EU exhumes dairy export subsidies as world prices tumble

Sunday 18th January 2009

The European Union plans to hand its dairy farmers a subsidy to allow them to compete in export markets as world prices decline. The decision may drive down prices further.

Export subsidies will be reinstated for butter, cheese and skimmed milk powder, according to EU Agriculture Commissioner Mariann Fischer Boel. She has partly attributed the decline in world prices to sales of surplus New Zealand product and a weaker Russian currency, which has made that nation's dairy products cheaper.

EU officials informed the New Zealand government without giving details of the scheme which is to start next week, according to Trade Minister Tim Groser. The so-called export refunds will be provided for the region's butter, cheese and milk powders, exhuming a payments scheme the EU suspended two years ago as part of a commitment to the Doha round of trade talks.

Export refunds are "an EU euphemism for direct export subsidies," Groser said. "It's a deeply unfair subsidy and the most pernicious form of subsidy," he said.

Dairy products accounted for 22% of New Zealand's NZ$42.5 billion of exports in the 12 months ended October 31, according to government figures. The value of dairy shipments rose NZ$123 million to NZ$9.4 billion.

Milk powder prices dropped 9.3% in this month's online auction by Fonterra Cooperative Group, the world's largest exporter of dairy products. The average price of wholesale milk powder at the auction fell to US$2,017 per tonne, more than 50% lower than when the online auctions began in July.

Groser said he will take up the issue at an informal meeting of trade ministers at the end of the month.

"The European move means it's now even more urgent that we complete the Doha Development Round in the World Trade Organisation," he said.

By Jonathan Underhill

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