EUROPE IS awash with milk, and analysts are predicting renewed price pressure in 2005, not least because of commission policy.

Erhard Reichardt, of German statistics agency ZMP, said rising milk output from France, Germany, Holland and eastern Europe made for a bearish market.

The expected growth in consumer demand for dairy products in the new member states has failed to materialise, he added.

At the same time, Russia has blocked their exports on the grounds of inadequate hygiene standards, with Argentina and Brazil emerging as alternative suppliers.

Dr Reichardt predicted that more dairy product would go into EU intervention stores this spring.

Skimmed milk powder is not expected to breach the 109,000t ceiling and should have a good market later in the year.

But on butter, the EU is unlikely to achieve the same level of exports as last year, because world demand has dropped in response to high prices.

The intervention ceiling of 60,000t could easily be hit, forcing the commission to suspend buying or accept lower priced tenders.

“Overall, I think EU milk prices will fall at least 0.5 cents/litre (0.35p) this year, and that could become 1 cent/litre (0.7p),” Dr Reichardt predicted.

UK analyst Mike Bessey said the EU Commission was also a source of market pressure,  as it sought to bring market prices closer to support levels.

“This follows the commission‘s embarrassment that the markets largely ignored the drop in intervention prices after July and invalidated the compensation payments that were part of the mid-term review.”

But there were some reasons for optimism, too, he suggested, pointing to the drop in supplies from Oceania.

“Even if EU export subsidies are cut, this might not prevent world prices rising and large volumes flowing out from the EU as happened last year.”