The discrepancy has raised speculations — vehemently refuted by the industry — that a black market for milk may exist, driven by spiraling commodity prices and European Union production quotas that many find restrictive.

The Bohemian-Moravian Dairy Association (ČMSM) first pointed to the odd accounting last December. Simply put, it appeared that more milk is being bought by local dairies or exported than is officially produced in the Czech Republic, the ČMSM said.

“The disparity can be traced back to mid-2006,” said the association’s director, Michal Němec, adding that the mismatch stems from publicly available data. “In the first half of 2007, for example, the difference amounted to 36 million liters.”

Němec sent a letter to Agriculture Minister Petr Gandalovič calling for clarification of the case, but he has not received any response to date. The ministry’s statisticians are investigating the issue and will make a public statement soon, said ministry spokesman Petr Habáň.

Last year, Czech dairy cows officially yielded 2.68 billion liters of milk, according to the ministry. This is slightly less than the Czech Republic’s annual quota of 2.74 billion liters. (Milk quotas run on an April-to-March calendar, meaning final production results may differ.) With milk production coming so close to the national ceiling, the possibility that the country will overshoot its quota again looms large.

Exceeding these ceilings would bring fines from the European Union. For example, in the production year ending in 2006, the country — or its over-productive farmers, to be precise — paid 5.1 million euros ($7.7 million) for overshooting the quota by 16.1 million liters.

The European Commission (EC), the EU’s executive arm, says it has noted the case but has no detailed information on it.

“We are meeting officials from the Czech ministry in mid-March, where we will ask for information on this issue,” said Michael Mann, spokesman for Mariann Fischer Boel, the European commissioner responsible for agriculture.

Basically, unrecorded milk is treated as an evasion of overproduction payments, according to Mann. EU member states are responsible for the control of the quota system and shortcomings in this area can lead to sanctions, he added.

According to Jiří Hrbek of the Czech Statistical Office, there is something amiss with the data and the Agriculture Ministry should clarify it, since it is in charge of collecting the figures.

“I personally think that the problem doesn’t stem from a statistical error,” Hrbek said. “Rather, complicated ownership ties in the dairy industry are to blame,” which make accurate statistics hard to generate.

Nevertheless, the existence of black-market milk production and trading cannot be ruled out completely, he added.

Zdeněk Houška, vice chair of the milk cooperative Jih, a key supplier to the country’s largest dairy, Madeta, refutes any implication of a black market, saying that he has not encountered any suspicious activities in the dairy business community.

Quota countdown

Regardless of what is behind the missing-milk mess, the quotas, like the EU’s Common Agricultural Policy (CAP) in general, draw attacks from many fronts.

Introduced in 1984 to curb the overproduction of milk and dairy products spurred by generous subsidies, the EU’s quotas are now criticized as outdated, mainly because they are incompatible with a world of soaring commodity prices and unsatisfied demand for dairy products.

“The quota system is bad,” said Czech European Parliament member Hynek Fajmon. “The Czech Republic has a great dairy farming potential that would be undoubtedly expanded in free market conditions.”

According to Fajmon, the country’s milk output could increase several times under a quota-free regime.

The EC also considers milk quotas as an outdated tool, but advocates a gradual dismantling of the system, resulting in scrapping of quotas altogether by 2015.

“Quotas are a straitjacket. They don’t fit in with the kind of market-orientated farming that we need,” said Fischer Boel at a conference last month.

“Overseas markets want more dairy products, and if we don’t get our foot in the door quickly, Oceania will move in and for us the door could close,” she added.

Fischer Boel envisages a step-by-step lifting of production restrictions, with a 2 percent quota increase April 1 as a first step. The planned increase is widely expected to be endorsed by the European Parliament later this month.

“In the present situation, the increase is sufficient for the Czech Republic,” said Habáň. “But it would be better to speed up the quota cancellation.”

In contrast to curdling opposition the EU’s milk policy receives from Czech politicians, the issue gets rather lukewarm reactions from farmers.

Dairies operated without quotas until 2004 and managed to deal with quotas after their introduction as well, Němec said.

According to Houška, the quota system consolidated milk prices and farmers are used to it. The whole of the EU undershoots its milk quotas and the problem with countries where there is a strong support and demand for quotas — Denmark, the Netherlands or Poland — could be solved by cross-border quota trading, he said.

Across Europe, protests against the abolition of quotas are voiced mainly by small farmers and dairy producers in less profitable areas, who fear that the liberalization of production will play into the hands of industrial dairy farms.