* German minister wants increase in milk output suspended * Quick aid needed for dairy farms facing closure
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By Michael Hogan and Thorsten Severin
BERLIN, March 19 (Reuters) - Germany wants a suspension of the EU programme to increase milk production quotas in 2009 following a drop in milk prices that is causing a crisis for dairy farmers, its agriculture minister said on Thursday.
There are signs that the first farms are starting to close, Ilse Aigner told Reuters.
"We have a dramatic situation on the milk market," Aigner said. "The existence of large farms is also starting to be threatened."
An increase of one percent in the restrictive milk production quotas was agreed by the European Union in November 2008. The aim was partly to move dairy farms to a more supply and demand based structure instead of producing to fulfil the EU quotas.
But German dairy farmers' association BDM says milk prices have now fallen to around 20 to 25 euro cents a litre from 40 cents in early 2008 as larger volumes of milk were sold. Farmers say they need around 30 cents to cover their costs.
MEASURES TO SUPPORT DAIRY MARKET
Aigner said she is proposing a series of measures to support the dairy market which she wants discussed at the upcoming EU farm ministers' council meeting on March 23. Aigner has sent the proposals to EU Farm Commissioner Mariann Fischer Boel and to other EU member states.
"The delay in the quota increase does not involve questioning the complete decisions taken last autumn, but only a delay until the market is capable of taking these extra volumes of milk," Aigner said.
The EU should also bring forward its report on the impact of the 2008 reforms from 2010 to 2009, she said.
The German minister also wants measures to boost dairy demand.
Financial support should be given to help cheap sales of milk to school children, she said.
The EU should re-introduced subsidies to stimulate use of milk and milk powder in animal feeds, Aigner said.
The EU's intervention purchases of butter and milk powder should be made at close to the intervention prices and not at the lower current market price, she said.
Authorities should also ensure that minimum legally-required volumes of milk products were being used in products such as ice cream cakes and not being replaced by vegetable fats.
Talks should also be held with the food processing industry and retailers to ensure fair competition, especially so that farmers do not always bear the full brunt of price wars, she said.
Germany had been largely isolated in opposing dairy reforms in November but Aigner said she was now hopeful of more support from other EU states.
"In the autumn we were largely alone with our demands for help for dairy farmers," she said. "But things have started to change."
But Germany would not call for an extension of the controversial EU dairy product export subsidies agreed in January, Aigner said.
"An extension of export support is not included in our package of measures," Aigner said. "We believe that attention should be initially focused on other measures." (Reporting by Michael Hogan and Thorsten Severin; Editing by Anthony Barker)