Whereas the operation and development of the common market in agricultural products should be accompanied by the establishment of a common agricultural policy to include in particular a common organisation of agricultural markets which may take various forms depending on the product;

Whereas the aim of the common agricultural policy is to attain the objectives set out in Article 33 of the Treaty; whereas, in the milk sector, in order to stabilise markets and to ensure a fair standard of living for the agriculture community, it is necessary that the intervention agencies, based on a single price system, may take intervention measures on the market including the buying-in of butter and skimmed milk powder and the grant of private storage aids for these products; whereas, however, such measures should be standardised so as not to impede the free movement of goods in question within the Community;

Whereas by Council Regulation (EEC) No 3950/92 of 28 December 1992 establishing an additional levy in the milk and milk products sector6, an additional levy scheme for the market of milk and milk products was introduced for the purpose of reducing the imbalance between supply and demand on the milk and milk-product market and resulting structural surpluses; whereas this scheme will apply for eight new consecutive periods of 12 months commencing on 1 April 2000;

Whereas in order to stimulate the consumption of milk and milk products within the Community and to improve the competitiveness of these products on the international markets, the level of market support should be reduced, in particular, through a gradual reduction of the target prices and intervention prices for butter and skimmed milk powder starting from 1 July 2005;

Whereas the implementation of an intervention system for butter should maintain the competitive position of butter on the market and provide for the most efficient possible storage; whereas the quality requirements to be observed in respect of butter constitute a determining factor for attaining these objectives; whereas buying into intervention should take place in so far as it is necessary to maintain the stability of the market by reference to the market price of butter in the Member States, and should be carried out under a tendering procedure;

Whereas, in the case of private storage aid for butter, it is appropriate to subject its grant to butter produced from cream and milk of Community origin and to maintain a reference to national quality grades as a condition of eligibility;

Whereas in addition to intervention in respect of butter and fresh cream, other Community intervention measures are required to enable the best return to be obtained from milk proteins and to support the prices of products which have special importance in determining producer prices for milk; whereas these measures should take the form of buying-in of skimmed milk powder and of granting private storage aid for this product; whereas, however, the normal buying into intervention of skimmed milk powder may be suspended when a certain quantity is reached and may be replaced by buying-in under a tender procedure;

Whereas to avoid distortion between operators selling into public intervention and in the interest of the proper administration of Community funds, a minimum requirement should be set for the protein content of skimmed-milk-powder bought into intervention; whereas the content should be fixed taking account of current commercial standards and in such way that it cannot act as a criterion for exclusion from intervention;

Whereas, to contribute to balancing the milk market and to stabilise the market prices for milk and milk products, provision should be made for complementary measures increasing the possibility of disposing of milk products; whereas these measures should include the grant of private storage aid for certain types of cheeses, on the one hand, and the grant of aids for the marketing of certain milk products with a view to specific uses and destinations;

Whereas, in order to stimulate the consumption of milk by young people, provision should be made for the Community to defray a part of the expenditure occasioned by granting aid for the supply of milk to pupils in schools;

Whereas, as a consequence of reduced market support in the milk sector, income support measures for milk producers should be introduced; whereas these measures should take the form of a dairy premium the level of which should develop in parallel with the gradual reduction of market support; whereas the level of individual income support should be calculated on the basis of the individual reference quantities of the producers concerned; whereas, to ensure the proper application of the scheme, to take account of the multilateral commitments of the Community and for reasons of budget control, provision should be made for keeping the overall income support at the level of the Member States' total reference quantities as applicable at the entry into force of this Regulation;

Whereas the conditions for milk production and the income situation of producers significantly vary in different production areas of the Community; whereas a Community-wide scheme with uniform dairy payments to all producers would be too rigid to respond adequatly to structural and natural disparities and the diverse needs resulting therefrom; whereas, therefore, it is appropriate to provide for a flexible framework of additional Community payments to be determined and made by Member States within fixed global amounts and in accordance with certain common criteria; whereas the global amounts should be allocated to the Member States on the basis of their total reference quantity for milk; whereas the common criteria are intended, inter alia, to prevent additional payments from producing discriminatory effects and to take full account of the relevant multilateral commitments of the Community; whereas, in particular, it is essential that Member States be obliged to use their discretionary powers exclusively on the basis of objective criteria, to pay full regard to the concept of equal treatment and to avoid market and competition distortions; whereas it is appropriate to provide for the forms that additional payments may take; whereas these forms should be premium supplements and area payments;

Whereas premium supplements should be granted in addition to the amounts of dairy premium granted per tonne of available premium reference quantities; whereas it is also necessary to limit the total amount of support which may be granted per premium amount per year;

Whereas additional area payments should only be granted for permanent pasture which does not benefit from other Community market support measures; whereas area payments should be applied within the limits of regional base areas of permanent pasture which should be established by Member States according to historical reference data; whereas the maximum amount of area payment which may be granted per hectare, including additional area payments under the common market organisation for beef and veal, should be comparable with the average support per hectare under the support system for producers of certain arable crops;

Whereas, in order to achieve the desired economic impact, direct payments must be granted within certain time limits;

Whereas, should the administration of bovine somatrophin to dairy cows be prohibited under Community law, the Commission should establish penalties analogous to those foreseen in the common market organisation for beef and veal in the case of use of certain prohibited substances in beef production;

Whereas the creation of a single Community market for milk and milk products involves the introduction of a single trading system at the external frontiers of the Community; whereas a trading system including import duties and export refunds, in addition to the intervention measures, should, in principle, stabilise the Community market; whereas the trading system should be based on the undertakings accepted under the Uruguay Round of multilateral trade negotiations;

Whereas, in order to monitor the volume of trade in milk and milk products with third countries, provision should be made for a system of import and export licences for certain products, which includes the lodging of a security to guarantee that the transactions for which such licences are granted are effected;

Whereas in order to prevent or counteract adverse effects on the Community market which could result from imports of certain agricultural products, imports of one or more such products should be subject to payment of an additional import duty, if certain conditions are fulfilled;

Whereas it is appropriate, under certain conditions, to confer on the Commission the power to open and administer tariff quotas resulting from international agreements concluded in accordance with the Treaty or from other acts of the Council; whereas, moreover, the Commission should have analogous powers concerning certain tariff quotas opened by third countries;

Whereas provisions for granting a refund on exports to third countries, based on the difference between prices within the Community and on the world market, and falling within the WTO Agreement on Agriculture7, should serve to safeguard Community participation in international trade in milk and milk products; whereas these refunds should be subject to limits in terms of quantity and value;

Whereas compliance with the limits in terms of value should be ensured at the time when refunds are fixed through the monitoring of payments under the rules relating to the European Agricultural Guidance and Guarantee Fund; whereas monitoring can be facilitated by the compulsory advance fixing of refunds, while allowing the possibility, in the case of differentiated refunds, of changing the specified destination within a geographical area to which a single refund rate applies; whereas, in the case of a change of destination, the refund applicable to the actual destination should be paid, with a ceiling of the amount applicable to the destination fixed in advance;

Whereas ensuring compliance with the quantity limits calls for the introduction of a reliable and effective system of monitoring; whereas, to that end, the granting of refunds should be made subject to an export licence; whereas refunds should be granted up to the limits available, depending on the particular situation of each product concerned; whereas exceptions to that rule should only be permitted in the case of processed products not listed in Annex II to the Treaty, to which volume limits do not apply, and in the case of food-aid operations, which are exempt from any limit; whereas monitoring of the quantities exported with refunds during the marketing years as referred to in the WTO Agreement on Agriculture should be carried out on the basis of export licences issued for each marketing year;

Whereas, in addition to the system described above, and to the extent necessary for its proper working, provision should be made for regulating or, when the situation on the market so requires, prohibiting the use of inward processing arrangements;

Whereas it is appropriate to provide for measures to be taken when a substantial rise or fall in prices disturbs or threatens to disturb the Community market;

Whereas the customs duty system makes it possible to dispense with all other protective measures at the external frontiers of the Community; whereas, however, the internal market and duty mechanism could, in exceptional circumstances, prove defective; whereas, in such cases, so as not to leave the Community market without defence against disturbances which may arise therefrom, the Community should be able to take all necessary measures without delay; whereas those measures should be in accordance with the obligations derived from the relevant WTO agreements;

Whereas restrictions on free movement resulting from the application of measures intended to prevent the spread of animal diseases could cause difficulties on the market of one or more Member States; whereas provision should be made for the introduction of exceptional market support measures in order to remedy such situations;

Whereas the establishment of a single market would be jeopardised by the granting of certain aids; whereas, therefore, the provisions of the Treaty which allow the assessment of aids granted by Member States and the prohibition of those which are incompatible with the common market should apply in the common market organisation for milk and milk products;

Whereas it is necessary that, as the common market in milk and milk products develops, the Member States and the Commission should keep each other supplied with the information necessary for applying this Regulation;

Whereas, in order to facilitate implementation of the proposed measures, a procedure should be provided for establishing close cooperation between Member States and the Commission within a Management Committee;

Whereas expenditure incurred by the Member States as a result of the obligations arising out of the application of this Regulation should be financed by the Community in accordance with Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy8;

Whereas the common organisation of the market in milk and milk products should take appropriate account, at the same time, of the objectives set out in Articles 33 and 131 of the Treaty;

Whereas the common organisation of the market in milk and milk products laid down in Council Regulation (EEC) No 804/68 of 27 June 1968 on the common organisation of the market in milk and milk products9 has been amended several times; whereas, by reason of their number, their complexity and their dispersal among several Official Journals, these texts are difficult to use and thus lack the clarity which should be an essential feature of all legislation; whereas, under these circumstances, they should be consolidated in a new Regulation and the aforementioned Regulation (EEC) No 804/68 should be repealed; whereas the essential rules of Council Regulations (EEC) No 986/6810, (EEC) No 987/6811, (EEC) No 508/7112, (EEC) No 1422/7813, (EEC) No 1723/8114, (EEC) No 2990/8215, (EEC) No 1842/8316, (EEC) No 865/8417 and (EEC) No 777/8718 have been incorporated into this Regulation, and should therefore be repealed;

Whereas the change from the arrangements in Regulation (EEC) No 804/68 to those in this Regulation could give rise to difficulties which are not dealt with in this Regulation; whereas, in order to deal with that eventuality, provision should be made for the Commission to adopt the necessary transitional measures; whereas the Commission should also be authorised to solve specific practical problems,