Top dairy firms guzzling EU subsidies, report

By Chris Mercer

- Last updated on GMT

Related tags: European union

Europe's top dairy firms are at the centre of the row over European
Union export subsidies, after a new report revealed which UK
dairies are lapping up the aid.

Fayrefield Foods and Dairy Crest subsidiary Philpot Dairy Foods got the biggest EU export subsidies in the UK dairy sector last year, raking in £11.9m and £8.3m respectively, according to a new report from campaign group farmsubsidy.org.

The report, which uses figures obtained from the UK Rural Payments Agency, puts the dairy industry in the firing line over criticism of the EU's export subsidy regime.

The European Commission pledged to abolish all export subsidies by 2013 at last December's World Trade Organisation talks.

Still, the farmsubsidy.org report highlights that the EU is continuing to pay millions of pounds to big UK firms, such as Fayrefield, Dairy Crest and the UK export arm of Nestlé, to export dairy commodities around the world.

Some of the top destinations included developing countries like Ivory Coast, Sudan and Nigeria, adding further weight to campaign groups' claims that the EU is using subsidies to 'dump' excess goods on third world countries, damaging local farmers.

It is not just UK dairy firms, however.

Two of France's biggest dairy companies, Danone and Lactalis, got €25m (£17m) and €20.5m respectively in EU export subsidies in 2004. Farmsubsidy.org's French partner obtained the data last December from France's traditionally secretive dairy executive agency, Onilait.

Jack Thurston, who wrote the new UK report, told DairyReporter.com​ the EU was still struggling to deal with chronic overproduction in dairy. "We are exporting our own problem, undermining rural economies in developing countries,"​ he said.

European Commission figures show Europe's dairy sector was the biggest recipient of EU export subsidies in 2004, getting nearly €1.5bn in aid. No other sector broke the €1bn barrier.

Joop Kleibeuker, secretary-general of the European Dairy Association (EDA), defended the amounts paid to Europe's top dairy firms. "For reasons of simplicity of administration, [subsidies] are paid to transformers, who use that to pay a greater price to the farmers,"​ he told DairyReporter.com​.

Jack Thurston criticised the effectiveness of this policy, known as 'price support': "A lot of research has shown that price supports are a very inefficient way of getting money into the pockets of farmers."

It is almost impossible to get exact figures on how much money paid to big dairy exporters gets passed on to producers.

Kleibeuker, however, said the dairy industry was squaring up to a future without export subsidies after 2013. "Most dairy companies have accepted that they have to prepare themselves for that situation"​.

Export subsidies, or refunds as the Commission calls them, are paid to help EU-based companies compete on the world market by bridging the gap between world and EU commodity prices.

EU butterfat, for example, was twice as expensive as that made outside the bloc in March this year, with EU skimmed milk powder around €30 more expensive than the €167 per 100kg world price.

The Commission has slashed export subsidies for many dairy commodities over the last year to reflect cuts to EU commodity prices, as part of its Common Agricultural Policy (CAP) reform.

Critics blame the CAP, with its annual €43bn of subsidies, for maintaining high prices.

There is widespread concern in the dairy sector, however, over how the reform will turn out. Butter exporters, in particular, are concerned about their competitiveness on world markets.

The 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.

Dairy firms from outside the EU say Europe's dairy industry will just have to adapt.

New Zealand's largest dairy co-operative Fonterra coped with a similar challenge when New Zealand's government eliminated subsidies in the 1980s.

"I would not blame dairy firms for taking advantage of the system that's in place,"​ Fonterra's Europe spokesperson told DairyReporter.com​.

But, he added EU dairy firms should embrace change. "We went through a lot of pain, but you look at the [New Zealand] industry now and it's in an extremely strong position because of that deregulated environment."

The new report on export subsidy payments to UK dairy firms can be found at the www.farmsubsidy.org website.

Related topics: Manufacturers

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