scale he can make to optimise his structure and work time. The opportunity value varies from one holding to another and alters constantly for one and the same holding with the quantities traded. For example, a farmer with 200,000 litres of milk quota wanting to increase his production can offer more if he still has room in his parlour for the necessary cattle than if he has to build a new unit. And under the first assumption, he can offer more than his neighbour who already has 300,000 litres, has room in his parlour, but would have to take on an employee. Clearly then the definition of a single scale satisfies the requirement of administrative control but not pure economic reasoning. Accordingly, the choice of criterion may be satisfactory to varying degrees, but never in every instance.

Equivalence scales In practice, the scales are drawn up by comparing economic performance in French Francs for different production alternatives against production factor units 4 (litres of milk, number of cows, eligible acreage, etc.). The economic performance of the production factor unit acting as the base-line unit is divided by the results of the other units under study to give production volume parities for achieving an identical economic performance. The differences between scales arise from the methods of calculation (reference yields used, modelling) and the criteria employed, but also from the differences in agricultural potential and profitability of agricultural sectors from one department to another. Table 2 shows the parities as production factor units for eight departments of eastern France. Each department adapts its scale according to the priorities of its departmental agricultural plan and the uses it envisages. This explains why for the Marne there is no equivalence with eligible land. Only enterprises which can be traded are selected for this department. For the Ardennes the parities in livestock production allow for the value attributed for half to the permanent grassland acreage.

4 The production factor unit may be defined as a constituent component of the productive resources that make production possible.

Roussel

192

Table 2 Comparison of parities between production rights and other means of production in eight departments in 1997 -Department Eligible" Milk quota' Sucklercow Sheep Perm~ent Sugarbeet ' Other quota enterprises acreage (litres) premiums premiums grassland (ha) (tonnes) (ha) (ha) (number) (number) 16 . . . . . . . . 2 30 Ardennes 1 8,300 3.0 1 / 19 1" Aube 1 2,700 1.2 Marne Haute Marne Meurthe et Moselle Meuse Moselle Vosges

1 1 1 1 1

6,000 2,000 2,700 3,000 2,400 2,200

2.4 0.7 1.3 1.3 1.0 1.0

14.4 6 11 13 7 7 ,,=.

* For l~empand al'falfa

.............

.

.

.

.

.

/ /

/

/ /

/ /

.

.

.

.

.

.

Source: departmentalagriculturalplans.

The differences reported are primarily the result of the choice of evaluation criterion (gross margin, gross operating profit, farm income) by the departments in establishing their equivalence scales. 5. The challenges of departmental, non-market control of production rights The progressive introduction of the equivalence system by departmental commissions provides scope for transferring rights but also raises many difficulties because of the increasingly administrative type of control.

$.1. Defining priority holdings and controlling land attributions Making allowance for parities in defining priority holdings ensures a more comprehensive picture of the economic potential of holdings. However, the interests associated with production rights entail strong competitive demand. Do not all farmers want to receive extra fights? Some local authorities are considering using equivalence scales to supplement the structure control mechanism. They plan to use the departmental scales to determine the economic size of holdings from the theoretical potential generated by their enterprises as a whole. The departmental commission then compares the economic dimension with the levels set (target level, ceiling). These levels will be used to limit or graduate assignments, to attribute rights to set up in business, to introduce an economic dimension into structure control. The selected equivalence chart becomes fully meaningful here. As the importance oJ the equivalence criterion used shows, the choice of criterion may favour some producers and enterprises to the detriment of others. The lack of clarity in the legislation defining whicl~ income criterion to use for evaluating parities between rights authorises the diversity of the scales. Will farmers not seek to modify the structures of their holdings in order to obtair minimum points and so become priority cases?

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For example they could change the holding size, plan to set-up on a small acreage so as to obtain maximum rights before expanding or merging, break-up the holding area to avoid ceilings, or bring in labour to reduce the number of points (spouse, etc.).

5.2. The challenges of an exchange Little by little the introduction of production rights has frozen holdings' enterprises and brought about enlargement of acreages. At present, a farmer holding no production rights in an enterprise, such as suckler cows, cannot develop this new business. The administrative control of entitlements and the complexity of current transfer regulations make it virtually impossible to transfer rights directly between holdings and difficult or expensive to so indirectly. Competition between producers is escalating and demand outstrips supply for some enterprises. The stated objective of some departments to use parities to run an exchange may be of interest to farmers looking to switch activities. Exchanges between producers would answer many concerns of farmers wanting to adapt their holding structures. As the administrative framework does not allow amicable exchanges, farmers wanting to relinquish one enterprise automatically lose the corresponding income. Only cessation of dairy production entitles producers to compensation under the outgoer scheme. The principle behind the exchange is to use the economic parities defined in the departmental agricultural projects to make production rights mobile. However, transfer rules and regulations must be harmonised so as to more readily loosen the ties of reference yields and aid entitlements to the land and so facilitate trading. With regard to production right trading, farmers will seek to replace the most constrained enterprises (the least profitable) by the least constrained ones (the most profitable) in their production systems. The decision to trade or not should be taken on the basis of an opportunity value. In practice, this value varies from one holding to another depending on constraints specific to each holding. The value on a given holding changes with the quantities traded until an equilibrium value is reached. This dynamic opportunity value continually influences farmers positions on the decision whether or not to trade enterprises. In a deregulated exchange, buyers and sellers are constantly changing their positions, increasing or reducing their supply or demand depending on the comparative value of the scale (market price) and the opportunity value associated with the quantities up for trade. A fixed administrative scale never corresponds to the economic reality of the holdings. In opting for a controlled market France imposes a fixed equivalence scale to dispense with any reference to a real market and so try to limit the value of production rights arbitrarily. Might this choice not reduce the volume of trading and lead to discontent on the part of would-be traders? The exchange experiment The results of the experimental exchange for eleven test departments for 1999 shows a wide range of practices. 5 Some departments have allowed partial trading subject to conditions. Others have accepted to include some specialist producers in a mechanism intended for mixed producers only. One department even defined priority access to the exchange (young farmers) and 5 French Ministry of Agriculture, DPEI, 1999, Rapport sur la procddure exp~rimentale de spdcial&ation des producteurs mixtes (lait, PMTVA, PCO), 4 novembre,22 p.

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excluded holdings of more than 1.50 equivalent units workforce, and farmers who had held quota or entitlement for less than two years. With regard to the quantities traded, a producer specialising in dairying relinquishes on average 68,114 litres of milk to obtain 24.4 suckling cow entitlements, or 2791 litres per suckler cow premium. Conversely, a producer specialising in milk obtains 29,519 litres of milk for relinquishing 11.6 suckler cow entitlements, or 2,545 litres per suckler cow premium. Overall demand for milk under the experimental procedure was much higher than demand for suckler cow premiums. The equivalent ratings recorded range from 1,598 litres of milk for one suckler cow premium entitlement to 4,000 litres. Strict application of the equivalence scale between quantities supplied and demanded was seldom achieved. This can be explained by the ban on partial exchanges, by the need to keep reserves of each department intact, or by strictly economic factors. In fact, a producer making a trade does not necessarily have the resources to exploit all the rights or volumes he is entitled to. Thus, for reasons of holding structure, the number of suckler cow entitlements actually attributed is often lower than the theoretical number as calculated from the scale. The recommended equivalent value under the scheme appears to be the maximum entitlement or quota a producer can claim. The effects of the procedure are not clear cut

The procedure works in the sense of increased specialisation for participants in the exchange, according to the objectives laid down by the regulations. Supply and demand vary widely by region. Some regions were short of milk supply to cover suckler cow premium demand and conversely some regions did not have sufficient supply of suckler cow premium to cover demand for milk. The exchange concentrated suckler cow premium compared with milk quota as 870 meat producers relinquished their suckler cow premium rights compared with 405 milk producers. Exchanges for sheep premiums involved very few producers; in fact, sheep right reserves are running a large surplus because of difficulties in this enterprise. 6. A model for completion

The present generalisation of production rights in European and French regulations encourages the departmental commissions to take into account all the production rights held by farmers in order to gauge the economic potential of holdings. The commissions can thus acquire a comprehensive view of the production potential of holdings before redistributing rights from the reserve and can control land attributions depending on enterprise-based equivalence criteria and prior set limits. However, direct competition among producers for the available rights, largely related to the economic rent (aid payments) generated by holding an entitlement, makes the choice of scale an extremely intricate business. The choice of criterion for assessing equivalent income and the chosen enterprises may favour certain producers (cereal or dairy farmers) to the detriment of others (suckler cow farmers). Many disparities will arise between producers. Moreover, using a standard scale based on the assessment of income by enterprise requires constant adaptation since economic conditions and the size of the aid payments change constantly as the recent Berlin agreement shows. Will departmental commissions have the resources to make the changes essential to the smooth operation of

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parities or will they fix a set scale once and for all in view of the cumbersome nature of the process to be implemented? The exchange is an innovative idea that makes allowance for the growing need for trade and mobility between production alternatives to bring about the required restructuring of agricultural holdings. Traders, buyers and sellers, would be able to compare the proposed value of the scale against the opportunity value associated with the values they wish to trade. In this context, provided always that the necessary regulatory changes are made (separate production rights from holding ownership), the equivalence scale defines a mean trade value guaranteeing that operations are above-board and free-of-charge. However, it seems in view of the results of the experiment, that exchanges will need to be open to all producers, including specialised ones, and not as with the experimental mechanism reserved to 'mixed' producers. For an exchange to work well, will it not need to bring together producers with opposing interest and not producers who for the most part are looking, say, to swap milk for suckler cows? In this respect, the departmental ambit could restrict opportunities for trade and it is reported that in the test departments where trading has been organised there are virtually no more applications to trade. Would it not be worth opening up the exchange to partial trades and not limiting the geographical cover to the department? Finally, the fixed administrative value used for the exchange and attributions will severely restrict possibilities for trade and inevitably engender dissatisfaction among producers. Might not producers unhappy with a frozen administrative value put pressure on government agencies for the trade value to be as close as possible to an opportunity value relating to their holdings, or even a market value? The idea of an exchange adequately fulfils the need for restructuring. Would the administratively controlled exchange allow holdings to adapt to the new requirements of agricultural markets? Will French holding structures not become marginalised compared with other European countries that have opted for much more liberal control of production rights?

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Part 5 Rights to Produce in the Light of European Law and WTO Negotiations

Production rights derive, for the most part, from the conjunction of international regulations, European Common Organisations of the Market, and of the right to property. This latter is a general principle of law both internationally and nationally, and a fundamental right that is guaranteed under most constitutions. The preceding parts have concentrated mainly on national perspectives, the ways in which individual states apprehend the rules created in the international arena and interpret them according to their own system of references. It is not without interest then, especially from the perspective of future developments, to present and analyse points of view on production rights in the context of international law. Two tiers of organisation and of international law are involved: first, European law, i.e. the regulations and case law of the European Union, taken together with reference to the European Convention on Human Rights; second, the agreements between members of the World Trade Organisation, which are soon to be re-negotiated. Generally, European law appears favourable to some degree of protection of production rights as items of property, making them more than just instruments for market regulation. WTO agreements, for their part, do not oppose the existence of production rights as such, even if the Marrakech agreements are directed at cutting back agricultural support policies. The example of the USA shows that production rights as we known them in Europe are in place across the Atlantic too, although to a lesser extent.

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Rights not Anticipated in the European Union Reinhard Priebe I

The Common Agricultural Policy (CAP) is changing fast. The Commission has proposed to continue with the reform process initiated in 1992, and negotiations within the framework of Agenda 2000 are in progress. 2 Moreover, preparations have to be made for the forthcoming World Trade Organisation (WTO) negotiations and the expansion of the Community towards Eastern Europe. All these matters are currently on-going. Obviously I cannot predict the outcome of all these negotiations at this stage. I will therefore confine myself to a few observations which could be relevant with regard to 'planning the future of production rights'. I. Agricultural production is unrestricted The current CAP contains a large number of very different legal and economic instruments. However, there are very few provisions directly limiting the right to produce agricultural commodities. In principle, from the point of view of Community law, agricultural production is unrestricted, something which at first sight may seem surprising. One exception to this rule is the prohibition on planting new vineyards. This has been in force for over 20 years, and the Commission has just proposed extending it as part of the reform of the common organisation of the market in wine. However, this ban will be managed with greater flexibility. It ought to be possible to expand vineyards where demand for the output is increasing, while at the same time avoiding an overall increase in quantities produced. The prohibition on new planting will therefore be accompanied by greater flexibility and it continues to be a temporary one, as in the past. The Commission's recent proposal thus takes into account Court of Justice decisions since the famous Hauer 3 judgment. 2. Exercise of the freedom to produce is modified in various ways Apart from the special case of wine, there are a number of mechanisms in the various common market organisations that in practice modify scope for producing, more or less indirectly, and it is important to note that the legal structure of each of these mechanisms is different.

1 The opinions expressed are those of the author and do not reflect on the Directorate-General for Agriculture at the European Commission. 2 This text was finalised before the Berlin Agreement (26 March 1999). In so far as it deals with legal aspects of the CAP it remains fully indicative of contemporary debates. 3 Case 44/79, [1979] ECR 3727.

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The milk quota system, to quote the prime example, is a levy imposed on production in excess of reference quantities, or 'quotas'. The Community does not prohibit surplus production, but it does make it subject to a very dissuasive tax. An 'overproduction tax' as high as that under the milk quota system is tantamount, in economic terms at least, to a prohibition on large-volume production above the limits laid down. The beet quota system, on the other hand, is of a different legal nature. This is based on production limits that are governed in practice by delivery contracts between growers and sugar companies. In other industries, limits exist as conditions for the granting of direct aid. In such cases, this is not a direct restriction on production, in a strictly legal sense. The farmer is free not to comply with these conditions if he chooses not to accept the aid offered. Economically, he often has no choice. Accordingly, in order to obtain Community aid, he has to comply with the conditions that apply. For instance, under the support scheme for arable crop growers, aid applications cannot be submitted in respect of land which was used for permanent pasture, permanent crops, forest or non-agricultural uses 4 as at 31 December 1991. Such a provision, designed to avoid speculation in arable crops triggered purely by the introduction of the direct aid system in 1992, divides agricultural land into two: land which is eligible for arable land support and ineligible land. This is a permanent division. The set-aside obligation, signifying each producer's individual contribution to the disciplining of production under the same system, is another example of this form of restriction. Moreover, quantity ceilings apply to most Community aid. In some cases these are set at individual level. For example, under the beef special premium scheme there is a limit of 90 head. But 'aid quotas' can also be determined at overall level (regional or national), for example as regional ceilings or regional areas of land, with different consequences when they are exceeded. All these are examples of quantity limits on Community support for reasons which may be internal (market needs, available budget resources) or external (international commitments), or both at once. Scope for producing is only indirectly affected by such restrictions. Finally, Community legislation contains production rules aimed in particular at health, environment and quality aspects, which can limit scope for producing in one way or another.

3. Production rights were created unintentionally Freedom to produce is thus not absolute under the CAP mechanisms. Where restrictions exist, whether in the form of a prohibition on new production, a tax on surplus production or quantity limits on production supported by aid, the scope for producing which is exempt from such restrictions acquires a market value in itself. That scope then tends to become a 'production right', even though the Community legislator did not originally intend to create new rights. This development, which is probably obvious to an economist, does not appear to me to have been foreseen in its full dimension by the Community legislator from the outset. For example, the doctrine of the unbreakable link between milk quota and the land initially deprived milk quotas independent from the land of any value. However, as time went on, such a value had to be recognised. The assignability of milk quotas under certain conditions is now accepted.

4 Art. 9 of Council Regulation (EEC) 1765/92,O.J. 1992,L181/12.

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Another problem which the Community legislator tends to overlook is the impact of production limits on rented farms. The impact varies from one Member State to another, depending on national farm lease legislation. In some countries, the legislation puts the landowner in a strong position as against the leaseholder. Elsewhere, the situation is reversed. As a result, the impact of a Community production control system can be entirely different in the various Member States, something which is obviously undesirable a p r i o r i from a Community point of view. The treatment of new entrants is another general problem connected with limitations on production and the 'production rights' that arise from such limitations. In most cases, limitations are defined by production in a reference period; and, accordingly, are historically based. This favours those who were in business in the reference period, and works against newcomers. The recent debate on the Commission report on the position of young farmers showed that obtaining quotas is perhaps the biggest obstacle to starting up in farming, at least as far as Community law is concerned. Here too, legislation has changed. To start with, the problem tended to be ignored; then, access to production rights was opened up slightly by 'newcomer clauses'; and now, the legislator is increasingly being faced with misuse of such clauses. Lastly, I would mention the 'legal entity effect'. The different forms of co-operation between farmers and other operators in the agricultural industry, as defined by national law, can on the one hand influence the effect of the different Community production control schemes and on the other also offer some flexibility as regards the implementation of such schemes, in particular with respect to management of production rights.

4. Production rights and property There is another problem facing us, namely the relationship between the said 'production rights' and property, the protection of which, at Community level, is a general principle of law and, at national level, is a constitutional guarantee, a fundamental right. It may be noted that in disputes before Community and national courts, the right to property has regularly been invoked by farmers finding themselves subject to limitations on production. This brings us to the fundamental question of whether, and in what circumstances, new restrictions on production involve an obligation to compensate the producer for his losses, such compensation of course being granted for legal as well as for political reasons. In addition, the 'fortunate owner' of a production right sometimes claims that any alteration to that right amounts to expropriation. Taking this line of argument to its logical conclusion, the abolition of milk quotas could even be deemed expropriation affecting quota-holders, even if only from the point of view of the devaluation of their land. The Court of Justice has so far refused to allow milk quotas an independent property value, but the possibility of this rigid line softening in the future cannot be ruled out. At least, Advocate-General Colomer recently once again raised the question of the legal nature of milk quotas and thought he could identify a certain trend in recent decisions towards recognition of quotas as a property right 5. Courts in some Member States are following a similar direction. It is also interesting to see to what extent national courts vary with respect to one another in the legal status accorded to milk quotas. 6 5 Opinion of Advocate-General Colomerdelivered on 7 July 1998Case C-186/96, Demandv Hautzollamt Trier, [1998] ECR 1-8529,para. 36 onwards. 6 1bid., para. 48.

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Moreover, returning to the abolition of the milk quota system, I find it hard to imagine how the abolition of a temporary system of restrictions on production could infringe any farmer's property right. Obviously, the longer such a system remains in force, the more difficult the transition towards a different system or towards abolition of the system becomes. In any case, if we look at the reform proposals under Agenda 2000, two things can be said. Firstly, the production limits will be maintained but, secondly, they will be accompanied by greater flexibility in allocating 'production rights' and this will be done on a decentralised basis, since authority to manage such flexibility will lie with Member States. 5. Towards contractualisation

So far we have referred to restrictions on production arising from Community legislation itself. However, there are also various forms of'contractualisation' at Community level, and I feel that these will become more and more important in future. Prime examples are the environmental undertakings for farmers, introduced by the 1992 reform. A farmer undertaking for at least five years to comply with environmental conditions over and above good farming practice, as defined in the various national or regional programmes, qualifies for Community aid for this 'service' of general interest. Obviously, such an undertaking restricts scope for production, but this is done on a contractual and hence voluntary basis. 6. Community law and national law

As well as these provisions and restrictions of Community regulations, there are a great many national provisions. Contrary to the commonly held view, Community provisions under the CAP are far from exhaustive; on the contrary, in all the Member States there is a large body of varied national legislation that determines farmers' scope for producing. To quote a few examples: opportunities for someone to set up in farming, and hence that person's scope for producing, depend to a great extent on national provisions governing the acquisition of farm property through purchase or inheritance. Landlord and tenant legislation, and in particular the margin for manoeuvre it allows the parties to a lease agreement, determines the scope for producing on a rented farm. 7 The provisions concerning town and country planning or the environment are further examples of national rules and regulations affecting scope for agricultural production on a given piece of land. Finally, regulations of a structural nature still exist in all Member States, including the control of farm structures and the consolidation of farm land. These may restrict a farmer's right to merge several farms or divide an existing farm into more than one part. 8 They may also govern scope for co-operation between farmers" French legislation on groups of farmers for the purposes of co-operative farming is a prime example. All these examples show that production rights are not determined by Community law alone; they are also, and I would even say to a greater extent, determined by national law. Consequently, when we speak of production rights, we are referring both to Community law

On the subject of 'Development and changes in farm lease legislation in Europe', see the proceedings of the 19th European Congress on Rural Law, Bonn, 1997. 8 In this context cf. the OECD study 'Policies affecting farmland mobility', 1996, OECD/DG (96/125).

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and national laws. This indeed reflects a subsidiarity approach which the Community legislator has always followed, even in the area of agriculture, well before the insertion of the famous Article 3B into the Treaty. What limits does Community law impose on such national legislation? There are several. In the area of agricultural market management, Community regulations may generally be considered exhaustive. Member States can therefore only legislate in this area if the Community legislator specifically authorises them to do so. Such authorisations are becoming increasingly frequent. The Agenda 2000 proposals reveal a well-developed approach to decentralise market systems. In the area of agricultural structures and rural development, the picture is different. Powers are shared in as much as the Community confines itself in the main to introducing some financial support schemes, based on the principle of programming (national or regional) and co-financing. However, there is nothing to prevent a Member State from making rulings on operating structures to govern agricultural production. I would not say that by virtue of Article 43 of the Treaty, the Community does not have the authority to do so itself; but it does not do so, since any regulations in this area-would come up against total disagreement among Member States as to what is to be understood by 'appropriate' agricultural structures. Furthermore, Article 222 of the Treaty, which states that the Treaty 'in no way prejudices the property system in Member States', limits the Community's powers to intervene in any legislation connected with ownership. In the same order of ideas, it was understandable for the Community, despite some pressure, to refrain from intervening in the very difficult area of restructuring farms in East Germany following reunification. And I believe the Community will show the same 'discretion' with regard to restructuring in Eastern Europe, before and after joining. Conversely, any action by the national legislator must comply with Community law as a whole, and in particular the principles set forth in the Treaty itself. Among other things, this applies to the single market rules. Any barriers to the free movement of goods and any discrimination by economic operators according to nationality are prohibited. Leaving aside the straightforward aspect of conformity of national law with Community law, contradictions or inconsistencies between Community instruments and national ones should be avoided. 7. Some final comments

As to the reform under discussion, it should be emphasised that Agenda 2000 is less revolutionary in itself than the 1992 reforms. It merely continues the trend towards reducing price support mechanisms previously initiated. On the dairy side, the extension of quotas until 2006 will very probably be the last. Five Member States, no doubt for tactical reasons, are demanding that they be withdrawn in the year 2000. This indicates that the discussion is clearly heading in favour of their removal. Lastly, to return to the question of the relationship between European law and national law, matters need to be improved. With regard to production rights, the European regulations have been shaped successively for the different products. It thus happens that the same problem is dealt with in several different ways, in several different production sectors, creating confusion and problems for lawyers and economic players. On top of this comes interference by national laws in their many and diverse forms. Greater consistency is desirable. But one of the concems of Brussels should not be forgotten, namely to ensure that regulations do not encourage clandestine practices, whether on the part of operators or Member States, or

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pernicious effects by which agricultural market management schemes benefit the wrong people. Provided these requirements are fulfilled, it ought to be possible to arrive at a simplification and harmonisation of the different schemes.

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Quotas in Agricultural Policy o f the United States Jake W. Looney

During the Great Depression Congress enacted a series of laws having a dramatic and continuing effect on U.S. agricultural policy. Price and income support and various types of production control measures were critical aspects of these laws. Price support was primarily through loans and income support through various payments to farmers. The Agricultural Adjustment Act of 19331 and 19352, among other details, authorized direct production controls and processing taxes as means of controlling agricultural production. Some aspects of this legislation were challenged on constitutional grounds and Congress re-enacted the basic provisions in two important pieces of legislation that have continued to provide much of the foundation for more recent agricultural support programs --- the Agricultural Marketing Agreement Act of 1937 and the Agricultural Adjustment Act of 1938. The Agricultural Marketing Agreement Act of 19373 provides for the promulgation of marketing agreements or marketing orders for the regulation of the marketing and distribution of specified commodities m primarily fruits, vegetables, nuts and milk. The orders are implemented for fruits, vegetables and nuts only upon approval of specified numbers of producers and may include limitations or allotments on the marketing of the order commodities. 4 Milk orders focus on the price which handlers must pay for milk. The pricing mechanism serves as the primary method of limiting production, although production incentive plans which can establish a base for each producer are authorized. 5 The Agricultural Adjustment Act of 19386 focused on the 'basic' commodities of cotton, corn, peanuts, rice, tobacco and wheat and included acreage allotments and marketing quotas as a central feature. A national marketing quota was established by the United States Department of Agriculture and translated into acreage allotments for individual producers. Although authorized in the original legislation, these provisions have been superceded for corn, cotton, rice and wheat and other feed grains and only appear in current programs for peanuts and tobacco. However, the voluntary programs for basic commodities have continued to include provisions which require farmers to restrict production in return for receiving price and income support. Under the 1996 Farm Act (Federal Agriculture Improvement and Reform Act of 19967), income support program for those commodities will be phased out. Price support is continued by a loan program for wheat, feed grains, cotton, rice and soybeans.

1 Act of May 12, 1933;48 Stat. 31. 2 Act of Aug. 24, 1935;49 Stat. 761. 3 Act of June 3, 1937; 50 Stat. 246; 7 U.S.C. w601 et seq. 4 7 U.S.C. 608c (6)(A)-(C). 5 7 U.S.C. 608c (5)(B). 6 Pub. L. No. 75-430, 52 Stat. 31; 7 U.S.C. 1281 et seq. 7 Pub. L. No. 104-127, 110 Stat. 888 (1996).

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1. Marketing order programs (fruit, nuts and vegetables) The marketing of specified fruits, nuts and vegetables may be covered by marketing orders upon approval of producers representing a designated share (usually two-thirds) of the area to be covered by the order or of producers representing two-thirds of the value of the marketing for the specified commodity. If the order is approved, it may include, among other things, limitations and allotments on the quantity of produce marketing by handlers in the area. Under these programs a share of the total quantity is allocated to each grower who holds 'a base allotment'. Handlers are subject to civil penalties for violation of the quotas or allotments in the order and will forfeit profits on excess commodities marketed. 8 Specific regulations for each commodity are published after adoption by the Secretary of Agriculture which incorporate the provisions for handling. 9 These commodity specific regulations may regulate grade, size, maturity or quality and may include container and packing requirements. For some, the order regulates the market directly through schemes like handler shipping quotas for stated time periods and by overall allotments. The Act authorizes producer allotments to limit the total quantity, lO For example, the marketing order for limes grown in Florida 11 gives an industry administrative committee the authority to recommend to the Secretary of Agriculture that limits be placed on the shipment of limes. The limits for handling may be allocated to handlers once a fixed quantity for a week is calculated. Handlers may qualify for a prorate base and allotments are made to each handler with a prorate base. Similar procedures may be used for other commodities as well. 12 For some commodities, the restrictions may be made applicable directly to growers. For example, for cranberries grown in Maine, Rhode Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington and Long Island, New York, the committee may establish a 'marketable quantity' for the following year if approved by the Secretary. This 'marketable quantity' is apportioned among the growers by applying an allotment percentage to each grower's 'sales history'. This allotment limits the amount a handler may handle on behalf of any grower. Growers may, in this case, transfer allotments. 13

2. Marketing orders (milk) While the focus of milk marketing orders is on price regulation within a particular marketing area, production incentive plans are authorized which may include the limitation of production through the creation of a 'base' for each producer within a marketing area. This idea, not often used, provides for a higher price for milk within the base with excess milk priced at a lower level. 14

8 7 U.S.C. w608c (14); 608a (5). 9 See e.g. 7 CFR w901 et seq. 10 7 USC 608c (6)(B). 11 7 CFR part 911. 12 See e.g. 7 CFR part 905 Oranges, Grapefruit, Tangerines and Tangelos Grown in Florida, and 7 CFR part 906 Oranges and Grapefruit Grown in the Lower Rio Grande Valley in Texas. 13 7 CFR part 929. 14 See e.g. 7 CFR w1007.90 et seq.

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3. Production controls (tobacco) Acreage allotments and marketing quotas are authorized for tobacco of all types. 15 However, only producers of flue-cured tobacco have approved national marketing quotas on an acreage basis. This quota is based on an estimate by the Secretary of Agriculture as to each year's demand and likely yields and is translated into an acreage allotment for each individual producer of flue-cured tobacco. Penalties are applied to marketings in excess of the farm marketing quota. For Burley tobacco, dark air-cured tobacco and fire-cured tobacco, a similar process is used to establish farm marketing quotas on an acreage-poundage basis, but without acreage allotments. 16 A farm poundage quota is established for each farm and is adjusted each year by a 'national factor' to meet the national marketing quota for each kind of tobacco. Again, a penalty may apply to excess marketing. For the major varieties in which either national marketing quotas on an acreage basis or acreage-poundage quotas are applicable, a price support loan program is available which is designed to be carried out with no net cost to the taxpayer. 17 Some other tobacco varieties are subject to production control measures similar to the systems described above. Current law allows for the sale, lease or transfer of farm poundage quotas (or allotments where applicable) but the extent of transferability varies by tobacco type. The flue-cured quota or allotment may be sold to another person who is or intends to become an active fluecured tobacco producer in the same county. 18 The transfer may be by lease only when a natural disaster prevents the timely planting or replanting of any of the quota or allotment 19 but only from an 'old farm', that is, a farm which had tobacco planted (or considered planted) in one or more years of the five preceding calendar years, within the same state. The Burley farm poundage quota may be transferred by sale or lease. If the transfer is by lease from an 'old farm' and the transfer, agreement is filed on or before July 1, both farms must be in the same county (except in Tennessee where the transfer by lease can be to any other farm in the state). After July 1, the transfer can usually be to any other farm in the state. A transfer by sale must be between farms located in the same county and various other restrictions apply if the quota was purchased and/or reallocated within the five preceding years. 2~ For cigar-filler types 42, 43, 44 and 46 an owner or operator of an 'old farm' may transfer by lease any acreage allotment to any other farm in the same county (old or new farm) if the lessee has a current year's allotment for the same kind of tobacco. The lease cannot exceed five years. 21 For fire-cured, dark air cured and Virginia sun-cured tobacco, the owner or operator of an 'old farm' with an allotment may sell or lease it to another farm (old or new farm) in the same county (in the same state for Virginia fire-cured (type 21) or Virginia sun-cured (type 37) tobacco). Any lease is limited to a five year term. 22 15 7 USC w1314c. 16 7 USC w1314e (a)-(j). 17 7 USC w1445-1, 1445-2; See No Net Cost Tobacco Program Act of 1982, Pub. L. 97-218, 96 Stat. 200 (1982). 18 7 USC w1314b(g). 19 7 CFR w723.216(a)(1)(ii)(B)and CFR w723.215. 20 7 CFR w723.216(e). 21 7 CFR w723.216(h). 22 7 CFR w723.216(i).

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4. Production controls (peanuts) Peanut production is unusual in that peanuts are subject to both the marketing order program and are covered as a 'basic' commodity under the Agricultural Adjustment Act. The 1996 Farm Act made some significant changes in the provisions for peanuts but the essential control measures remain intact. The domestic supply is controlled by use of a marketing quota which assigns a portion of the overall national percentage quota to each producer. Producers who have no assigned quotas or those who exceed the quota generally cannot sell those peanuts in the domestic market as edible peanuts. However, these 'additional peanuts' may be exported or may be crushed for oil and meal in domestic markets. The peanut quota may be sold, leased or transferred across county lines within a state up to specified amounts of the quota but may not be held by people who live outside the state in which the quota is allocated nor by persons who are not peanut producers. As is true for other commodities, approval of a quota program by producer referendum is necessary. And, approval of the quota system is essential for the availability of price support. An important aspect of the peanut program is that the legislation establishes a peanut quota support price (reduced to $610 per ton through the year 2002). This price applies to the 'quota' peanuts under the national poundage quota which is set annually by USDA. The production reductions were originally through both acreage allotments and poundage quotas. The acreage allotment was, in a real sense, established by the historical acreage on a given farm but was based on a share of the overall national acreage allotment. Because production on given acreage may vary (and has often increased due to enhanced production practices) Congress also required restriction of production by the use of poundage quotas for each farm. Like the allotment, these quotas are a prorated share of the total national poundage quota for a marketing year. The current program features poundage quotas without acreage allotments as the means of restricting production. The current law allows for the sale, lease, or transfer of farm poundage quotas for peanuts under certain circumstances. 23 The owner or operator (with permission of the owner) may sell or lease all or part of the poundage quota for the farm to another farm within the same state. This transfer may be permanent (sale) or temporary (lease) but, in any case, the agreement must be recorded on a specific USDA form (Form FSA-375) and filed with the Farm Service Agency of USDA in the county in which the transferring farm is located. 24 Any person who holds a mortgage or other lien against the transferring farm must also accept the agreement. 25 In all cases the transfer must be between two farms located in the same state and in some cases the two farms must be in the same county. In most circumstances the receiving farm is not required to have had a quota, but must have adequate tillable acreage of cropland to produce the farm poundage quota. 26 If the transfer is within a state which had a small quota (less than 10,000 tons) in the preceding year, the transfer may be made to a farm in any county in the state. 27 If the transfer is in a state with 10,000 tons or more of quota, a farm quota may be transferred to any other 23 7 USC w1358b. 24 7 CFR w1358b. 25 7 CFR w729.214(b)(3)(ii). 26 7 USC w 1358b(b)(2). 27 7 USC w1358(a)(3).

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farm within the same county. 28 For farmers in the larger quota states certain restrictions also apply depending on the quota of a particular county. If the county quota is less than 50 tons, a farm poundage quota may be transferred to any farm within the same state. 29 If the county quota is 50 tons or more, the cumulative transfers out of county are limited to certain percentages of the total quota of the transferring county (30% for the 1998 crop; 35% for the 1999 crop and 40% for the 2000 and subsequent crops). 30 These restrictions do not apply to one year fall transfers which may be made to any farm in the same state. 31

5. Nature of quota/allotments To date there have been no cases specifically dealing with the nature of the farm poundage quota for peanuts. However, in cases dealing with peanut acreage allotments under prior law, the courts have indicated that the landowner acquires no vested property interest in such allotments even if made transferable. 32 Likewise, the national peanut quota is not a protected property interest so it can be changed without affecting a property interest of the farm owners or operators. 33 The interest in an allotment is considered a form of intangible personal property subject to inheritance, devise by will, transfer and sale under the regulations, division in a divorce proceeding or treatment as property in bankruptcy and it has market value. 34 Acreage allotments are considered to pass with the farm upon sale unless specifically reserved by the seller. 35 The tobacco allotment has been characterized as 'running with the land' so that a transfer of the land carries with it the allotment unless it has been previously, and properly, transferred separately. 36 Presumably, the farm poundage quota would be treated in similar fashion.

28 7 CFR {}729.214(d)(2)(i). 29 7 CFR w729.214(d)(2)(ii). 30 7 CFR w729.214(d)(2)(iii). 31 7 CFR w729.214(d)(3). 32 Conifer Farms, Inc. v. Brent, 226 S.E. 2d 585 (Ga. 1976). 33 Callaway v. Bloch, 763 F. 2d 1283 (1 lth Cir. 1985). 34 Walker v. Miller, 507 S.W. 2d 606 (Tex. Cir. App. 1974). 35 Combustion Engineering, Inc. v. Norris 271 S.E. 2d 813 (Ga. 1980). 36 Bryant v. Peckinpaugh, 400 S.E. 2d 201 (Va. 1991).

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The Future o f Production Rights f r o m the Viewpoint o f Community Law and International Law

Louis Lorvellec

The role of law in the context of production rights has remained that of an obedient servant of public policies. Its plasticity - - one might even say its servility - - means that it has been shaped in quite surprising ways country by country, product by product, and period by period. Production rights take on all shapes and sizes: transferable or non transferable, property of the landowner or of the tenant farmer, intangible rights or non pecuniary administrative authorisations. The future of production rights is now so strikingly uncertain1 that those who oppose them being treated as business assets use this precariousness as an argument against their being bought and sold. In principle, lawyers cannot be party to prospective debates as their discipline is supposedly one of recording economic and social changes: it is the province of politicians to establish those changes and of lawyers merely to frame them as law. The jurist cannot be both scribe and oracle. However, this order of priority overlooks the principle of the rule of law and of ever increasing international commitments. Regimes do not only create law, they are also bound by law! The legal scholar can then, without usurping the prerogatives of economists and sociologists, engage in the debate as to the future of political decisions by testing their conformity with the overarching principles of international law. A number of factors make the exercise a difficult one where production rights are concerned. First of all, there is an amazingly small amount of published material on the question. Little more than lip-service has been paid to the application of the general principles of law or compliance with international commitments. The complexity of the rules of law, their instability and the uncertainty of legal characterisations have had the effect that thinking on production rights has been confined to a small circle of 'ruralist' lawyers with 'hands on' experience of the practical difficulties requiring a solution. It is now necessary to bring into the limelight deeper issues left in the shade while the more immediate problems were addressed. There are three main fields of research: Community law, the European Convention on Human Rights (ECHR), and the agreements between member countries of the World Trade Organisation (WTO). These raise a variety of legal points; but, so as not to stray too far from the main themes of this volume, they can be narrowed down to just two: (1) the existence of production rights and (2) their regime, in which context discussion will be limited to an enquiry into their status as valuable assets. The same question arises each time: in what way does international law impose restrictive superior norms with regard to quotas, premium entitlements, replanting rights, etc.? The answers shall be proffered with some hesitation, the subject matter being so vast and complex that it is more matter of clearing the

1 See Quelavenirpour la PolitiqueAgricole Commune? C. Flaesch-Mougin (ed.), l~ditions Apogre Rennes, 1996, 238 p.

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undergrowth in the search for avenues of enquiry than of presenting any sure and certain knowledge. 1. European law and production rights as valuable assets

Many commentators have sought to refute that production rights are valuable assets using both theoretical and pragmatic arguments: the artificiality of the values ascribed; the precarious character of the rights granted under a production-limiting policy liable to amendment at any time; the increased start-up costs for young farmers and advantage afforded to economies of scale achieved by large holdings; the danger of de-localisation of production and of favouring areas of intensive agriculture; the failure to recognise the 'social' character of some regulated forms of production, and of milk in particular. The success of the French experience of milk quota control, which is judged exemplary because it has maintained a decent level of income and high level of production nationwide, is presented as vindication of the refusal to consider production rights as valuable assets. Lawyers, being more hard-headed, would like to be taken in by this line of argument but cannot help observing that the regime in force in France is more one of control of an unofficial market, behind a refusal to countenance an official market in production rights. They point out that, just as doctors do not support sickness and death when they remind us of the existence of microbes and viruses, so lawyers do not favour the unbridled transferability of production rights, although they obtain far more business and clients when complex legal constructions are required to effect such transfers. The lesson to learn from this is that, while it is always possible to decide when rights are first created that they will not be transferable, in the absence of such a rule, the market assumes proportions that preclude any subsequent intervention, and, as it is usually put, 'covert practices take over'. That having been said, the issue of conformity of production rights with international law is a clear one: can the protection of the fight to property, a fundamental right, be extended to entitlement to a production right? Can a producer, for various ends (compensation, disposal, inheritance, etc.), rely for the protection of his milk quota on property law as guaranteed by an international rule overriding the provisions of French municipal law which, on the contrary, deny him all or any prerogatives over such quota? Anyone giving an immediate answer to this question would simply be demonstrating how uninformed he was. The legal points of reference are Article 1 of the First Protocol to the European Convention on Human Rights and the general principles of Community law. The former provides that 'Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law'. Paragraph 2 specifies that 'The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. '2 The general principles of Community law are characterised by 2 In addition to the following references, see F. Terr6 and P. Simler: Droit civil, les biens, Pr6cis Dalloz, 5th ed. 1998, p. 70; J.F. Struillou, Protection de la propridt~ priv~e immobili~re et prdrogatives de puissance publique, coll. Logiques Juridiques, l'Harmattan, 1996, pp 21 ft. Most of the following analyses are based on H. Pauliat: 'Le droit de propri6t6 devant le Conseil Constitutionnel et la Cour Europ6enne des droits de l'Homme' RDP 1995, 1445.

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Guy Isaac as 'superior Community law, the observance of which is imposed on the institutions by the Court (and which therefore has higher authority than derived law) but which is also binding on Member States for any act within the ambit of Community law and afortiori any act done by way of execution of Community law'. 3 Among these principles, the right to property, according to the Court of Justice of the European Communities, is 'protected by the Grundgesetz of the Federal Republic of Germany and by the constitutions of other member states and various international treaties, including in particular the Convention for the Protection of Human Rights and Fundamental Freedom of 4 November 1950 and the protocol to that Convention of 20 March 1952'. 4 The issue of the application of these provisions to production rights leads us first to question whether, once created, production rights are 'property' within the meaning of the Protocol and whether they are property within the meaning of the 'general principles of Community law'. It must then be ascertained whether the legal regime of production rights is compatible with other provisions goveming the loss of enjoyment of property and regulations goveming the use of property.

1.1. Characterising production rights There follows an attempt to characterise production rights in relation to the European Convention on Human Rights and the general principles of Community law.

The European Court of Human Rights The European Court of Human Rights has frequently accepted that the property referred to in the First Protocol could be intangible. 5 The question has even been put to the Court about milk quotas. 6 The case was referred to the Court by the European Commission for Human Rights (the 'Commission') on 9 September 1994. It arose from a petition (no. 14570/89) brought against the Grand Duchy of Luxembourg on 22 November 1988 by a Luxembourg dairy society ~ l'Association agricole pour la promotion de la commercialisation laitibre (Procola) - - and sixty-three of its members. Procola and two other purchasers had attacked the decision setting their reference quantities in the Luxembourg Supreme Administrative Court. Under Article 177 of the EEC Treaty, that Court referred a number of preliminary points to the European Court of Justice (ECJ), which gave its ruling on 25 November 1986. In the light of the ECJ's answer, the Supreme Administrative Court ruled on 26 February 1987 that the choice of 1981 as a reference year led to discrimination among purchasers, contrary to Article 40 (3) of the EEC Treaty. Consequently, it annulled the decisions being challenged and referred the case back to the Secretary of State for Agriculture, so that quota should be distributed more equitably between the four Luxembourg dairies through a regulation of the Grand Duchy. Procola and sixty-three of its members, all farmers, brought the case before the Commission on 22 November 1998, arguing that their right to an independent and impartial hearing under Article 6 (1) of the Convention had been breached, as some members of the Administrative Court, having ruled on Procola's application to set aside the ruling, had previ3 G. Isaac, Droit communautaire gdn~ral, Armand Colin, 6th ed. 1998, pp. 159 ft. 4 See e.g. Case 4/73, Nold v. Commission, [1974] ECR 491, at para.12. Readers should not confuse the European Court of Human Rights which sits in Strasbourg and deals with breaches of the European Convention on Human Rights and the Court of Justice of the European Communitiesin Luxembourgset up by the Treaty oi Rome and whosejurisdiction covers the legal aspects of the European Union. 5See H. Pauliat, op. cit., text, note 25 and ff. 6 Ruling 27/1994/474/555 of 28 September 1995.

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ously given their opinion on the legality of the provisions under attack. 7 They further claimed that the supplementary levies infringed their right to peaceful enjoyment of property, in breach of Article 1 of the First Protocol. The Court asserted that, having regard to the close connection between the proceedings brought by Procola and the consequences that their outcome might have had for one of its pecuniary rights, and for its economic activities in general, the right in question was a civil one. 8 However, the ruling does not provide a very useful answer to the question of the legal nature of production rights. The only point at which this question was addressed was where it was noted that, as the applicant pointed out, the Commission took the view in its decision on admissibility that the payment of an additional levy to the national authorities could be construed as a deprivation of possessions within the meaning of the first paragraph of Article 1 of the First Protocol, and that the right to peaceful enjoyment of one's possessions is undoubtedly a civil right. It would be wrong to infer from this that the Court classed right to quota as a property right. It merely stated that the levy for exceeding the reference quantity can be construed as loss of enjoyment of property. The property here is money o r - perhaps more accurately - - the amount paid by the dairy and not the actual reference quantity. As it was not asked the question, the Court did not address what concerns us here. We must, therefore, reason by analogy on the basis of other rulings. In interpreting Article 1 of the First Protocol, the Court specified that protected property includes not only movable and immovable, tangible and intangible property, debts, patents, and company shares, but also goodwill, liquor licences and quarrying permits. 9 The first and important point to notice is that the European Court of Human Rights claims the right to decide what can be classified as property, without confining itself to national decisions, statutes or regulations. The criteria relevant to such characterisation are to be sought in the rulings relating to atypical intangible property rights, marking the 'venality of administrative authorisations' ('v~nalitd des autorisations administratives'). 10 The first ruling was in the case Tre Trakt6rer Aktiebolog (TTA) v Sweden. 11 In that case, tax proceedings by the Swedish government against a restaurant had led to withdrawal of its liquor licence, which Swedish law said was unassignable. It was, therefore, a straightforward administrative authorisation which, the government argued, could not be characterised as 'property' under Article 1 of the First Protocol. Like the Commission, however, the Court took the view that the economic interests connected with the running of the restaurant were 'possessions' for the purposes of Article 1 of the First Protocol. Indeed, the Court had already found that the maintenance of the licence was one of the principal conditions for the carrying on of the applicant company's business, and that its withdrawal had adverse effects on the goodwill and value of the restaurant. Such withdrawal thus constituted, in the circumstances of the case, an interference with TTA's fight to the peaceful enjoyment of its possessions. The Court did not directly assert that the administrative authorisation is property, but that it is an essential item

7 This point is irrelevant here. 8 The Court based its argument on earlier case law: l~ditionsP6riscope v France 19.4.1994; Beaumartin v France 25.11.1994, p. 66 w pp. 60-61, w Ortenberg v Austria 25.11.1994, series A no. 295-B, pp. 48-49, w and, implicitly, Van de Hurk v Netherlands 19.4.1994,series A no. 288, p. 16, w 9 J.F. Struillou, op. cit., p. 21. 10 p. Terneyre: 'La v6nalit6 de la r6glementation6conomique',Lamy droitpublic des affaires no. 605 and ff. 11 Req. 10873/84, report adopted 10 November 1987; ruling 7 July 1989 (case 4/1988), Series A, vol. 159. See H. Pauliat, op. cit. note 41; Clunet 1990,p. 732, obs. P. Tavernier.

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in running the restaurant and that the restauranteur's economic interests are property covered by Article 1 of the First Protocol, preservation of which entails retention of the licence. As H. Pauliat observes, this is the application of the idea that, as property is an asset, anything that enhances that asset is property. 12 In private law, it might be characterised as an essential appurtenance to business property. The second ruling relates to the Swedish government's withdrawal of the licence to operate a gravel pit under a national law on nature protection. The holders claimed they were not benefiting from 'protection of their property' under Article 1 of the First Protocol. 13 The Court is much more succinct on this point: 'The Court finds - - and this point was not contested before i t - that the revocation of the permit interfered with the applicant's right to the peaceful enjoyment of their possessions, including the economic interests connected with the exploitation of the gravel pit (see, mutatis mutandis, the Trakt6rer AB judgement of 7 July 1989, Series A no. 159, p. 21, w 53)'. It cites the TTA case, confirming it as a test case. Consequently, should claims for loss of enjoyment or reduction of a production right be brought before the European Court of Human Rights, there is no doubt that it would accept, even if it did not consider the right to be property (there is no ground to claim that), at least that the protection claimed falls within the scope of Article 1 of the First Protocol. Total or partial deprivation of a production right interferes with the 'economic interest related to the operation of' an agricultural holding, to echo the terms of the ruling on gravel pits. What of the Court of Justice of the European Communities?

The general principles of Community law The general principles of Community law promote the protection of property into an overarching, implicit rule binding on the Community institutions and Member States of the European Union when implementing a provision of the European Union Treaty or of derived law. Consequently, the question arises as to whether entitlement to production rights is a property right subject to the general principle of law. The Court of Justice has recently ruled on the question in a way likely to herald interesting upheavals. 14 Both cases relate to reductions in quota by successive Community regulations, the details of which matter little here. The plaintiffs claimed in each case that the 4.74 per cent reductions infringed their property rights to their milk quota. The Court replied 'that the regulations in question form part of a body of legislation intended to remedy the surpluses on the milk market and therefore correspond to aims pursued by the Commtmity in the general interest and that the conversion into a definitive reduction without compensation does not affect the actual substance of that right'. 15 This wording is worth closer scrutiny. The ECJ probably avoids taking a position on whether title to quota is a property right because the infringements of it by the 4.74 per cent reduction would be entirely warranted by the general interest. Indeed ECJ case law clearly defines the right to property as a social function, which justifies 'that these rights should, if necessary, be subject to certain limits justified by the overall objectives pursued by the community, on condition that the substance of these rights is

12 Op. cit. note 46. 13 Fredin ruling, 18 February 1991, 19/1989, Series A, vol. 192. 14 Case C-22/94, Irish Farmers' Association v Minister for Agriculture, Food and Forestry, [1997] ECR I-1809; and Case C-186/96, Demand v Hauptzollamt Trier, [ 1998] ECR 1-8529. 15 Case C-22/94, [1997] ECR 1-1809, at paras. 28 and 29; and Case C-186/96, [1998] ECR 1-8529, at para. 40.

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left untouched'. 16 The sentence quoted above about milk quota virtually reiterates word for word this basic case law and it may be asked whether the ECJ, in intentionally aligning itself with rulings on property law, has not implicitly accepted that it was confronted with a question in the field of property law. This assertion is not some wild doctrinal imagining but is consistent with the interpretation of the Irish Farmers ruling by Advocate-General Damaso Ruiz-Jarabo Colomer in his remarkable Opinion of 7 July 1998 in the Stefan Demand case. Such a position is a departure from ECJ precedent which asserted in a ruling of 24 March 1994 that 'the right to property thus safeguarded within the Community legal order does not comprehend the right to dispose, for profit, of an advantage, such as the reference quantities allocated in the framework of the common organization of a market, which does not derive from the assets or occupational activity of the person concerned'. 17 The Court recalled this principle in a subsequent ruling on sheep and beef premiums, 18 but without totally denying the existence of a property right over production rights. This could be seen as a first step, foreshadowing the second step taken in the Stefan Demand ruling of 17 December 1998. In this ruling, the wording seems to be more worrying, since the Court basically says that the limitation on the rights is warranted by the general interest, in line with the AdvocateGeneral Damaso Ruiz-Jarabo Colomer, whose argument is so crystal clear that it is worth citing in full: 'While the relative stability of the quota scheme over a given period helps to create a degree of legal certainty, the relaxation of the conditions governing the transfer of quotas reinforces the concept which traders legitimately have of the quotas as an autonomous valuable asset. In those circumstances, and in spite of the great differences in regard to this matter between the individual national legal orders, I believe that milk quotas must currently be regarded as authentic intangible assets. However, since they were introduced for the purpose of regulating the market in milk, their content should be defined according to their purpose, which continues to be their raison d'etre' 19. 'Milk quotas thus constitute instruments of market intervention which, through the process o f the law, have become an item of property. The content of that item o f property/instrument will clearly vary according to the various national legal systems. Some will require a closer link between the quota and a holding or will subject the transfer of the quota to various conditions. The quota is not thereby deprived of its character as an item of property, just as firearms or enriched uranium are not deprived of their characters as items of property by the restrictions on transferring them. Those conditions will only provide a means of preventing, to some extent, the creation of"quota market"'. 20 Did the ruling of 17 December 1998 just happen to go the way called for by the Advocate-General but not for the same reasons? There is no evidence to support such an 16 Case 4/73, Nold v

Commission, [1974] ECR 491. 17 Case C-2/92, R. v Ministry of Agriculture, Fisheries and Food, ex parte Bostock, [1994] ECR 1-955, referring to Case C-44/89, Von Deetzen v Hauptzollamt Oldenburg [1991] ECR 1-5119. 18 Case C-38/94 R. v Ministry of Agriculture, Fisheries and Food, ex parte Country Landowners Association [1995] ECR 1-3875, at para 14 : 'No general principle of law upheld by the Community legal system, in particular, the principle of protection of the right to property, requires that such compensation be paid. The Court held in Case C-2/92, Bostock, [1994] ECR 1-955 that advantages such as reference quantities allocated under a common market organization cannot be regarded as a right derived from the assets or occupational activity of the persons concerned so that their attribution or transfer cannot be accompanied by an obligation to pay compensation on the part of one of the parties to a lease. The same is true of individual quotas on the basis of which the premium is allocated and which are linked to the tenant producers by the rules in question'. 19 Case C-186/96, Demand v Hauptzollamt Trier, [1998] ECR 1-8529, at para 39. 20 1bid., at para 42.

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interpretation. At the very least there is room for doubt and the ECJ no longer adopts a clearly hostile position to the assertion of a property right over production rights, considered to be of a pecuniary nature. Does this mean that the whole of our legal edifice in this area is under threat? Examination of the production rights regime should reassure us.

1.2. The production rights regime The same distinction prevails here and we shall first look at the protection of property by the European Convention on Human Rights and then the general principles of Community law. Both sources, separated for convenience, confirm that the property defended is not an absolute right but one subject to the general interest in accordance with the theory of the social function of property. 21 Consequently, the (still hypothetical) existence of ownership of production rights under these two international normative orders does not entail the annulment of all the administrative decisions relating to distribution, reduction, repurchase, etc. The European Convention on Human Rights Article 1 of the First Protocol to the European Convention on Human Rights guaranteeing the right to property 22 contains 'three separate norms"" the principle of peaceful enjoyment of property; the regime for deprivation of property; and recognition of the capacity of the contracting states to regulate the usage of property, inter alia, in the general interest and to enforce any laws that they judge necessary for this purpose. Thus in the TTA ruling already cited, 23 the ECHR asserts: 'By subjecting the sale of alcoholic beverages to a system of licences, the Swedish legislature took measures to implement the national policy in this field. This was in line with Swedish social policy generally and the Court does not doubt that the aim so pursued was the control of the use of property in accordance with the general interest'. In this case, the Court acknowledges therefore that a drinks licence enjoys the protection of the law of property, but that the withdrawal of the licence from a restaurateur who defrauds the inland revenue is justified by the general interest. Likewise, in the Fredin case, protection of the environment justified the withdrawal of the licence to work a gravel pit. It would be misguided then to go to the European Court of Human Rights to complain about a decision by a state or by the European Union authorities invoking merely a breach of one's property right when a production quota is reduced, or even when a decision has been taken to abolish a production quota system absolutely. If, say, the milk quota system was quite simply abandoned, it would be astonishing that the Court should fail to find evidence justifying application of Article 1(2) of the First Protocol: 'The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. '24 The use of property refers here to the exploitation of land and of other resources assigned to agricultural production under the common market organisation, since, it will be recalled, it is by reference to those assets that the administrative authorisation was considered property in the sense of the First Protocol. But combating 21 See J.L. de Los Mozos: 'Crisis y retomo a la tradicion juridica', Editorial Revista de derecho privado, EDERSA, Madrid 1993, pp. 85-210. 22 The Marckx ruling 13 June 1979,series A no. 31, pp. 27-28, w authorises that the protection of property be assimilated to the protection of propertyrights. 23 See footnote 11 above. 24 See footnote 2 above.

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surplus production is not necessarily in the general interest for all eternity; other public policy objectives may, under the banner of the general interest, lead to the abolition of production rights. The abolition of such rights would not constitute a substantial infringement of the right to property, but interference with the use of the farmer's property, property to which production rights are an appurtenance. The holders would, therefore, have little chance of success before the Court, which looks to see whether a fair balance has been struck between the general interest of the community and the requirements to safeguard individuals' fundamental rights. 25 The answer would be much more in doubt where the production right is not only regulated as an instrument of public policy but for the purpose of establishing a fair distribution between private individuals, such as landlord and tenant. If the European Court of Human Rights is one day faced with a claim which requires evaluation of certain provisions of French decree no. 96-47 of 22 January 1996, it is likely that all the provisions designed to reduce milk quotas in order to restructure dairy production when farmers amalgamate holdings will be considered warranted by the protection of the general interest or classed as a tax levy. On the other hand, it will be far more difficult to persuade the Court that milk quotas are initially allocated to the producer and then, without the general interest being in issue, that the producer can be deprived of quota without compensation in favour of the landowner, another private individual, or for the benefit of the reserve, which is in fact the State (Articles 5 and 6 of the decree). Similarly, the landowner who rents out his dairy holding to a tenant, who 'sells" the quota to the State and receives a premium under the outgoers' scheme might bring the case to the European Court of Human Rights with some hope of success. The Court has laid down a precise rule in these circumstances: 'The first question that arises is whether the availability and amount of compensation are material considerations under the second sentence of the first paragraph of Article 1 (PI-1), the text of the provision being silent on the point. The Commission, with whom both the Government and the applicants agreed, read Article 1 (P 1-1) as in general impliedly requiring the payment of compensation as a necessary condition for the taking of property of anyone within the jurisdiction of a Contracting State. Like the Commission, the Court observes that under the legal systems of the Contracting States, the taking of property in the public interest without payment of compensation is treated as justifiable only in exceptional circumstances not relevant for present purposes. As far as Article 1 (P 1-1) is concerned, the protection of the right of property it affords would be largely illusory and ineffective in the absence of any equivalent principle'. 26 Caution is required before asserting that there is an obligation to provide reasonable compensation, since the Court has indeed recognised the protection as property rights of the rights of those who hold administrative authorisations, but, it should be emphasised, with reference to assets of the farm, the use of which is made possible by the authorisation. Consequently, it is not certain that this case law would apply here. There is no doubt, however, that the tenant leaving his holding on termination and compelled to give up his quota, just as the landowner whose tenant receives a premium under the outgoers' scheme, incurs serious loss in the use of the assets of his dairy business, without being able to invoke the protection of the general interest. The Fredin ruling already cited 27 could be the relevant case law here. It will be remembered that it concerned withdrawal of a licence to operate a 25 J.F. Struillou, op. cit. p. 418. 26 James and others, 21 February 1986 w54; J.F. Struillou, op. 27 On this specific point see J.F. Struillou, op. cit. p. 424.

cit.

p. 468.

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gravel pit. 'The Court notes that the applicants suffered substantial losses having regard to the potential of the gravel pit if it had been exploited in accordance with the 1963 permit'. Nonetheless, it observed that the law provided a ten-year period during which the licence could be revoked and that the national authorities withdrew the authorisation after only three years and nine months. It deduced that the infringement of property was neither inadequate nor disproportionate. The question remains as to whether these criteria of adequacy and proportionality could be applied where a producer's quota passes to his landlord without compensation. The chances of success are not negligible.

General principles of Community law Application of the general principles of Community law leads to yet more uncertain principles, but also to a few certainties. First of all, there is no doubt that the protection of property rights does not entail perpetual preservation of production rights on the basis that holders of such rights acquired a property right over their quota or premium entitlement protected by the general principles of Community law. The ECJ indirectly expressed its position on this point with reference to planting rights under the common organisation of the market in wine 28 by asserting there was no obligation for the Community authorities to create rights of this type. As the regulations creating quotas are expressly provisional, the abolition of quotas and associated rights would not entitle holders to compensation. Case law relating to the reduction of quotas and, by extension, of production rights seems clear enough as it stands today. In both the Irish Farmers and Stefan Demand rulings 29 the ECJ unequivocally stated that, whatever the nature of the holder's right, even if a property right, the reductions decided as part of the common organisation of the market were justified in the general interest and could not give rise to compensation. The terms of the ruling in Stefan Demand read: 'In its judgment in Irish Farmers' Association, the Court held that, in so far as the provisions of Article 5c(3)(g) of Regulation No 804/68, inserted by Article 1(3) of Regulation No 816/92, and of Article 3 of Regulation No 3950/92, as amended by Article 1 of Regulation No 1560/93, converted the temporary withdrawal of a percentage of the reference quantity within the meaning of Regulation No 775/87, without compensation, into a definitive reduction, consideration of the general principles of Community law such as the protection of legitimate expectations, non-discrimination and proportionality as well as consideration of the fundamental right to property had disclosed no factor capable of affecting the validity of those provisions'. 3~ It will be recalled that this is a way for the ECJ to avoid coming down on one side or the other with regard to the legal nature of production rights, although the reference to compliance with the fundamental right to property would be meaningless if the ECJ had considered the argument was totally invalid. The ECJ will have to stop sitting on the fence when the question of compensation for the tenant or landlord comes before it again. It will be recalled that Community case law has fluctuated on this point: in the Wachauf ruling 31 the ECJ initially considered that the tenant's

28 Case 44/79, Hauer v Rheinland-Pfalz, [1979] ECR 3727, where the ECJ affirmed that a prohibition on the grant of new vine planting rights was justified for reasons of the general interest. 29 See footnotes 14 & 15. 30 Case C-186/96, [1998] ECJ 1-8529, at para 26. 31 Case 5/88, [1989] ECR 2609; V.C. Blumann: Politique Agricole Commune, Litec 1996, pp. 306 ft.

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loss of reference quantities merited compensation and then later asserted the contrary. 32 The Court confirmed this case law in relation to sheep and beef premiums. 33 Today the doubt about the nature of production rights assigned by this Court is fuelling the controversy. To be more precise, let us recall the terms of paragraph 40 of the Stefan Demand case: 'With regard more particularly to the right to property, which, according to the plaintiff in the main proceedings, has been infringed, the Court held, in paragraphs 28 and 29 of Irish Farmers' Association, cited above, that the regulations in question form part of a body of legislation intended to remedy the surpluses on the milk market and therefore correspond to aims pursued by the Community in the general interest and that the conversion into a definitive reduction without compensation does not affect the actual substance of that right'. The argument could hardly justify failure to compensate the quota holder deprived of his right. Loss may be suffered by the tenant where the landlord takes back the holding or by the landlord where the tenant is granted a premium under the outgoers' scheme. The impact is to reduce production to zero and there is infringement of the very substance of a right which may be likened to a property fight. It will be countered that this hypothesis is still in doubt, but it is precisely this precondition that was put forward at the beginning of this analysis. To summarise, European law, derived from the European Convention on Human Rights and the general principles of Community law, seems to favour a linkage between the protection of the holder of the production right and the instruments for defence of property rights. It would be exaggerating to read into this the basis of a genuine legal characterisation, even if recent changes in ECJ case law are confusing on the point. The action of the Community authorities is not impaired by this, provided that the allocation, reduction or removal of these rights is guided by the general interest, a broad notion encompassing the need for Community control of production levels. However, we shall be more circumspect about the fate of national provisions which deprives the holder of quota or production rights or premium, by attributing them to another producer consequent upon contractual relationships such as tenancy agreements. How can one justify either such an infringement of proprietary entitlement over these immaterial rights, if the Court one day accepts this characterisation, or the infringement of the use of assets of the agricultural holding? When the issue comes before the court, it seems to us slightly more comfortable to be in the shoes of the lawyer acting for the holder deprived of his quota than those of his opponent. Would it be possible to invoke Europe's international obligations?

2. International law and production rights In the intemational arena the idea of a public agricultural policy is under criticism today. The Agenda 2000 reforms of the Common Agricultural Policy seem to be aimed at reducing intervention by the authorities or financing on a national basis. The aim of subjecting agriculture to market discipline may well spell the end of production rights to the advantage, if that is the right word, of the freedom w and risk - - of producing. Likewise, the development of globali-

32 Case C-2/92, R. v Ministry of Agriculture, Fisheries and Food, ex parte Bostock, [1994] ECR. 1-955; RD rur. 1194, especially p. 62. 33 Case C-38/94, R. v Ministry of Agriculture, Fisheries and Food, ex parte Country Landowners Association, [1955] ECR 1-3875, see footnote 18.

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sation may announce the demise of production rights, deemed guilty of a thousand-and-one evils. The clash between production rights and the right to free competition has not often been addressed in legal literature. It is hard to harmonise globalisation of the economy, deregulation and the opening of markets on the one hand with production rights on the other. Nonetheless, the future of production rights will largely depend on the continuation of public policies and compliance with international trade law. Quotas and premium rights have been shaped by three requirements" control of milk production, supervision of production structures and balance in national and regional development. All three are public policy objectives: the first being Community policy and the second and third national policies in France. Are they consistent with France's international commitments, i.e. with the Agreement on Agriculture signed as part of the Uruguay Round? 34 The recitals to the Agreement reiterate the objectives and instruments laid down at the start of negotiations at Punta del Este: the long-term objective '"is to establish a fair and market-oriented agricultural trading system and that a reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines"; recalling further that "the abovementioned long-term objective is to provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets '''35. WTO member countries declare they are 'Committed to achieving specific binding commitments in each of the following areas: market access; domestic support; export competition; and to reaching an agreement on sanitary and phytosanitary issues'. 36 The scope of inquiry is thus determined: are production rights affected by Community commitments on (2.1) access to markets; and (2.2) internal support and competition for exports? 2.1. Production rights and market access The principles of market access inthe Marrakesh agreement reflect the liberalisation of trade for agricultural produce since the inception of the GATT. Article 4 provides that '(1 .) market access concessions contained in Schedules relate to bindings and reductions of tariffs, and to other market access commitments as specified therein; (2.) members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties, except as otherwise provided for in Article 5 and Annex 5'. Exceptions are provided for under safeguard and 'special treatment' clauses. 37 To remove a number of ambiguities, it should first be recalled that quotas giving rise to production rights should not be confused with import quotas. Import quotas for a given commodity reflect the ceiling on foreign products that a state allows into the country so as to protect its national production. Contrary to the GATT principles and above all to the 'price fixing' principle,38 they differ by their very purpose from production restrictions, which are

34 Agreement on Agriculture, signed at Marrakesh, 15 April 1994: O.J. 1994, L336, p. 22. 35 Agreement on Agriculture, recitals no. 2 and 3. 36 Agreement on Agriculture, recital no. 4. 37 See Annex 5. 38 The basis of this principle requiring countries to restrict the use of customs duties levied at their borders, which in turn are subject to an obligation of constant reduction, is covered in the Agreement instituting the

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measures to restrict the volume of national harvests. Production rights are also unrelated to tariff quotas, which are volumes of goods subject to specific customs schedules, such as lower customs duties. The question here is whether production quotas are liable to be considered directly or indirectly as 'any measures of the kind which have been required to be converted into ordinary customs duties' according to Article 4. 39 The best known application of the provisions is the abolition by the European Community of variable levies on agricultural produce and their replacement by customs duties. 40 To answer our question we must first return to the history of GATT disputes (2.1.1) before analysing the terms of the Marrakesh Agreement on this po int ( 2.1.2).

Production quotas in the history of GATT disputes The traditional approach to agriculture in the first GATT agreements led to the acceptance of a form of agricultural exception to the liberalisation of world trade. A protectionist attitude by states was authorised precisely in order to allow for output cutting programmes. Thus, any country maintaining such a policy was authorised to use quantitative restrictions and especially import quotas to restrict access to its market for identical or similar products. 41 In other words, internal quotas, on these principles, make border quotas possible. GATT case law reveals the implementation of these principles. The United States was condemned by a panel formed on 15 November 1956 to assess the milk import quota system set up in 1951.42 Jonathan Carlson writes ' United States import restrictions on dairy products became a major issue in GATT in 1951, when the United States Congress passed a bill imposing "severe quantitative restrictions on a wide range of farm products", including dairy products. GATT proceedings were initiated almost immediately in response to the earlier United States legislation and the United States conceded its GATT violation'. The case threatened the GATT's very existence and after some highly complex internal dealings, the U.S. government accepted that it was not abiding by its international obligations. But a ruling of 5 March 1955 granted a waiver to the United States, authorising it to maintain import restrictions imposed under Section 22 as amended of the 1933 United States Agricultural Adjustment Act. 43 The United States took advantage of the waiver and created a whole array WTO: 'Members agree that negotiations for continuing the process will be initiated one year before the end of the implementationperiod, taking into account: (a) the experienceto that date from implementingthe reduction commitments; (b) the effects of the reduction commitmentson world trade in agriculture; (c) non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and (d) what further commitments are necessary to achieve the abovementioned long-term objectives': Agreement instituting the WTO, recital no. 3, O.J. 1994, L336, p. 3. 39 On the general question, see D. Gadbin, 'L'Agriculture et le GATT' in La Communautd europdenne et le GATT, ~valuation des accords du cycle de l'Uruguay, T. Flory (ed.) Apog6e, Rennes, 1995, pp. 95 ff. 40 Regulation (EEC) 3290/94; O.J. 1994, L349, p. 105. See L. Lorvellec, 'Back to the fields after the storm: Agriculture in the European Union after the Uruguay Round Agreements', Drake Journal of Agricultural Law, Winter 1997, vol. 2, no. 2, pp. 411 ft. 41 GATT Agreement, Art. XI (2) (c) (i). See e.g. Dale Hataway: 'Reforming agricultural policies in multilateral negotiations in Transnational Law & Contemporary Problems', Autumn 1991, vol. 1, p. 393 ff, note 11 ('The Global Food Regime in the 1990s' ConferenceProceedings). 42 Report adopted 16 November 1956, 5 BISD Supp. 136 (L/590); see Jonathan Carlson: 'Hunger, agricultural trade liberalization and soft international law: addressing the legal dimensions of a political problem', 70 Iowa Law Review, July 1985, p. 1187 ff. note 236. 43 See C. Blumann, op. cit. p. 488; D. Gadbin, op. cit. p. 97.

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of import quotas: 44 dairy produce, sugar-based products, ground nuts and cotton. Raw and refined sugar was also subject to quotas, which a panel ruled was contrary to the GATT agreements on 22 June 1989. 45 Meat and meat-based products were also subjected to the same scheme by Public Law no. 88-842. A second dispute in 1994 found the United States opposed to a number of other countries on measures affecting the import, sale and use of tobacco on the domestic market. 46 Tobacco is one of the products for which the United States introduced a production quota regime. 47 DMA legislation, namely article 1106 (a) of the 1993 Finance Act compelled each 'national cigarette manufacturer' to certify to the Secretary for Agriculture for each calendar year the percentage of tobacco produced in the United States that it had used for its annual cigarette production. Any national manufacturer failing to provide such certification or not using at least 75 per cent of tobacco of national origin was liable to a non refundable marketing levy (DMA) and was compelled to purchase extra quantities of burley tobacco and hot-air dried tobacco of such origin. The United States developed very interesting arguments to defend this system: 'Elimination of the programme would result in lower prices and greater production. Larger, but fewer, producing units with attendant economies of scale would result. Marketing costs would be lower. All variable and fixed input costs except labour chemicals, seedlings, fertilizers, energy, machinery and i n t e r e s t - were already as low or lower than costs among the most efficient foreign competitors. Land costs would decline with removal of quota rent. Other economic factors - - transportation efficiencies, relative proximity to major consuming markets and growing conditions conducive to producing quality leaf would enhance demand for U.S. cigarette tobacco in the domestic and export markets. Ultimately, a more market-driven programme would be likely to reduce incentives for most imported tobacco to be sold in the United States. The abrogation of the programme would also probably increase the competitiveness of U.S. tobacco in its own market. In the end, this would greatly reduce the share of competing trade in the market'. 48 The American argument is worth citing in its entirety as it is a plea for production quota systems based on the realisation of the leverage they provide for developing imports. In short, concentration of production is slowed, comparative advantages neutralised and foreign products preferred to national products, which are penalised. The panel did not reply to the argument but settled for finding against the United States on the basis of a special GATT text on mixes of national and imported products. Nonetheless, the argument remains on record and could be used as a defence for quotas or other production rights. It does not show that a public policy incorporating quotas would necessarily comply with GATT rules but that its abolition would probably result in accompanying measures likely to impede imports.

44 Dale E. McNiel: 'United States' agricultural protectionism after the Uruguay Round: what remains of measures to provide relief from surges of agricultural imports?', North Carolina Journal of International Law & Commercial Regulation, Winter 1998, no. 23, p. 281. 45 GATT BISD (36th supp.) w331 (1990). 46 GATT, Special Group Report adopted by the Council on 4 October 1994 (DS44/R). 47 See the contribution by J.W. Looney, this volume.

48 GATT, Special Group Report adopted by the Council on 4 October 1994, (DS44/R).

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Provisions of the Marrakesh Agreement There is no specific provision for production quotas in that part of the Agreement concluding the Uruguay Round which relates to 'market access'. The terms of the Agreement still require interpretation. First of all, the price fixing principle will not apply for measures receiving 'special treatment' under Annex 5. 49 A number of conditions are laid down relating to the nature of the product ('primary product'), the low level of imports (less than 3 per cent of domestic consumption), the absence of export subsidies since 1986 and the existence of 'effective production-restricting measures applied to the primary agricultural product'. It can be deduced from this text that there is no incompatibility between domestic production quotas and the rules for the free movement of agricultural produce. The concept is straightforward enough" it is a matter of not destroying the public policies implemented to 'keep' output within reasonable bounds. Production quotas p e r s e do not, therefore, seem to contradict the commitments of WTO member countries. Secondly, domestic quotas do not seem either to fall within the scope of measures governed by the price fixing principle, the list of which is appended to Article 4 paragraph 2 of the Agreement on Agriculture: 'These measures include quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through State-trading enterprises, voluntary export restraints, and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, nonagriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement'. 50 The question could arise as to whether some regimes do not create 'voluntary export restraints' within the sense of this text. The reason for converting these measures into customs duties is connected paradoxically with their effect in reducing imports" if a country restricts its exports, it artificially increases domestic supply, by the amount of the products that are 'trapped' within the borders, thereby making the products of other countries less competitive. To some extent, this criticism could be levelled at the milk quota regime, in contrast with sugar beet quotas. The limit on production is applicable to all milk produced within the Community, 51 whether for domestic consumption or export, processed or unprocessed. The debate as to whether it is correct to create an internal quota coupled with unrestricted milk production for export is a recurrent one. It is invariably discussed in terms of economic opportunity, whereas its legal dimension is also worthy of consideration: the argument that it would contravene the provisions of Ar-ticle 4 paragraph 2 of the Agreement on Agriculture seems sound enough. Conversely, the quota regime for sugar beet providing for 'non quota sugar beet', incorrectly termed C quota, would probably escape such criticism, 52 if not all criticism. However, were the European Union to see its regime submitted to the appraisal of the WTO dispute settlement body, it would not fail to invoke the arguments put forward by the United States in the tobacco case. 53 In the absence of case law,

49 D. Gadbin, op. cit. p. 98. 50 See footnote 1 to Art 4 in the Agreementon Agriculture.

51 See e.g. Council Regulation (EEC) 857/84, O.J. 1984, L90, p. 13. 52 On sugar beet quota regime see C. Blumann op. cit. p. 303 ff. 53 See footnote 46 above.

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the outcome is too close to call, but it would be a serious mistake to deny the existence of the legal hurdle indicated.

2.2. Domestic support and export competition The Agreement on Agriculture signed at Marrakesh did not just implement the principle of price fixing and open borders but also clarified the regime of public-sector support for agriculture, whether domestic or export-oriented. The stated objective is '"to establish a fair and market-oriented agricultural trading system and that a reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines"; Recalling further that "the abovementioned long-term objective is to provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets"'. 54 Yet the text describes a number of domestic support measures not subjected to cuts according to a definition that it is worthy of brief comparison with the actual workings of production rights. The Marrakesh Agreement is aimed, in principle, only at domestic support measures of a monetary nature. 55 This assertion is confirmed by the terms of the text relating to production cutting programmes: 'Direct payments under production-limiting programmes shall not be subject to the commitment to reduce domestic support if: (i) such payments are based on fixed area and yields; or (ii) such payments are made on 85 per cent or less of the base level of production; or (iii) livestock payments are made on a fixed number of head'. 56 These measures, which in advance may be characterised as de-coupled, are no more problematic than those relating to entitlements to beef or sheep premiums. Restriction by the method of premium entitlement is insufficient to exclude them from the general support measure which there is a commitment to reduce. They must be cut like the others, even if there are limited numbers of them. Production rights do not play a major role in the sphere of export subsidies. The text that could possibly apply to them is Article 10 Paragraph 3 preventing any circumvention of commitments on export subsidies: 'Any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question'. It is probable, although not certain, that quotas would be seen as commitments to cut output, since the threat of penalties or support price discrimination by output level, as in the case of sugar beet, creates obligations to cut output (the source of which is necessarily formalised in a supply agreement to a dairy or refinery). Nonetheless, the quota regime does not of itself provide for export subsidies. The European Union should, therefore, not be troubled on this point.

54 Declaration of Punta del Este, reiterated in recital no. 3 of the Agreementon Agriculture: O.J. 1994, L336, p. 22. 55 Agreement on Agriculture, Art. 1 (a). 56 Art. 6 Para 5 (a).

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3. Conclusion

The future of production rights is probably not writ large in Community law, the European Convention on Human Rights or the Marrakesh Agreements. A number of points of difficulty might yet be clarified should the opportunity arise in litigation. The input of European law in its dual dimension impacts on private law and reveals that public policy considerations have sometimes led to failure to observe fundamental rights. Equity between farmers may have been lacking in official decisions, the weight of the principles of protection of property rights and of fair compensation for economic loss precluding the transformation of all production rights into instruments for the general regulation of the industries concerned. The World Trade Organisation Agreement, however, does not inspire the Community or national legislators to abandon certain legislative provisions. This is not the focus of the Marrakesh Agreement 9under it, production rights are not subject to special rules unless supplementary provisions of the texts enacting them infringe the principles of market access, reduction of domestic support or of export subsidies. This Agreement is, none the less, an invitation to think about whether it is worth preserving a system of production quotas. In an open global economy, is it advantageous to check output in this way? The question exceeds the competence of the lawyer who sees in it the signs of a change in his discipline, a discipline permeated to such an extent, perhaps overly so, by the heavy instruments of public policy in agriculture.

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Conclusion Denis Barthdlemy, Jacques David

The various contributions brought together in this work all illustrate the importance assumed by production rights in the Common Agricultural Policy - - indeed they are now the essential ingredient of this Policy w and the diversity of ways in which they are interpreted, and thus implemented, in the different Member States. Production rights were created to take the place of price supports which had shown their limitations through their inability to prevent surplus production. We may observe that production rights themselves have particular and individual effects, accentuated to a greater or lesser degree according to how they are implemented by the Member States, and leading to widely divergent developments from one country to another. The first observation concerns the way in which the rate of development of farm units has clearly been checked when compared with the previous period: production rights have tended to dull the cutting edge of competition between farmers on the market. Moreover, they have had repercussions on the distribution of production at territorial level and on the size of farm units: Member States, in their different ways, have not been slow to avail themselves of these openings. Finally, those responsible for creating production rights failed to anticipate that they would interfere in property relations, particularly between landowner and tenant. This has been a matter for debate in all the Member States, each striving to find a solution consistent with its economic priorities and legal conceptions. From the analytical point of view, the comparison of how production rights are implemented in the countries under review highlights a division between a liberal approach, in which control and management are essentially left to the market, and one characterised by tighter administrative control, whose principles are to be found outside market forces. This distinction is clearly evident in national discussions accompanying the implementation of production rights and in the type of management adopted, and may be seen as the conflict between two business systems w one rooted in the market economy and the other drawing inspiration from an economy of solidarity. Such dualism, whose origins may be traced back to the Treaty of Rome itself, is an essential element in the field of production rights; and there is every reason to believe that it will continue to loom large in the future of the Common European Agricultural Policy, when production rights as we know them today have given way to instruments which are more contractual and yet more decoupled from the market. 1. A slower rate of development

In the period leading up to the introduction of production rights, discussions between Member States focused on the level of price supports. To this have now been added issues flowing from the allocation of production rights, which resulted in a loss of flexibility in terms

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of the development of production. To take the example of milk quotas: the regulatory system governing their implementation in 1984 resulted in the allocation of reference quantities supposedly corresponding to the volume of milk produced in the Member States. But in certain countries, such as the United Kingdom and Italy, the resulting figure turned out to be less than national consumption, and both these countries found themselves condemned to remain importers of milk products. It was scarcely surprising, therefore, that they should clamour for a larger reference quantity, or for the abolition of the milk quota system itself, as a solution to what was interpreted as an unfair bar on production. For much the same reasons, the system of beef and suckler cow premium rights has become increasingly complex with the passage of time. Given that beef in the shops may come from specialist extensive farms (suckler cows on pastureland), from the intensive rearing of young stock or from cull dairy cows, the relative level of premiums allocated to suckler cows and the various other kinds of beef cattle will favour one sector of production at the expense of another. This state of affairs is well illustrated by the debates surrounding Agenda 2000 and the Berlin negotiations, in which France and the United Kingdom (where extensive pastureland rearing accounts for much of beef production) found themselves opposed to Germany and the Netherlands (more directed toward intensive production). Such was reflected in a painstaking series of discussions designed to find premium levels which would secure a balance between the different national sectors. The final outcome was an exceedingly complex compromise in which the premium systems provided for the possibility of complementary payments per head of cattle or per hectare, at the discretion of the Member States. 1 The slowdown in the rate of change is illustrated by the negotiations between Member States sharing out production quantities (directly through quotas or indirectly through premium rights); and it is also apparent in the farm units themselves. In this context, a comparative analysis of dairy farms in Germany, France, the Netherlands and the United Kingdom since the 1970s, points very clearly both to a check in and a reorientation of development. In all four countries, the number of dairy farms declined more slowly after 1984 (the year in which milk quotas were introduced) than in the previous period: the cost of acquiring milk quotas came into play as an additional burden reducing the farmer's scope for growth. To this must be added the modulations of national regulatory systems specifically designed to accentuate such a trend or to channel agriculture in a particular direction. Among the countries mentioned above, the Netherlands and the United Kingdom interpret the regulations in a way favouring transfers (or turn a blind eye when producers bend the rules restricting the possibilities of transfer), whereas Germany (initially) and France explicitly seek to encourage measures which, by placing obstacles in the path of transfers, work in favour of small and medium-sized farm units. In the latter case, this need not necessarily mean a brake on change (in France there has in fact been intensive reorganisation) but rather a change of direction. The examples given above illustrate this reduced capacity for development, or in certain cases a change in the shape of development, both of which are linked to the intrinsic nature of the quota system set up to regulate production and aids. But there are other aspects to production rights. They are not simply designed as a means of income support; they are also associated with such objectives as 'territorial distribution' or restrictions on the size of farm units. 1 It may be added that this compromiseis also supposed to maintain a balance with a third area of production, the cereal sector. The aim has been to provide a level of aid per hectare of forage area roughly equivalent to the aid per hectare of cereal crop.

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2. Questions of territory and size The territorial aspect is present in most of the regulations governing production rights. Indeed, the tone is already set by the fact that production rights or premiums are distributed between the different Member States. The notion is then developed in a variety of ways: one example would be a principle emphasising the attachment of production rights to precisely defined areas (arable area payments), or to farming land (milk quotas); and another example would be the ability to designate zones between which the transfer of production rights is forbidden, e.g. sensitive zones in the case of suckler cow and sheep premium rights. These territorial aspects are well illustrated by the case of milk quotas. The principle of the link between milk quotas and the holding was established at the outset, in the European regulatory apparatus of 1984. In 1992, Member States were offered regionalised exemption from this requirement; some of them, notably Germany, made extensive use of this dispensation. Under the terms of the new regulatory system, Member States may, as from the year 2000, abolish the requirement altogether. This change in the European regulations, gradually sanctioning the abolition of the territorial dimension, is no more than the expression of the clash between the opposing points of view of different Member States. In the case Of milk quotas, some countries wish to throw off as many shackles as possible, while others wish to impose a method of territorial adjustment other than that of the link between quotas and the holding, while yet others are content to stay within the strict framework set out by the 1984 regulatory system. There are two aspects which may be concerned: firstly, the link with land, and secondly the transfer zones. The attachment of milk quotas to the holding obviously required a definition as to what sort of land should be linked to the quotas. This was to give rise to a wide variety of interpretations. The Netherlands moved very swiftly to loosen the link and to encourage the development of farm units: in 1984 the transfer of quotas was conditional on the transfer of land used for the production of fodder, to an upper limit of 20,000 kg per hectare; but from 1985 onwards it was possible to transfer farming land without quotas. This amounted to allowing a virtual quota market to emerge through a 'back-and-forth' system (lease of farmland with quotas, then reversion of the land without quota). A similar system emerged in the United Kingdom, where there was the same concern to facilitate the development of dairy farms while safeguarding the landowner's pre-eminence over the tenant. A difference was that a link was established in terms of the length of time that the land was used for milk production, instead of authority to transfer land without quotas: in the UK, only the land which has been directly used for milk production in the five years immediately preceding the year of transfer is taken into account (this in case of dispute as to the amount of quota transferred; in practice farmers only wait till one year). In Germany, where agricultural policy was at first clearly geared in favour of the small family farm, land was deemed eligible if it directly or indirectly contributed to milk production; the density ceiling was fixed at 5,000 kg per hectare in 1984, raised to 12,000 kg per hectare in 1990, and finally abolished in 1993. In France, the underlying aim (to prevent the concentration of production on large dairy farms at all costs and to cast the net as widely as possible over the territory) led to a particularly strong link between quota and land: all farmland except that used for perennial crops was taken into account. The other aspect of territoriality concems the areas within which quotas may be transferred, even when their links with farming land have been severed. For those countries which, in 1984, had opted for Formula B (whereby quotas were allocated to the dairies), the zone in

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which quotas could be transferred corresponded to the area covered by these dairies. In the United Kingdom permanent transfers were effected on a regional basis until 31 March 1993, the regions being based on the areas covered by the Milk Marketing Boards. Temporary transfers until 31 March 1994 were to be made between producers supplying the same dairy. Such restrictions have been removed in 1994, with the exception of the 'ring fence' covering the Scottish Islands areas. In Germany, the allocation and distribution of milk quotas was considered to fall within the sphere of influence of the Lander. Transfers of quotas were confined within these administrative frontiers (and within even narrower boundaries in some cases); the restriction continues to apply today notwithstanding that the link between land and quota has been totally abolished. So far as France is concerned, the tying of milk quotas to a territorial area has been reinforced by the departmentalisation of the national reserve. Thus the reference quantities made available by the milk cessation plans and siphoning on transfers cannot be moved beyond the frontiers of the departments (apart from token quantities designed to maintain a semblance of equality in the treatment of producers at national level for the benefit of Brussels). In short, the primary purpose of production rights, namely to provide income support for producers, is accompanied by a dimension addressing the territorial distribution of production. The degree to which this dimension has been developed varies from one Member State to another, but it is always present. Mention has already been made of milk quotas, but we may also cite the example of suckler cow and sheep premium rights: in this context, the European regulatory system prohibits the transfer of rights from 'sensitive zones', the idea being to protect those areas where suckler cow and sheep farming is essential. This measure is strictly applied in France, due to the departmentalised management of most production rights. The United Kingdom has also proceeded to set up sensitive zones (currently six in number); it further makes use of the discretion available under regulatory system to apply a 15% siphon to partial transfers in order to allocate them to areas which would otherwise lose their premium rights following a sale of these fights by the farmers. 2 Similarly, it may be noted that the question of the size of production units is also addressed in the European regulatory system, although less emphasis is placed on this aspect. The size of production units is addressed in several ways, such as the limitation of the number of male bovine animals eligible for the special beef premium to 90 head per holding, or the exemption from the partial set-aside obligation for producers delivering less than 92 tonnes of cereal. In this sphere, the European measures may be optional rather than compulsory, as with the discretionary ability to impose a siphon on transfers of production rights, for example suckler cow and sheep premium rights, or, more recently, when the Member States are authorised to retain up to 20% of the total amount of aid in the case of farmers exceeding certain economic thresholds. However, the scope for using production rights as a means of influencing the size of farm units is most apparent and significant at national level. Thus, among the countries studied in this work, Germany clearly acted in favour of small dairy farm units between 1984 and 1993, while in France production rights have since 1984 breathed

2 The question of the territorial distribution of production also looms large in the Netherlands. We do not address this issue here as the central aspect concerns the spreading of manure in a country which suffers much from pollution of the environment. Suffice it to say that the managementof this aspect is of vital importance in the territorial distribution of the various forms of productions. The question is treated in greater detail in the French version of this work.

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fresh life into, and increased the efficiency of, a policy in favour of the medium-sized farm structure, a policy dating back to 1960.

3. The question of ownership Production rights are designed to help producers. But a producer cannot pursue his activity if he does not possess the means of production himself, or if he is no contractual links with another person possessing them. Thus the appearance of production rights 3 has constituted a new challenge, with major economic repercussions for property relations, adding a new source of friction in the traditional debate between landowners and tenant farmers. Developments linked to this question have varied considerably from one country to another, since property law is the exclusive province of each Member State. The regulatory system surrounding the introduction of milk quotas was, in particular, calculated to exacerbate this debate, inasmuch as the quotas could not be separated from the holding and had to be transferred proportionally to the land. Each p a r t y - landowner and t e n a n t - interpreted the European regulation so as to confer on themselves entitlement to the quota. This gave rise to countless regulatory and legal texts designed to resolve the opposing claims. In the United Kingdom, milk quotas reverted to the landowner, the tenant farmer being eligible for compensation if he could point to efforts made or expenses incurred in developing milk production over and above the normal exercise of his activity. In the Netherlands, an equitable arrangement was found concerning both parties, but in Germany, the administration, that is to say the Government backed up by the farmers' unions, ran into fierce opposition from the landowners. In theory, the latter's entitlement to quotas was recognised; in practice, however, it was hemmed in by a set of conditions so restrictive as to ensure that the prerogatives in this sphere were to all intents and purposes invested in the tenant farmer. The landowners succeeded in reversing this state of affairs by obtaining a judgment from the Federal Administrative Court which recognised that quotas fell under the umbrella protection afforded to the ownership of farming land. In France, milk quotas were attached to the farm unit. This is a legal notion quite different from actual ownership of the land: for the duration of the lease the tenant enjoys extensive right of action over the farm and the means of production (including milk quotas) necessary to his activity; at the end of the lease, he surrenders this right, which returns to the l a n d o w n e r - without compensation for either the landowner (if the reference quantity has fallen) or the tenant (if it has risen). This notion of the autonomy of the farm unit is even more pronounced in Italy, where it is a legal entity, termed a universitas for example, based on the cattle rather than the land, in the case of livestock farming: thus the person possessing the herd is held to possess all the means required for milk production, including the milk quotas. Unless the landowner is also the owner of the livestock unit, with the herd at its core, he has no specific entitlement to milk quotas. It is clear from the various solutions referred to above that each of the four countries under review has incorporated milk quotas into its legal system in a way designed to perpetu3 It is interesting to note that these production 'rights' have not been interpreted as real rights in any of the countries under review. Rather, they are considered as instrumentsprocuring certain advantages similar to those which might be secured by real rights. This is why we have decided to retain the term 'productionright' in this work, despite the fact that the studies presented in parts 2 and 5 clearly show that these are not rights in the accepted legal sense of the term.

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ate as far as possible the legal framework in which relations between landowners and tenant farmers had been enshrined prior to their introduction. The only exception is provided by Germany, where the unsuccessful attempt to allocate the quotas to the tenant farmer rather than the landowner would have given greater weight to the notion of 'farming activity' as distinct from ownership of the land (and would thus have brought Germany, to a certain degree, more into line with the French and Italian conceptions). The example of milk quotas, which have generated so much imagination and energy, shows that the introduction of an instrument of European inspiration into national rights has not brought the various countries closer together, either in terms of national legal conceptions informing rights of ownership in the agricultural sector, or in terms of their practical organisation. The solution adopted by the 1992 regulation conceming suckler cow and sheep premium rights has given rise to fewer difficulties, for the producer can transfer these fights freely, that is to say independently of any condition such as the simultaneous transfer of other elements of the farm unit. 4 Since the tenant is also the producer, he is free to transfer the premium rights; in other words he may return the land stripped of these rights at the end of the lease. Thus, the focus of the legislation has been on the 'producer' and there has been a desire to treat this term restrictively. Such concern seems to have resulted not so much in legal innovation, as in a battery of additional national measures designed to ensure that the advantages of European aid were limited to 'true producers'. In the introduction to this work, mention was made of the OECD report which condemns the policy of income support for agricultural producers on the grounds that it does not benefit solely active producers. The governments of the Member States are, indeed, acutely aware of the cost of acquiring production rights for new producers or for those wishing to expand their activity. They apply themselves to reducing this cost by seeking to exclude 'non-producing producers' (in most cases retired farmers) from the benefits linked to production fights. By maintaining the fiction of a link between milk quotas and land, the United Kingdom has managed to prevent the constitution of a free market upon which non-producing producers could speculate. In 2000, Germany introduced a new rule putting an end to the possibility of leasing milk quotas independently of farming land. This rule also includes a system for penalising those who attempt to sell quotas at excessively high prices on the quota exchanges (through which they must now pass). The closely controlled management system established in France has prevented the emergence of a market for production rights. Officially, therefore, production rights have no cost, but in practice it is impossible to stop farmers who transfer their farm from profiting from the production rights transferred along with the farm. 4. Liberal model versus the model of solidarity

The analysis of all the various measures taken by both the European Union and the four Member States considered in this study makes it very clear that there are two opposing tendencies at work. One of these tendencies, of liberal inspiration, looks upon production rights as new assets to be managed according to the rules of the market. The other approach insists on the special nature of these fights and puts the accent on administrative forces external to the market when distributing them among producers. We are thus witness to the simul4 Arable area payments do not pose any particularproblem, for they are strictly attached to clearly defined land: their transfer is subjectto the legal systemgoverningthe land in question.

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taneous emergence of two models: one based on the rules of the market economy and one whose roots are to be found in the principles of an economy of solidarity. This duality is in fact embedded in the heart of the Common Agricultural Policy, whose objectives are set out in Article 39 of the Treaty of Rome (Post Amsterdam, Article 33). The first of these objectives is to 'increase agricultural productivity ...by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour'. The second is 'to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture'. Those who choose to interpret this text in the liberal sense consider that the second objective merely repeats the first, which seeks to organise agriculture according to the principles of the market economy. Indeed, economic theory insists that market equilibrium is secured by the optimum use of the factors of production (including labour), and guarantees the same level of productivity in all sectors submitted to the laws of the market. From this it follows that both objectives are simultaneously met; agricultural earnings are the same as those prevailing outside the agricultural sector and correspond to the level of income desired for the agricultural community (Tracy, M., 1994). A less harsh version of this interpretation supposes that there is a concomitant social policy, designed to provide support for the transformation of small-sized farms or to usher in retirement for older farmers, these measures taking effect over the period of time needed for adapting to market conditions (Hill, B., 2000). This may be contrasted with a second interpretation according, to which the first objective does indeed posit an organisation of agriculture on liberal lines, aiming to attain a degree of efficiency which would allow agricultural labour to rival that of other sectors and thus to secure the same income for the agricultural community. But here it is a case of equality of income based on the principles of the commutative justice of the market, in other words, on the price paid in exchange for the result of this productivity. The second objective, by contrast, advances the determination to obtain the same earnings for the agricultural community as for other sectors of economic activity, regardless of whether or not the productivity of agricultural labour succeeds in equalling that attained in these other sectors. In short, the 'equity' in question refers to a notion of distributive rather than commutative justice, implying that the two objectives are in fact distinct, if not opposed to each other. The first objective subjects European agriculture to the principles of the market economy, but at the same time the second objective recognised a right for the agricultural community ~ as persons engaged in agriculture ~ to enjoy a standard of living, and hence a level of income, which is equivalent to that of other categories of the population (Barthrlemy, D., 2000). In support of this second interpretation, it has to be said that the common organisations of the market, which constitute the essential expression of the Common Agricultural Policy, were founded on this duality of principles. These organisations form the framework for the common market of the main agricultural products. But, instead of allowing the usual free interplay of supply and demand to fix prices on these markets, it was decided to define 'target prices', and to provided for intervention on the markets by means of stocking, import levies and exports subsidies, designed to ensure that the actual price was as close as possible to the desired price. To put it another way, it was decided that the determination of prices ~ the central plank of a market economy ~ should not be bound by the rules of the market. Instead, prices would be established by taking 'national cost prices' into account, as stipulated in Article 44 of the Treaty of Rome (now removed). For this purpose, the European

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Commission implemented 'the Objective Method' (De Veer, J., 1979). Thus, at one and the same time the markets were established and their functioning distorted to allow the agricultural community to receive this equitable income irrespective of their level of productivity, the term 'equitable' being defined in the sense of distributive justice. As is well known, this method worked well up to 1982, when it became necessary to change the system of artificially sustained market imbalances and to shift towards a logic of market prices. This was accompanied by the development of production rights, i.e. quotas and premium rights designed to maintain incomes without supporting the markets, or to compensate farmers directly for loss of income resulting from the reduction of market supports. Production rights are thus new instruments for implementing the second objective of Article 39 of the Treaty of Rome. In other words, they constitute means of ensuring an equitable standard of living for the agricultural community in the sense of a distributive justice, -which cannot be reduced to the commutative justice of the market. Our analysis therefore makes clear that the Common Agricultural Policy has developed around an uneasy balance between these two opposing tendencies ~ the market economy and the 'solidarity' economy ~ with each redressing a perceived shortcoming of the other. The former ensures the development of productivity but fails to guarantee the survival of a significant farming population; the latter ensures a fair standard of living for the agricultural community but does not guarantee production. Production rights relate to both these principles: on the one hand, as income instruments, they belong to the economy of solidarity; on the other hand, they are not allocated to the agricultural community as a whole, but are reserved to 'producers'. These producers are economic agents engaged in the market economy, producing goods for markets, and as such subject to constraints which impel them to increase production and/or to reduce cost prices. Of these two tendencies, it is the economy of solidarity that prevails in the sphere of production rights. It functions on two levels: 1) At a global level, the farming population is specifically designated as benefiting from this right to receive an income equivalent to that of the other social categories. In this connection, debate centres on the importance of preserving agricultural features in the landscape, of maintaining a sufficient population density in rural areas, and of protecting the environmental advantages linked to the activities carried out by the farming community. The usual negotiations between Member States for fixing support prices for agricultural products, to which must now be added discussions on quota quantities and premium amounts, constitute the occasion for fulfilling this obligation of solidarity towards the agricultural community (while striving to keep the cost of this obligation to a minimum). 2) Within the farming community, the income stream thus made available to the agricultural population is distributed not only along egalitarian lines between the producers themselves (since productivity is not a criterion of eligibility for benefiting from this income), but also according to principles of solidarity in geographical terms (all farmers have the same right to a livelihood regardless of where they farm) and in temporal terms (solidarity between generations is essential if the agricultural community is to survive). It is, therefore, scarcely surprising that this non-market oriented distribution (characteristic of an economy of solidarity) should be present in the implementation of production rights. At Community level, we may thus observe that, when created, production rights were distributed free of charge between producers according to production in historical reference

Conclusion

235

periods, guaranteeing to each of them the right to remain in a c t i v i t y - they were not auctioned off to the most competitive producers, which would have been the case if the principles of the market economy had been strictly applied. Similarly, when the quantities of production rights may be varied, certain categories of producers usually benefit. Examples include less-favoured areas during the reduction of milk reference quantities in the 1980s or on the introduction of suckler cow and beef premium rights. By the same token, according to intentions mentioned in Berlin, the 1.5% increase in the milk reference quantity scheduled for certain Member States in 2005 and 2007 will be divided between young farmers and producers in mountain zones. Moreover, the European regulatory system provides in most cases for the constitution of national reserves and the exacting of siphons on transfers of production rights so that Member States can carry out policies of solidarity between producers. In order to protect less-favoured or sensitive areas, they also authorise or impose the identification of zones from which rights may not be transferred. As we have already had occasion to note, the egalitarian element is also present. Production rights are, of course, intended for producers (otherwise agricultural productivity in the market sense of the term would not be stimulated). But in certain circumstances, small producers are given preferential treatment or large producers are penalised, as with the exemption from the set-aside rules for small-scale cereal farmers or the limitation on the number of beef special premiums to 90 head of cattle per holding. This egalitarian tendency seems set to increase. It was the subject of much discussion during the Agenda 2000 negotiations and at one time the European Commission proposed that the amount of aid per farm unit should be cut by 25% beyond a ceiling of 200,000 euros. In fact, the initiative was left in the hands of the Member States, with each of them having the fight to levy up to 20% of the aids for farmers exceeding certain economic thresholds, and to reallocate the money recovered in this way to rural development initiatives. The fact is that most of the major decisions regarding the development (or otherwise) of the 'economy of solidarity' dimension of production rights are taken at national and not European level. Without recapitulating all the details set out in the studies making up this work, it is worth emphasising yet again the divide separating the United Kingdom (the country most characteristic of a liberal policy) from France (where an administratively controlled policy implements a project consistent with an economy of solidarity). The Netherlands and Germany are situated somewhere between these two extremes, leaning one way or the other depending on the period and the particular sector. The United Kingdom has adopted a liberal approach, in the sense that the method of managing production rights, within the sphere of action accorded to each Member State, is based on market mechanisms. And yet the approach is not entirely liberal, for there are certain restrictions on the free play of market forces, principally those helping to establish territorial solidarity (as we have seen). Conversely, France seeks to impose a unified, 'collective' management, denying any monetary value to production rights and working to achieve equality between producers and solidarity between generations and territories. In its turn, however, this approach is not exclusively one of solidarity, since, for example, it has introduced a notion of minimum economic viability, below which the smallest producers cannot benefit. The countries covered by this study, therefore, cannot be identified totally with one or other of the extreme poles constituted by the market economy and the economy of solidarity; they are rather to be classified according to the distance which separates them from these two extremes.

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It is not the purpose of this work to provide a theory explaining the different approaches adopted by the Member States studied here, starting from the same basic analysis structure. Suffice it to say that there is little place for the economy of solidarity in the management of production rights in the United Kingdom and, to a lesser degree, Germany, but that at the same time the farming family in both these countries comes under strong solidarity pressure to allocate, free-of-charge or virtually free-of-charge, the land and means of production to the farming heir. Conversely, the management of production rights in France is extremely demanding in terms of solidarity, yet the transmission down the family of the means of production is subject to no such constraints and is conducted by reference to the values of the market (David, J., 1986; Barth61emy, D., Boinon, J.P., Doll, H., Fasterding, F., Klare, K., 2000). 5. The future: towards a redefinition of 'production rights'

The balance struck by the Common Agricultural Policy between its first and second objectives is, by its very nature, unstable: the agricultural community needs financial support if it is to survive across the agricultural areas of the Member States far any length of time; there would be no end to this support unless it were limited to producers, that is to say, to production; but the production to which support is given exceeds the needs of the market. The surplus crisis of the 1980s led to the replacement of price supports by quotas and direct aids to producers. The markets are not now supported as much as before (market signals are, therefore, somewhat more efficient), while at the same time producers receive aids which depend to a greater or lesser degree on production. Contemporary debate focuses on two areas: the m a r k e t s - which are affected by the fact that producers receive payments for what they produce in addition to the sales price; and the aids themselves, which, since they are direct, concern the taxpayer and not the consumer and hence explicitly raise the question of limits to the financial support destined for the agricultural community. It has to be remembered that the context of this debate goes beyond the frontiers of the European Union, since the Union is party to world trade negotiations. Within the WTO itself, we find the same opposition between the proponents of a purely liberal agricultural policy, i.e. entirely exposed to market forces, and those who point to the specific nature of agriculture and wish to maintain this characteristic through aids to producers. In practical terms, the debate centres on the degree to which the system of aids does in fact interfere with the working of the markets, blocking access to these markets or distorting competition. During the Uruguay negotiations of 1994, different levels of decoupling between aids and markets were defined. Measures such as import quotas, which ran directly counter to the opening up of markets were consigned to a 'red box', and scheduled for abolition; measures having a direct impact on production and destined to be phased out gradually were placed in a 'yellow box'; and support measures not causing any notable distortion of the markets were placed in a 'green box'. An intermediate 'blue box' was also created for measures deemed to be 'semi-decoupled' - - linked to production but not favouring its increase. Such measures are tolerated until 2004. This system tends to put pressure on the European Union to transfer its production rights from the yellow or blue boxes to the green box, or, to put it another way, to move towards aids entirely decoupled from production destined for the markets (the European Union itself is anxious to extend the 'blue box' beyond 2004).

Conclusion

237

The Agenda 2000 negotiations sketched in the outline for the way ahead, which would appear to involve a greater gulf between aids and markets. A first sign of this intention is the increased importance attached to rural development, with rural development schemes becoming the responsibility of EAGGF-Guarantee Section. This European Fund, initially set up to provide market support (including direct aids to producers), was given responsibility for measures in favour of the environment. The 1999 reforms have focused its sphere of action more precisely on initiatives concerning rural developmem. Henceforth, these embrace schemes designed to modemise and diversify agricultural holdings, to encourage processing and marketing facilities, to provide assistance to young farmers setting up in business and to older farmers taking early retirement, to promote agrienvironmental measures, to provide aid for less-favoured areas and mountain z o n e s - and other schemes to facilitate the adaptation of production in rural areas. In the period between 1992 and 1999, agri-environmental support measures accounted for about 5% of expenditure on the markets; the budget earmarked for rural development will represent roughly 11% of market expenditure. Rural development is thus placed in competition with market support, although the funds available are only a ninth of those at the latter's disposal. Alongside this development, the notion of the 'multifunctionality' of agriculture is becoming of crucial importance. This concept insists that agriculture simultaneously fulfils several functions, each of which must be taken into account. Not only does the farmer produce milk, meat or cereals; he also has an active impact on the countryside and on the quality of the natural environment and the like, and it is only right that this function should be remunerated. The dimensions and practical consequences of this notion are at present the subject of impassioned debate. From a strategic point of view, multifunctionality comes at an opportune moment for the European Union, which seems ready to participate in the worldwide liberalisation of markets, while at the same time seeking to arm itself with the means of protecting the twin objectives referred to above. Multifunctionality makes it possible, within the global activity of the farmer, to distinguish between those aspects corresponding to the usual definition of the producer (supplier of food) and other, as yet only unnamed or dimly perceived aspects such as the quality of the countryside, contribution to the environment, and so forth. Conceptually differentiated in this way, the second category can qualify for payments which, on this hypothesis, will be separated from the product markets. Thus we are moving towards a construction under which, alongside a market organisation in the strict sense, a series of procedures will emerge, with the aim of allowing an agricultural producer to receive paymem. Under this construction, which will be implemented only gradually (both now and for many years to come, direct aids will remain the central plank of the system), payments will be made in recognition of an undertaking by the producer to improve the environment, (or, at least, not to pollute it), to 'maintain' the countryside in one way or another, or to take part in certain rural development initiatives. Does this take us beyond the realm of production rights? The proponents of a purely liberal economy insist that it does. To their way of thinking, the recourse to contracts signifies the creation of markets for environmental or countryside services, and so on, taking their place alongside the market for food products. Such generalised market functioning is the guarantee that there would be no distortion whatsoever between the different activities carried out by the same producer. It will be difficult to impose this interpretation. Even couched in these terms, concepts remain vague, far removed from the rigorous definition required before a product can justify a market. What exactly is an environmental or countryside service, and

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who is prepared to pay for it? Here we are entering the uncharted territory of 'market failure' characterised by the fact that the market, in the usual sense of the word, is unable to cope, with the result that the public authorities have to intervene and create pseudo-markets. Besides, although it is true that the contractual procedure looks very much like a market transaction, the line between what in reality constitutes a 'contract' and a 'subvention' remains indistinct. The point may be illustrated by reference to agri-environmental measures which already exist and are managed contractually. In this context, France has used the bulk of the financial resource at its disposal for these measures to provide a 'pasture premium'. This takes the form of a contract by virtue of which the producer undertakes, for a period of five years, not to exceed a density of 1 LU/ha (or 1.4 if the pasture represents at least 75% of the farmland) and to keep the spreading of fertilisers below certain thresholds. In return for this undertaking, the producer receives an annual payment based on an amount of money per hectare of pasture (fixed at national level) up to a maximum limit per farm unit. Such has the formal appearance of a contract but, in practical terms, is it really so very different from suckler cow premiums (for which density ceilings also exist), or from arable area payments (for which a certain percentage of set-aside must be maintained by the producer)? Certain legal experts have no compunction in analysing production rights as implicit contracts, since the aids to which they give rise are almost always linked to certain conditions, thus bringing us to a situation in which the farmer receives money in return for a certain action ~ or absence of action. In other words, depending on the definition of the persons to whom the public authorities propose contracts, and depending on the conditions imposed on the signatories to such contracts, we are in fact very close to the definition of a subvention, despite the fact that the relation may assume the appearance of a contract. Accordingly, just as it seems certain that we are gradually moving towards new instruments designed to provide contractual remuneration for the services attached to the new agricultural functions mentioned above, so it is also probable that this will not spell the end of production rights. As we have seen in this work, the result will be a system which is at once generalised, i.e. originating in the European regulatory system, and particularised in the sense that it is submitted to diverse national interpretations and applications. Seen from this angle, one of the main lessons to be drawn from this work is that the construction of Europe, which represents a coming together in order to pursue joint action, is accompanied by a movement in the opposite direction: the persistence or reinforcement of national agricultural projects based on economic priorities, legal conceptions and patterns of social behaviour. What this means in concrete terms is that national policies will continue to develop in substantially divergent directions, perhaps more so than at present, reflecting the persistence of highly differentiated national agriculture models within the common European model.

239

Abbreviations and Acronyms

ACAL

Aide ~ la Cessation de l'Activit~ Laiti~re (Milk Production Cessation Aid Programme, France)

ADASEA

Association D~partementale d'Amdnagement des Structures d'Exploitations Agricoles (Farm Development Administrative Departmental Board, France)

BSE

Bovine Spongiform Encephalopathy

CAP

Common Agricultural Policy

CDOA

Commission DOpartementale d'Orientation Agricole (Departmental Agriculture Guidance Commission, France)

CNASEA

Centre National d'Amdnagement des Structures d'Exploitations Agricoles (Farm Development Administrative National Board, France)

CNIEL

Comitd National Interprofessionnel de l'Economie Laiti~re (National Interprofessional Centre for the Dairy Industry, France)

COLT

Contract Over Long Term

DDAF

Direction Ddpartementale de l'Agriculture et de la For~t (Departmental Agricultural and Forestry Board, France)

DM

Deutsche Mark

DVB

Deutscher Bauernverband (Farmers Union, Germany)

EARL

Exploitation Agricole h Responsabilitd Limit~e (Limited Liability Farming Company, France)

EC

European Community

ECU

European Currency Unit

EEC

European Economic Community

EPI

Etude Pr~visionnelle d'Installation (Projected Installation Study, France)

EU

European Union

FF

French Franc

FNSEA

Fdddration Nationale des Syndicats d'Exploitants Agricoles (Farmers Union, France)

FPLIQ

F~d~ration des Producteurs de Lait Industriel du Qudbec (Federation of Producers of Milk for the Processors)

FPLQ

Fdddration des Producteurs de Lair du Qudbec (Milk Producers Federation)

GAEC

Groupement Agricole d'Exploitation en Commun (Farmers' Common Production Company, France)

240

Abbreviations and A cronyms

GIE

Groupement d'Intdr~t Economique (Economic Interest Group, France)

hi

Hectolitre

INRA

lnstitut National de la Recherche Agronomique (National Institute of Agronomic Research, France)

LFA

Less Favoured Area

LPG

Landwirtschaftliche Produktionsgesellschaften (former socialist agricultural cooperatives, Germany)

LTO

Land en Tuinbouw Organisatie (Farmers Union, Netherlands)

LU

Livestock Unit (attention: zootechnical or administrative definitions)

MAFF

Ministry of Agriculture, Fisheries and Food, U.K.

MMB

Milk Marketing Board

NEJK

Nederlands Agrarisch Jongeren Kontakt (Young Farmers Federation, Netherlands)

NAFTA

North American Free Trade Agreement

NFU

National Farmers Union, UK

OECD

Organisation for Economic Cooperation and Development

ONILAIT

Office National Interprofessionnel du Lait (Joint Milk and Dairy Product Board, France)

PAD

Projet Agricole D~partemental (Departmental Agricultural Project Scheme, Fraace)

PAM

Plan d'Amdlioration Mat&rielle (Material Improvement Plan, France)

PMTVA

Prime au Maintien des Troupeaux de Vaches Allaitantes (Suckler Cow Premium, France)

RGA

Recensement Gdndral de l'Agriculture (Agricultural Census, France)

RPF

Reformatorische Politieke Federatie (Political Party, Netherlands)

SAFER

Soci&td d'Am&nagement Foncier et d'Etablissement Rural (Rural Development Company, France)

SCEES

Service Central des Enqu~tes et Etudes Statistiques (Statistical Office for Agriculture, France)

SCVQ

Syst~me Centralisd de Vente de Quotas (Centralised Quota Sale System, Qu6bec)

UK

United Kingdom

USA

United States of America

USDA

United States Department of Agriculture

WTO

World Trade Organisation

241

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