The European Union is proposing a fundamental change in dairy policy and will now make direct payments to farmers.

Bill Madders, speaking on behalf of European dairy producers and agricultural co-operatives, told the Dairy Farmers of Canada that the old policy is being weakened.

He said milk prices and farm incomes have been maintained by managing the market. But this policy of limiting production through quotas, exporting products and restricting imports is “being undermined by the accumulating effects of the Uruguay round and the anticipated effects of the forthcoming WTO (World Trade Organization) round, together with the expected EU expansion.”

The new EU milk policy, covering 2000 to 2006, would increase quota volumes by two percent, cut support prices by 15 percent and make direct payments to farmers to compensate for the lower price.

“It is this significant price cut and the introduction of direct payments which marks a fundamental change for the EU dairy sector,” he said.

The direct payment would be paid as a dairy cow premium, calculated on the anticipated average cow yield of 5,800 kilograms or 5,630 litres.

Madders said the premium would not cover the price cut, but would bring European milk prices closer to American prices and help keep imports out.

“U.S. prices are about 15 percent below EU prices.”

Madders said the EU recognizes it may have to lower prices as trade barriers are lowered, but it does not want to do so unless it is necessary. He said the average European dairy herd is small with 23 cows each.

Direct payments are “the way we’re seeking to protect those family farms,” he said. “At the same time, we want to maintain our share of the domestic market. We’re here to represent all farmers.”

He said the dairy sector is divided on the proposal. Some think the current protection should be continued until talks are complete.