Prospects for the European Union and Hungarian dairy sectors after the abolition of the milk quota system

Our study determines the competitive positions of the dairy sectors of Hungary and the other European Union (EU) Member States in the light of the abolition of the milk quota. We analyse the recent market positions of the EU Member States, the changes in the relationships between global, EU and Hungarian milk procurement prices, and the medium-term forecasts for the international markets for milk and milk products, including the results of our own model. In most Member States, milk production is below the quota level, although the most competitive countries are paying substantial penalties for excess production. The medium-term projections and the price relationships underline the fact that, due to the liberalisation of the milk market and the rapid rise in global demand, the impacts of global market developments in the EU will be further enhanced. Owing to sustained international demand, the EU’s export opportunities will improve, reducing the pressure on the internal market, and this will have a spill over effect on Hungarian milk prices. Although in terms of trade balance and quota utilisation Hungary is one of the least competitive Member States, the concentration, modernisation and selection processes that have taken place in the country’s dairy sector in recent years could, taking into account the favourable medium-term market forecasts, result in a slight increase in milk production levels. Thus, in contrast to the European Commission’s projection, according to our profitability based model projection the Hungarian dairy herd and milk production are expected to increase slightly during the period 2016-2020.