Brussels unveiled a €500m (£415m) support package for EU farmers last week, of which £125m has been earmarked to incentivise a reduction in milk production.
Another £290m will be split into so-called “national envelopes” for milk and other livestock producers.
Of this money, the UK’s share of the pot will be about £25m.
Farm leaders have been seeking clarity about how UK farmers are likely to benefit from the cash, and early discussions have been around the market management part of the package.
Talks with Defra and the Scottish government suggest that farmers will be allowed to opt-in to a voluntary scheme to reduce milk output.
There would be three or four opportunities to apply, but farmers who did would commit to reducing production for a three-month period, compared to the year before. In return, they would be paid about 12p/litre.
Graeme Kilpatrick, NFU Scotland’s dairy committee chairman, said: “The fact that individual producers can decide to apply for the supply management money is significant.
“Dairy farmers will be able to make a choice, based on their own circumstances, as to whether the ‘compensation’ paid from the package to produce less milk than in a period of three months in 2015 is a better option than to produce at the processors’ price.”
Michael Oakes, NFU dairy board chairman, said discussions were at very early stages and reflected the aspirations of the European Commission.
Reduction of 1bn tonnes of milk
Brussels estimates that across Europe the scheme could lead to a reduction of 1bn tonnes of milk from the market.
But Mr Oakes pointed out that the UK had already responded to very low milk prices by cutting production, so it was a bit frustrating that other countries would be paid for doing what British farmers had already done.
“That said, if the market doesn’t improve I can see some UK farmers wanting to use it.”
Mr Oakes said his understanding was that the national envelope money could be directed at schemes to support small farms or those deemed to be the most environmentally friendly.
The NFU’s priority was that the money was used in a way that produced long-term benefits, he said.
Possibilities include a retirement scheme to help people exit milk production with dignity or the establishment of a margin management scheme.
“In the US, farmers can buy into an insurance scheme that gives them protection. We could perhaps look at using this pot of money to kick-start one here. Farmers could then buy into a certain margin to protect themselves from extreme volatility.”
Mr Oakes said such a scheme would probably need a commercial partner to make it work – for example, NFU Mutual – but he was keen that it was explored as an option.
“We want to talk to Defra about whether there is a possibility of doing that.”
