(1)

Successive reforms of the common market organisation covering milk and milk products, now contained in Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation) (4), have been aimed at market orientation, that is, letting price signals guide the decisions of farmers in terms of what and how much to produce, so as to strengthen the competitive situation of the dairy sector and its sustainability in the context of globalised trade. It was therefore decided to increase quotas gradually, by adopting Council Regulation (EC) No 72/2009 of 19 January 2009 on modifications to the Common Agricultural Policy by amending Regulations (EC) No 247/2006, (EC) No 320/2006, (EC) No 1405/2006, (EC) No 1234/2007, (EC) No 3/2008 and (EC) No 479/2008 and repealing Regulations (EEC) No 1883/78, (EEC) No 1254/89, (EEC) No 2247/89, (EEC) No 2055/93, (EC) No 1868/94, (EC) No 2596/97, (EC) No 1182/2005 and (EC) No 315/2007 (5) (the ‘Health Check’ reform of 2008-2009), in order to ensure a smooth phasing out of the milk quota system by 2015.

(2)

In the period from 2007 to 2009, exceptional developments took place in the milk and milk products sector markets, which ultimately resulted in a price collapse in 2008/09. Initially, extreme weather conditions in Oceania brought about a significant decline in supplies, leading to a rapid and significant increase in prices. Although world supplies started to recover and prices started to return to more normal levels, the subsequent financial and economic crisis negatively affected Union dairy producers, aggravating price volatility. Higher commodity prices resulted in a significant increase in feed and other input costs including energy. Subsequently, a drop in worldwide, as well as Union, demand, including demand for milk and milk products, during a period when Union production remained stable, led Union prices to fall to the lower safety net level. This sharp decline in dairy commodity prices failed to fully translate into lower dairy prices at consumer levels, generating, for downstream sectors, a widening in the gross margin for most milk and milk sector products and countries, and preventing demand for them from adjusting to low commodity prices, slowing down price recovery and exacerbating the impact of low prices on milk producers, the viability of many of whom was put at serious risk.

(3)

In response to this difficult market situation for milk, a High Level Expert Group on Milk (HLG) was set up in October 2009 with the purpose of discussing mid- and long-term arrangements for the milk and milk products sector which, in the context of the end of dairy quotas in 2015, would contribute to stabilising the market and milk producers’ incomes and to enhancing transparency in the sector.

(4)

The HLG obtained oral and written input from major European stakeholder groups in the dairy supply chain representing farmers, dairy processors, dairy traders, retailers and consumers. Furthermore, the HLG received contributions from invited academic experts, third-country representatives, national competition authorities and from the Commission’s services. A dairy stakeholder conference was also held on 26 March 2010 allowing a wider range of actors in the supply chain to express their views. The HLG delivered its report on 15 June 2010. The report contained an analysis of the current state of the dairy sector and a number of recommendations which focused on contractual relations, the bargaining power of producers, interprofessional/interbranch organisations, transparency (including the further elaboration of the European Price Monitoring Tool), market measures and futures, marketing standards and origin labelling, and innovation and research. As a first step, this Regulation addresses the first four of these issues.

(5)

The HLG noted that the dairy producing and processing sectors are highly differentiated between Member States. There is also a highly variable situation between operators and types of operators within individual Member States. However, in many cases the concentration of supply is low, which results in an imbalance in bargaining power in the supply chain between farmers and dairies. This imbalance can lead to unfair commercial practices; in particular, farmers may not know at the moment of delivery what price they will receive for their milk because frequently the price is fixed much later by dairies on the basis of the added value obtained, which is often beyond the farmer’s control.

(6)

There is thus a problem of price transmission along the chain, in particular as regards farm-gate prices, the level of which generally does not evolve in line with rising production costs. Conversely, during 2009, the supply of milk did not adjust promptly to lower demand. Indeed, in some large producer Member States, farmers reacted to lower prices by producing more than in the previous year. Value added in the dairy chain has become increasingly concentrated in the downstream sectors, especially dairies and retailers, with a final consumer price that is not reflected in the price paid to milk producers. All actors in the dairy chain, including the distribution sector, should be encouraged to collaborate to address this imbalance.

(7)

For dairies, the volume of milk which is delivered to them during the season is not always well planned. Even in the case of dairy cooperatives (which are owned by farmers, possess processing facilities and process 58 % of the Union’s raw milk), there is a potential failure to adapt supply to demand: farmers are obliged to deliver all their milk to their cooperative and the cooperative is obliged to accept all that milk.

(8)

The use of formalised written contracts concluded in advance of delivery containing basic elements is not widespread. However, such contracts may help to reinforce the responsibility of operators in the dairy chain and increase awareness of the need to better take into account the signals of the market, to improve price transmission and to adapt supply to demand, as well as to help to avoid certain unfair commercial practices.

(9)

In the absence of Union legislation concerning such contracts, Member States may, within their own contract law systems, decide to make the use of such contracts compulsory provided that in doing so Union law is respected and in particular that the proper functioning of the internal market and the common market organisation is respected. In view of the diversity of the situations that exist across the Union in relation to contract law, in the interests of subsidiarity, such a decision should remain with Member States. Equal conditions should apply to all deliveries of raw milk on a given territory. Therefore, if a Member State decides that every delivery of raw milk in its territory to a processor by a farmer must be covered by a written contract between the parties, this obligation should also apply to deliveries of raw milk coming from other Member States, but it is not necessary for it to apply to deliveries to other Member States. In accordance with the principle of subsidiarity it should be left to Member States to decide whether to require a first purchaser to make a written offer to a farmer for such a contract.

(10)

In order to ensure appropriate minimum standards for such contracts and to ensure that the internal market and the common market organisation function well, some basic conditions for the use of such contracts should be laid down at Union level. All such basic conditions should, however, be freely negotiated. Nevertheless, in order to strengthen the stability of the dairy market and the outlet for milk producers in certain Member States where the use of extremely short contracts is quite widespread, Member States should be allowed to set a minimum contract duration to be included in such contracts and/or offers. Such minimum duration should however be imposed only on contracts between first purchasers and milk producers or in the offers made by first purchasers to milk producers. Moreover, it should not impair the proper functioning of the internal market and milk producers should be free to opt out or refuse such a minimum duration. Among the basic conditions, it is important that the price payable for the delivery can be set in the contract, at the choice of the contracting parties, as a static price or a price varying depending on defined factors, such as the volume and the quality or composition of the raw milk delivered, without excluding the possibility of a combination of a static price for a certain volume and a formula price for an additional volume of raw milk delivered in a single contract.

(11)

Dairy cooperatives which have in their statutes or in the rules and decisions based thereon provisions with effects similar to those of the basic conditions for contracts laid down in this Regulation should, in the interests of simplicity, be exempted from a requirement that there be a written contract.

(12)

In order to strengthen the effectiveness of the contract-based system set out above, where intermediate parties collect milk from farmers to deliver to processors, Member States should be given the possibility of applying that system also to those intermediaries.

(13)

Article 42 of the Treaty on the Functioning of the European Union (TFEU) provides that Union rules on competition are to apply to production of and trade in agricultural products only to the extent determined by the European Parliament and the Council within the framework of Article 43(2) TFEU, which itself provides for the establishment of the common organisation of agricultural markets.

(14)

In order to ensure the viable development of production and thus to ensure a fair standard of living for dairy farmers, their bargaining power vis-à-vis dairy processors should be strengthened, thereby resulting in a fairer distribution of value added along the supply chain. Therefore, in order to realise these objectives of the common agricultural policy, a provision should be adopted pursuant to Article 42 and Article 43(2) TFEU to allow producer organisations constituted solely of dairy farmers or their associations to jointly negotiate contract terms, including price, for some or all of its members’ production, with a dairy. However, only producer organisations which seek and obtain recognition under Article 122 of Regulation (EC) No 1234/2007 should be eligible to benefit from that provision. In addition, that provision should not apply to recognised producers’ organisations, including cooperatives, that process all the raw milk of their members, since no delivery of raw milk to other processors is at stake. Furthermore, provision should be made for the possibility of de facto recognition under this Regulation for existing producer organisations recognised under national law.

(15)

So as not to undermine the effective functioning of cooperatives and for the sake of clarity, it should be specified that, when a farmer’s membership of a cooperative entails an obligation, in respect of all or a part of that farmer’s milk production, to deliver raw milk, the conditions of which are set out in the cooperative’s statutes or in the rules and decisions based thereon, those conditions should not be subject to a negotiation through a producer organisation.

(16)

In addition, in order to maintain effective competition on the dairy market, this possibility should be subject to appropriate limits expressed in terms of a percentage of the Union’s production and of the production of any Member State covered by such negotiations. The limit expressed in terms of a percentage of the national production should first apply to the volume of raw milk produced in the producing Member State or in each of the producing Member States. The same percentage limit should also apply to the volume of raw milk delivered to any particular Member State of destination.

(17)

In view of the importance of protected designations of origin (PDO) and protected geographical indications (PGI), notably for vulnerable rural regions, and in order to ensure the value added and to maintain the quality of, in particular, cheeses benefiting from PDO or PGI, and in the context of the expiring milk quota system, Member States should be allowed to apply rules to regulate the supply of such cheese produced in the defined geographical area. The rules should cover the entire production of the cheese concerned and should be requested by an interbranch organisation, a producer organisation or a group as defined in Council Regulation (EC) No 510/2006 of 20 March 2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs (6). Such a request should be supported by a large majority of milk producers representing a large majority of the volume of milk used for that cheese and, in the case of interbranch organisations and groups, by a large majority of cheese producers representing a large majority of the production of that cheese. Moreover, these rules should be subject to strict conditions, in particular in order to avoid damage to the trade in products in other markets and to protect minority rights. Member States should immediately publish and notify to the Commission the adopted rules, ensure regular checks and repeal the rules in case of non-compliance.

(18)

Rules have been introduced at Union level for interbranch organisations in some sectors. These organisations can play useful roles in allowing dialogue between actors in the supply chain and in promoting best practice and market transparency. Such rules should also be applied in the milk and milk products sector, along with the provisions clarifying the position of such organisations under competition law, provided that the activities of those organisations do not distort competition or the internal market or adversely affect the good functioning of the common organisation of agricultural markets. Member States should encourage all relevant actors to participate in interbranch organisations.

(19)

In order to follow developments in the market, the Commission needs timely information on volumes of raw milk delivered. Therefore, provision should be made to ensure that the first purchaser communicates such information to the Member States on a regular basis and that the Member State notifies the Commission thereof.

(20)

The Commission also needs notifications from Member States with respect to contractual negotiations, recognition of producer organisations and their associations and interbranch organisations, as well as contractual relations in the milk and milk products sector, for the purpose of monitoring and analysing the application of this Regulation, notably with a view to preparing the reports which it should present to the European Parliament and Council on the development of the dairy market.

(21)

The measures set out in this Regulation are justified in the current economic circumstances of the dairy market and the structure of the supply chain. They should therefore be applied for a sufficiently long period to allow them to have full effect. However, given their far-reaching nature, they should be temporary and subject to review for the purpose of seeing how they have operated and whether they should continue to apply. This should be dealt with in two Commission reports on the development of the dairy market, covering, in particular, potential incentives to encourage farmers to enter into joint production agreements, to be submitted by 30 June 2014 and by 31 December 2018 respectively.

(22)

The economy of certain disadvantaged regions in the Union depends heavily on milk production. Because of the specific characteristics of these regions, general policies need be adapted to better meet their needs. The common agricultural policy already contains specific measures for those disadvantaged regions. Additional policy measures laid down in this Regulation may contribute to strengthening the position of milk producers in such regions. These effects should however be evaluated in the abovementioned reports on the basis of which the Commission should, where necessary, submit proposals to the European Parliament and to the Council.

(23)

In order to ensure that the objectives and responsibilities of producer organisations and associations of producer organisations in the milk and milk products sector are clearly defined, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the conditions for the recognition of transnational producer organisations and transnational associations of producer organisations, the rules on the establishment and the conditions of administrative assistance in the case of transnational cooperation and the calculation of the volume of raw milk covered by negotiations by a producer organisation. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

(24)

In order to ensure uniform conditions for the implementation of this Regulation implementing powers should be conferred on the Commission. The implementing powers relating to the implementation of conditions for the recognition of producer organisations and their associations and interbranch organisations, the notifications by those organisations of the volume of raw milk covered by negotiations, the notifications to be made by the Member States to the Commission concerning those organisations and the rules for the regulation of supply of cheese benefiting from a PDO or a PGI, detailed rules concerning agreements, decisions and concerted practices in the milk and milk products sector, the content, format and timing of compulsory declarations in that sector, certain aspects of contracts for the delivery of raw milk by farmers and the notification, to the Commission, of options taken by the Member State in this respect should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (7).

(25)

In the light of the Commission’s powers in the field of Union competition policy and given the special nature of those acts, the Commission should decide without applying Regulation (EU) No 182/2011 whether certain agreements and concerted practices in the milk and milk products sector are incompatible with Union competition rules, whether the negotiations by a producer organisation relating to more than one Member State may take place and whether certain rules laid down by the Member States to regulate the supply of such cheese with a PDO or a PGI should be repealed.

(26)

Regulation (EC) No 1234/2007 should therefore be amended accordingly,

(1)

in point (a) of the first paragraph of Article 122, the following point is inserted:

(2)

in Article 123, the following paragraph is added:

(3)

in Chapter II of Title II of Part II, the following Section is inserted:

(*1)   OJ L 1, 4.1.2003, p. 1. Editorial note: The title of Regulation (EC) No 1/2003 has been adjusted to take account of the renumbering of the articles of the Treaty establishing the European Community, in accordance with Article 5 of the Treaty of Lisbon; the original reference was to Articles 81 and 82 of the Treaty."

(*2)   OJ L 124, 20.5.2003, p. 36.’;"

(4)

in Article 175 the words ‘subject to Articles 176 to 177 of this Regulation’ are replaced by the words ‘subject to Articles 176 to 177a of this Regulation’;

(5)

the following Article is inserted:

(6)

Article 184 is amended as follows:

(7)

the following Articles are inserted:

(8)

in Chapter I of Part VII, the following Articles are added:

(*3)   OJ L 55, 28.2.2011, p. 13.’,"

(9)

in Article 204, the following paragraph is added: