Price reduction and compensation payments on the EU milk market.

摘要

Soon after the 2003 reform of the Common Agricultural Policy, milk farmers started protesting against low milk prices. Though farmers gained public attention and sympathy for their case, the compensation payments included in the reform package were never part of the debate. Thus, only the income-decreasing side of the reform was pointed out. The present study empirically investigates to what extent the income reduction for dairy farmers is covered by the increased farm area payments in the 2003 reform. A comparison of milk prices prior to and after the 2003 reform indicates significant overcompensation. This comparison ignores the impact of world market price changes. Considering these in the analysis using a vector error correction model leads to opposite results. Thus, up to now farmers are by far not compensated for the income loss generated by the price reduction in the 2003 reform.