The effect of Common Agricultural Policy on Dairy production in Croatia

In the year 2007 there was price jump at world milk market. In the middle of the year 2008 the market was temporarily stabilized, because European Commission introduced Common Agricultural Policy modernization suggestion to the members of the European Parliament as the answer to an increasing food demand. The main elements of this suggestion were to abolish obligation to keep some agricultural areas set aside, milk quota removal, and abolition of subvention rate - production quantity link. When East and Central European countries entered in the European Union, they faced agricultural tax and milk price decrease. Today in new member states, the protection taxes are lower then before entering the Union (exceptions are Poland and Romania). The production costs in new member states are higher then in the Union, so there is higher market pressure at milk producers to increase their capacity (Livestock unit), to increase capacity utilization (milk per animal), and to produce at lower cost price. One part of smaller producers could not react to this pressure, so they decided to leave the dairy business. The consequence is decreased export of milk and dairy products in the new member states. Today milk market production in Croatia is around 650 million liters. In the production, there are around 32 thousand producers with 177 thousand of dairy cows. In the last 5 years of Croatian dairy, there was important shift in the production and redemption. Help to dairy sector through annual high investments as state subsidies and credit loans, and dairy industry subsidies at basic price, made redemption increase of more then 150 million liters, but also milk producer’s decrease. To stay at present production and redemption level, the only one that counts as Quota I, with around 90 % standard milk, there is a need to increase standard milk for 119 million liters. This increase in production quality, in the negotiation period and just after planned Croatian entrance to the European Union, while still having some space for “free” agricultural policy management (around 3 years in total), could not be expected at present way.