A milk price war is set to break out following a landmark decision by the EU to scrap quotas restricting production

A milk price war is set to break out following a landmark decision by the EU to scrap quotas restricting production.

The quota system was abolished today after 30 years - allowing dairy farmers to produce as much milk as they like without suffering a financial penalty.

The move is expected to drive a spike in production, particularly in countries like Ireland, Germany and the Netherlands, who plan to boost exports of milk and other dairy products to the UK.

As a result, a price war over the cost of milk is likely to break out, bringing down the price for consumers.

However, British farmers are likely to find the price they are paid by supermarkets is driven down, which will be particularly difficult for smaller family businesses.

Milk quotas were introduced in 1984 to address the oversupply during the late 1970s and early 1980s that had led to the infamous milk lakes and butter mountains. Farmers who produced above their quota were hit with punishing cash penalties.

The new free-for-all will promote dairy factory farms, where super-size Holstein cows have been bred to produce more milk than any calf could drink in order to cut production costs.

The industrialisation of dairy farming has seen the number of UK farms producing milk fall from 50,000 to 14,116 over the last 30 years. At the same time the average herd has risen from 64 cows to 134.

The average milk production from Holstein dairy cows, which have been labelled ‘udders on legs’, has risen by 55per cent to 7,327 litres per animal per year – around 12,900 pints.

In some cases this has been done through selective breeding programmes designed to create supersize cows, which are bulked up with high protein feed and kept inside for much of the year in what are known as ‘zero grazing’ barns.

Dairy farmers have been under severe pressure in the past year as the result of a global glut in milk and a supermarket price war that drove down the price of a pint, making it cheaper than some bottled water.

Some dairy processors have starting to raise farm gate prices recently, however farmers remain concerned the end of quotas could bring enormous price swings.

Chairman of the dairy board at the National Farmers’ Union, Rob Harrison, has urged all EU countries to act responsibly and collectively in order to manage future volatility.

Mr Harrison said: ‘Farmers and dairy processors here do have some concerns about how other EU countries will react to the ending of quotas.

‘Some are rapidly increasing their output without an end market for these goods. With milk prices yet to show any strong signs of recovery, this could push farmgate milk prices down further in the EU, and stall any recovery in the dairy markets.

‘It’s vital that expansion in any Member State is planned in accordance with available market opportunities.’

Dairy farmers have been under severe pressure in the past year as the result of a global glut in milk and a supermarket price war that drove down the price of a pint, making it cheaper than some bottled water

Mr Harrison said the new freedom could allow British dairy farmers, who are particularly efficient, to win new sales in Europe and around the world, particularly the Far East.

He said: ‘We also need UK dairy processors to recognise and promote potential markets both at home and abroad and look to develop new products such as sports drinks.’ The idea of milk being promoted as a sports drink has been given credence by Coca-Cola, which has recently launched its own brand of milk in the United States.

The new Fairlife milk costs more than twice as much as regular milk, but the firm believes consumers will pay more on the basis it contains 50per cent more protein and half the sugar.

Earlier this week, some European farmer groups mounted a protest over the changes outside the European Parliament in Brussels, which involved a funeral march the lighting of a warning fire.

Chronic price collapses are inevitable, the next crisis is on its way Romuald Schaber, European Milk Board

The European Milk Board, a federation of dairy farmers with member organisations from 13 countries, said it was likely that the market would not be able to cope with significantly expanded production in a reasonable way.

Its president, Romuald Schaber, said the changes are a particular threat to small dairy farmers, who tend to have higher costs. ‘Chronic price collapses are inevitable, the next crisis is on its way,’ he said.

‘Prices will be rock-bottom, as Europe’s farmers will have even less market power to achieve a cost-covering milk price in the future.’

Maria Heubuch, an MEP for the Greens, warned about the loss of small farmers. ‘Europe could see more factory farms with 1,000, 2,000 or even 5,000 cows, merely providing raw materials for the industry,’ she said.

The European Dairy Association, which represents milk processors, has backed the end of quotas.

Its Secretary General, Alexander Anton, said: ‘It goes without saying that the end of the quota will lower the administrative burden on all levels. This will naturally further enhance the competitiveness of the whole sector.’

Irish dairy farmers have embarked on a massive expansion plan and will be looking to make big in-roads to the British market.

A study by the Irish Farmers Association (IFA) estimated the ending of quotas would create 9,500 extra jobs in Ireland, and at least 1.3 billion euros (£950m) in extra exports.