The European Union (EU) announced today it was reactivating its export subsidy program for butter, cheese and skim milk powder (SMP), allowing its struggling dairy industry to better compete on world markets.
The EU suspended the program in June 2007, when it ran out of stocks and world prices lifted to the point where subsidies were no longer necessary. From 2002 to 2004, EU subsidies averaged about 30¢/lb for SMP, 57¢/lb for cheese and nearly $1/lb for butter (based on today's currency conversion rates).
The EU is also allowed to support nearly two million tons of dairy products, or 20 times the amount the U.S. can support under its Dairy Export Incentive Program (DEIP).
"The EU's actions today will have a major negative effect on world dairy trade,” says Tom Suber, President of the U.S. Dairy Export Council. He says the subsidies will again depress world dairy prices, prolong the down cycle and delay natural market recovery.
"USDEC calls on USDA to utilize DEIP to the fullest extent possible,” says Suber. "If U.S. dairy firms are forced, due to unfair competitive practices and economic circumstances to let [international] business relationships lapse, re-entering the market at a later date will be more difficult.”
The EU's action also points out the need for a successful conclusion to the Doha Round of the World Trade Organization talks, which would eliminate export subsidies. The EU has agree to end subsidies once the Doha round is completed.