The milk quota was introduced in the 1980s in response to surplus production and acts to maintain dairy prices plummeting. The measure is crucial to famers in poorer regions of Europe who rely on the market stability the quota brings. In 2015, the European Union will abolish the milk quota, sparking concerns that the move would open the door to market instability. “After the quota, there will be a tremendous impact in market. The volatility of milk price is high already, but when the quota ends, the volatility will increase further,” Paolo de Castro, chair of the European Parliament’s agriculture committee told CNBC. But five member states including Germany and Cyprus were fined a total of 46 million euros on Tuesday for exceeding their milk quotas, casting doubts over the Commission’s hopes of calm in the dairy market after the quota rules end. Agricultural experts said that the quota could be holding back production in some countries and a boost in milk production is possible after it has ended. Removing the quota in countries that have already exceeded the cap is going to help increase the supply of milk, Professor Jeremy Franks from Newcastle University’s School of Agriculture told CNBC, adding that it is “holding back production”. The scrapping of the milk production limit comes as the Common Agricultural Policy, which provides help to farmers across the continent, undergoes sweeping reform. “Areas of higher costs and more disadvantaged places, are likely to reduce production, therefore there will be winners and loser across EU,” he told CNBC. Renwick said milk prices are likely to fall with the boost in milk production after the 2015 quota lift, but global prices will play a big role. ) “What has been happening in recent years is that EU price has been closely linked to world price. With the opening up in markets and reduced use of price support, the EU is closer to world market.” While the increased milk supply could push down prices, Renwick said price cuts may not be passed on to consumers as companies bag the extra profit. By CNBC’s Arjun Kharpal: Follow him on Twitter @ArjunKharpal
Europe stocks drop on U.S. fears; Italy rises
The euro is at eight-month highs against the dollar. It was given another boost Wednesday by news that Italy had averted the threat of snap elections , and the possibility that U.S. political gridlock may force the Federal Reserve to keep pumping money into the economy at full throttle. Draghi said he didn’t expect the U.S. to default — a risk if it doesn’t raise the limit on government borrowing later this month — and believes the government shutdown will be short-lived. “If it were to be protracted it would certainly be a risk for the U.S. and world recovery, so we have to have this present in our minds,” he said. Federal workers sound off on shutdown Draghi repeated previous guidance that interest rates would remain at current or lower levels for an extended period of time, but stressed there were other tools at the bank’s disposal, and none were off the table. Interbank lending rates remain higher than the ECB would like and lending to non-financial firms shrank further in August. Loans to households grew by 0.4%, but that rate has barely moved since the start of the year. Some economists now expect the ECB to launch a third long-term refinancing operation, or LTRO, before the end of the year to provide more cheap funds to eurozone banks.
It is positive for Italy that the government seems to be able to continue. It is even more positive for Italy if this means Berlusconis political career will come to an end. Berlusconi has been a risk factor in Italian politics for a long time. If this risk factor disappears, the Italian yield spread over Germany could move quite a bit lower. It would also be positive for the rest of the euro area and move us one step further away from the debt crisis, land said. In the U.S., the government shutdown moved into a second day as lawmakers still didnt agree on a budget for the fiscal year, which started on Tuesday. Investors are growing increasingly worried that the impasse will go on longer than expected and may impact negotiations to raise the debt-ceiling in mid-October. President Barack Obama invited congressional leaders to the White House on Wednesday in an effort to end the standoff. On the data front in the U.S., the ADP jobs report showed private-sector employers added 166,000 jobs in September , well below expectations of a 180,000 number. U.S. stocks traded lower on Wall Street .