Is the removal of quotas responsible for the increase in EU milk production in 2015?

The plight of milk producers supplying the dairy cooperative Arla in Denmark and Sweden was the lead article in my Danish newspaper yesterday morning. Interviews with a number of farmers supplying Arla highlighted their loss-making situation at current milk prices. The journalist writing the story highlighted that a number of factors were responsible for the current low milk prices: the Russian import ban on EU dairy products, lower import demand in China but also increased production in the EU which he attributed to the removal of milk quotas in April of this year.
That EU milk production has increased is clear, as shown in the figure below.

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Is the producer price of milk too low?

How serious is the current dairy market situation? Are prices really below costs of production? In this post, I examine recent dairy market trends to throw light on these questions. The Agriculture Council meeting tomorrow (see this post for a preview) is expected to agree a package of aid for dairy farmers, but why should this be necessary? The Milk Market Observatory now provides detailed and up-to-date information on milk market trends and I make extensive use of its data and charts in this post.
What is happening to milk prices?


The trend in milk prices shown in the chart above can be divided into two periods: a downward trend in the years to 2007 (driven by the reduction in intervention prices and export subsidies due to CAP reform), and an upward trend since then but with great volatility.

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