7 June 2002

Casein aid from Brussels & weaker £ helps dairy farmers

By Philip ClarkeEurope editor

BELEAGUERED dairy farmers have received two bits of good news in the past week that could signal an upturn in milk prices.

The first was when market managers in Brussels agreed a 33% increase in the level of aid for casein production, taking the subsidy to k42.5/t (£27/t) of skimmed milk used – equivalent to 0.8 cents/litre (0.5p/litre) extra return.

This has coincided with a more general weakening in the value of the £, which has lifted the intervention milk price equivalent by almost 1p to 17.4p/litre in the past couple of weeks.

The move on casein has been welcomed by the Irish, who produce a lot of the food ingredient. "This sector has been encountering particularly difficult trading conditions on export markets, principally in the US, the main export destination," said Irish farm minister, Joe Walsh.

Irish Farmers Association president, John Dillon, said dairy processors should now respond by at least holding prices for May milk. "The reality is that Irish dairy farmers have already suffered a huge income drop of over 30%. This is totally unsustainable and more needs to be done to rescue their incomes."

UK producers should also benefit from the move on casein. "Even though we are not big producers, the Irish are and anything that helps them make more should result in fewer other commodities coming into the UK," said NFU milk adviser, Phil Hudson.

He also pointed to the fact seasonal milk production was now past its peak in many EU countries, which should help tighten supplies.

But the greatest factor is likely to be the weakening of the £ against the k.

Having moved from 62p/k to 64.4p/k since mid-May, the effect was to increase intervention prices and export subsidies for butter and skimmed milk powder when converted to sterling. "This is worth about 1p/litre and, if it is sustained, milk price prospects should improve."

These developments follow a 15% increase in export refunds for cheese two weeks ago, worth another 1.9 cents/litre (1.2p/litre), and successive increases in export refunds for skimmed milk powder in recent months.

The EU commission is also under pressure to increase the 109,000t limit on intervention purchases of skimmed milk powder. Latest figures show a continued acceleration in the amount of powder being intervened, with total sales now at 84,724t, up by more than 21,000t on two weeks ago.

At this rate, the ceiling will be reached within a month and, if stores close, skimmed milk powder prices could slip again. &#42