via a special arrangement with Informa Economics, Inc.
History shows not much impact from using
DEIP, but program has helped protect trade with Mexico
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United States moved to subsidize some of its dairy exports on Friday,
via the Dairy Export Incentive Program (DEIP), saying it was forced to
respond to new European subsidies that have made it hard to compete in
global markets depressed by the economic downturn.
USDA said it will subsidize about 92,000 tonnes of dairy products
headed for the world market to help U.S. farmers hit by plunging
international prices and trade volumes, the first time in five years
it will use its subsidy program. "These (subsidy) allocations illustrate
our continued support for the U.S. dairy industry, which has seen its
international market shares erode, in part, due to the reintroduction
of direct export subsidies by the European Union earlier this year,"
USDA Secretary Tom Vilsack said in a statement.
The administration of U.S. President Barack Obama remains
committed to refraining from protectionism, Vilsack said.
In January, the European Union revived its export subsidies for
butter, cheese and skimmed milk powder, which had been suspended since
2007, to help its struggling exporters better compete on the depressed
USTR response."The EU's action is seriously undermining
the competitiveness of U.S. dairy products and has forced the United
States to respond," said Nefeterius McPherson, a spokeswoman for
the U.S. Trade Representative's office. The U.S. crafted its program
to keep U.S. products competitive in certain key markets, a "measured
response" which complies with World Trade Organization rules, McPherson
said, according to Reuters. "We urge the EU to reconsider
its dairy export subsidy program and are prepared to sit down with EU
representatives to discuss the deactivation of the dairy export subsidy
programs," she said.
The EU responds. Europe's
farm chief responded to Obama administration comments about restarting
DEIP. "I don't like to see that the Americans are using Europe's
reinstatement of export subsidies as an excuse to go ahead in this direction,"
EU Agriculture Commissioner Mariann Fischer Boel told a news conference.
"We did not introduce our export refunds until we had calculated
the effect on the market ... and we have not covered the gap between the
EU and international price," she said, speaking after a monthly meeting
of EU farm ministers. "It is very unfair we are suddenly becoming
the reason for the Americans to introduce export refunds," Fischer
through 2012 via the 2008 Farm Bill, DEIP can be used to subsidize US
dairy product exports under certain conditions. Under DEIP, USDA makes
cash payments, on a bid basis, to entities that export US dairy products.
DEIP has not been active since 2004 because, until late in 2008, market
conditions were relatively strong and US trade negotiators have been pursuing
the elimination of all agricultural export subsidies as a trade policy
U.S. dairy groups and congressional lawmakers
applauded the decision, which they said would help U.S.
farmers. House Agriculture Committee Chairman Collin Peterson (D-Minn.)
expressed his appreciation for Vilsack's decision, and had previously
encouraged the administration t to take this action to provide relief
to dairy farmers. “I want to thank USDA Secretary Vilsack for supporting
U.S. dairy farmers by using the Dairy Export Incentive Program (DEIP).
Dairy farmers across the country are struggling to survive because of
low prices and too much product on the market, and DEIP is an important
tool that we can use to manage surplus and support producers," Peterson
said. "I have encouraged Secretary Vilsack to take these steps to
help dairy farmers, and I am pleased that we are able to announce the
DEIP purchases today."
Peterson and a bipartisan group of members on the House Agriculture
Committee wrote to encourage Secretary Vilsack to use DEIP and other
programs to help struggling dairy farmers. Peterson also discussed the
issue during regular conversations with Secretary Vilsack.
Comments: The potential
for impact on farm milk prices and dairy farmer income depends on how
much milk (or milk-equivalent via dairy product exports) is removed relative
to the total market. When converted to a milk-equivalent basis, the maximum
quantity of subsidized US exports allowed under WTO limits is between
0.5 percent and 1 percent of total US production. A recent Congressional
Research Service (CRS) report noted that given that the calculated quantity
is a small share of total US milk production, DEIP-assisted exports would
be expected to have a relatively small effect on US milk prices and income
for US dairy farmers. A USDA analysis in 2004 implied that eliminating
DEIP would reduce the farm price of milk by $0.13 per cwt., on average
per year, or 1 percent relative to the baseline (base period of 2002-2007).
The report noted that gross receipts for dairy farmers (including higher
government payments under the Milk Income Loss Contract (MILC) program)
would decline $267 million, on average per year, or about 1.5 percent.
One of the initial aims of DEIP was to counter the export
subsidies and unfair trade practices of competing dairy exporters, especially
the EU. This is why the aim of increasing the US market share
in targeted overseas markets was added to the authorizing statute in
1996. However, there have been few evaluations of DEIP to assess its
effectiveness in achieving these aims. A 2006 Office of Management and
Budget (OMB) assessment of DEIP determined that it was a moderately
effective program, but that globally, the Export Enhancement Program
(EEP) and DEIP “have not been able to demonstrate an ability to
permanently expand exports or build US market share in targeted countries.”
However, OMB noted that DEIP was successful in offsetting EU export
subsidies for dairy products to Mexico, which permitted the US to develop
and sustain a market for US dairy product exports there.
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