23 November 2001

Export refunds raised to generate more trade

By FWreporters

DAIRY market managers in Brussels have raised export refunds for butter and milk powder to keep EU products competitive, six months after embarking on a subsidy-slashing spree.

To try to generate more trade, the EU dairy management committee has agreed a k100/t across-the-board increase in export refunds – equivalent to about 1p/litre on the raw milk price.

The move follows weeks of falling world values, which have exacerbated the loss of subsidy, pricing EU exporters out of the international market.

Skimmed milk powder, for example, has slipped from $2100/t (£1480/t) to less than $1800/t (£1270) in three months as increased output in New Zealand has combined with the prospect of a world recession.

SMP prices are now below intervention levels, though this support mechanism does not start until March. But powder is already accumulating in private stores.

The depressed commodity market has also affected butter values, and product is being moved into intervention in Sweden, Portugal, the Netherlands and the UK – where prices have fallen about 6% since June to about £1850/t. Stores are due to open soon in France and Germany.

Back in May, after a prolonged period of buoyant world prices, the EU cut subsidies hard. SMP exports attracted a k490/t (£300/t) subsidy in August 2000; a year later, it had disappeared.

Dairy companies reacted by cutting production. The effect has already worked through to farm level, with most UK buyers calling a halt to price rises this autumn and some warning of impending cuts. Spot milk values have slipped recently, dropping from over 21p/litre in early October to just over 16p/litre.

The increased refund may help take some pressure off raw milk values, but is unlikely to lead to better prices. One major company, which cut back commodity production earlier this year, said SMP prices were so low it would not be changing its policy.

But the Ulster Farmers Union has welcomed the dairy management committees move as a "step in the right direction". "This is badly needed by the local dairy sector," said president, Douglas Rowe. "Our work must now continue to ensure farmgate milk prices are protected."

Keith Bassant, milk supplies manager for Southern Co-operative Dairies, is also hopeful. The co-op recently wrote to producers, asking them to cut back on milk production this winter or risk a price cut. The co-op has found it extremely difficult to sell its surplus, faced with prices down to 14p/litre.

"Any improvement in the marketing of the product will help, but by how much and when it will feed through remains unclear," said Mr Bassant. &#42