Introduction
Dairy production accounts for 18% of Community agricultural output of the European Union and is the pillar of all agricultural activities. European Union is the world’s primary exporter of dairy products, even with a reduction in its market share (Zervoudaki 2011). The EU dairy market is regulated by the Common Market Organization (CMO) for its milk products, one of which is the milk quota system. The milk quota system was introduced to the EU in 1984 and the idea was embraced because it offered a way to control milk production, stabilize milk price and farm income (Seville 2009; Petit 1987). As the markets become more free-flowing and globalized, disputes about the system arose. Since the implementation of the system, the negative aspects of it have reared its ugly heads. It not only put a cap on milk production,but also lost the competitive edge in the world market due to the stabilization of milk prices (Seville 2009).
Therefore, the reforms made on June 26th 2003 in Luxembourg have proposed major changes to the European Common Agricultural Policy (CAP). Direct subsidies were to be independent from production and strict compliance with EU standards on environment and health was enforced. In reality, milk producers take market demand into consideration rather than the influence from subsidies to determine their production quota. (Bouamra-Mechemache and Requillart 2004). However, EU dairy market is still regulated by the mandatory quota system because the agreement of the regime lasts until the end of 2015. In addition to that, there has been a milk quota increase of 1.5% in three years since 2006 (Zervoudaki 2011). Furthermore, within the Health Check of the Common Agricultural Policy (CAP), the European Commission accepted the proposal to make amendments to the system and suggested an increase of quota by 1% annually from 2009 to 2013 to allow a