Europe's dairy sector cautious on export subsidy cuts
last week's WTO meeting, has been greeted with a sense of
inevitability and caution in Europe's dairy sector.
The European Union has agreed to eliminate subsidies for exporting products such as butterfat, milk powder and cereals by 2013, as long as other nations get rid of equivalent measures.
"In a week of disappointments this is no small prize. It is not enough to make this meeting a true success. But it is enough to save it from failure," said EU Trade Commissioner Peter Mandelson.
The move matters highly to the dairy industry because the European Union is currently a net exporter of dairy.
Tom Heind, chief dairy advisor to the UK's National Farmers' Union, said the dairy industry had largely expected the abolition of subsidies within five to 10 years. "2013 is a reasonable time I would think, it is something we can live with."
He said British dairy firms may be insulated from direct hits because most did not export that much, although changes to neighbouring markets, such as Ireland, could affect the UK.
Heind said a main concern was over butterfat, which the currently sells at twice the world price in the EU.
The Commission's Common Agricultural Policy (CAP) reforms will slash EU butterfat prices by 25 per cent, yet this will still leave producers with a big gap to close to be competitive outside the EU; and without the help of export subsidies.
Joop Kleibeuker, secretary-general of the European Dairy Association (EDA), told www.DairyReporter.com the EDA had hoped export subsidies would not be phased out completely until the end of the current CAP reform period in 2014-2015.
He said subsidies should be phased out by reducing the budget allocated and not the volume of products supported to give the industry a chance to adapt. He said there was "growing support" for this view in the Commission.
EU agriculture commissioner Mariann Fischer Boel said the phase-out text was not a "Christmas gift" for Europe.
She hinted the Commission might argue further on how much subsidies should drop before 2013, adding: "We will not accept that it is so high that it disrupts our markets and makes new reforms necessary."
The cut in export subsidies will almost certainly reinforce the need to make higher value products. Kleibeuker said he expected significant increases in added value cheese and milk powder.
"We've got to be realistic. It's going to be difficult to compete," said Carmen Suarez, the NFU's chief economist, recently. "We cannot produce the cheapest cheese in the world but we can produce some of the best cheese in the world."
The move to abolish export subsidies was welcomed by dairy firms outside the EU.
Earl Rattray, chairman of the Dairy Companies Association of New Zealand, said: "Export subsidies have for decades been the single most trade distorting element in world trade - a deadly cancer for efficient exporters."
Rattray noted the butter at his hotel had come from France. "As I ate my toast every morning I reflected that 60 percent of the cost of every pat of that butter is currently an export subsidy."
