EU states squabble over export subsidy cuts

By Chris Mercer

- Last updated on GMT

Related tags: European union, Eu

The European Commission's cuts to export subsidies for dairy
ingredients have survived a series of rows between Member States,
as tension grows on how the bloc can meet its commitments to the
World Trade Organisation talks.

The Commission managed to push through its plan to halve common export subsidies for skimmed milk powder, despite the proposal causing a deadlock between Member States in two Milk Management Committee meetings.

The Commission has pledged to eliminate export subsidies by 2013, if non-EU countries take similar steps; a move likely to put extra pressure on dairy companies already attempting to absorb price cuts on commodities as part of EU Common Agricultural Policy (CAP) reform.

The new cut means export subsidies for skimmed milk powder have fallen from €28 per 100kg to €5 per 100kg in 11 months.

That was one step too far for 13 Member States, thought to be largely made up of those who signed a recent French memorandum on the future of CAP reform, who tried to block the subsidy cut.

The memorandum, devised by France and supported by others including Ireland, Hungary, Spain and Italy, acknowledged a pro-active approach was needed to manage export subsidies, but noted their use "continues to be permitted until 31 December 2013"​.

The Commission warned during last week's Milk Management Committee meeting that it planned to reduce further the export subsidy on butter for food manufacture. It also hinted that subsidies for skimmed milk powder in animal feed could be phased out.

The moves have been timed to coincide with planned price cuts in July for butter and milk powders made in the EU, as part of CAP reform.

The idea is that as the Commission cuts EU commodity prices to move them closer to world prices, less export subsidies are needed to make up the difference and keep European firms competitive on the world stage.

Critics say export subsidies merely allow the EU to maintain higher prices, while 'dumping' excess commodities on world markets.

Joop Kleibeuker, secretary-general of the European Dairy Association (EDA), told​ it was clear that export subsidies would be phased out by 2013 and that "most dairy companies have accepted that they have to prepare themselves for that situation"​.

The EDA, however, has been lobbying the Commission hard over the need to reduce export subsidies by value instead of volume, to give the sector more time to adapt.

Kleibeuker said the EU should also treat subsidies for different products separately. "In dairy, butter especially should be at the end of the process because of the significant difference between world and EU prices for butter."

EU butterfat was twice as expensive as that made outside the bloc in March this year. EU Skimmed milk powder, by contrast, was only around €30 more expensive than the €167 per 100kg world price.

The Commission's current CAP reform aimed to slash EU butterfat prices by 25 per cent over four years from 2004, yet, when finished, this will still leave producers with a big gap to close to be competitive outside the bloc; and potentially without the help of export subsidies after 2013.

Concerns over the butter market were shared widely in the UK and Irish dairy sectors.

Trade association Dairy UK has been lobbying to British government to back more support for butter, while the Irish Co-operative Organisation Society said export refunds should be raised to prevent instability on the EU market, in the face of falling prices.

The European Commission does appear to be heeding their concerns for the moment.

It increased common export subsidies for butter and butteroil by two per cent in March to €96.50 per 100kg. The same subsidies for butter last year stood at €129 per 100kg.

Still, a recent report by the UK's Milk Development Council said Britain's dairy industry needed to do more to cut its reliance on commodities, in order to better withstand CAP reform and become more competitive on growing added value dairy markets.

UK butter and butteroil production rose 17 per cent between 1996 and 2004, compared to an average drop in production of two per cent across the EU. UK milk powder production also only fell four per cent during this period, compared to an EU average drop of 20 per cent.

Related topics: Markets, Ingredients

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