EU heeds calls to raise butter export subsidies

By Chris Mercer

- Last updated on GMT

Related tags: European union, Eu

The European Commission has raised export subsidies available for
butter for the second month running, bowing to pressure from member
states concerned at volatile markets.

The Commission's Milk Management Committee has agreed to increase the common subsidy available for butter exports by three per cent to €99.5 per 100kg. Subsidies for butter exports in the Commission's 'tender' system were also increased.

Both British and Irish dairy industry associations have been warning for some months that the butter market had become increasingly precarious.

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 Commission has now increased butter export aid in two consecutive months, following a two per cent increase to €96.5 per 100kg in March.

Butter processors and producers remain in a tight position, however.

The Commission has chopped export subsidies for butter in food manufacture by €5 to €25 per 100kg, and for use in animal feed by €10 to €20 per 100kg.

Common butter export aid is also due to be slashed by another €23 per 100kg after the 1 July, intended to reflect cuts to the EU butter price as part of the bloc's Common Agricultural Policy 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.

The Commission pledged to abolish all EU export subsidies by 2013 at last December's World Trade Organisation talks, as long as others eliminated similar systems.

The promise, although largely accepted by Europe's dairy industry as inevitable, leaves EU butter producers with a particularly challenging road ahead.

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.

Joop Kleibeuker, secretary general of the European Dairy Association, said this meant butter export aid should be phased out closer to the deadline than other products, to give EU producers more time to adjust.

Some countries still have an over-reliance on butter and other dairy commodities.

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, according to recent figures from Britain's Milk Development Council.

In other commodity price moves decided by the Commission last week, export subsidies for whole milk powder were raised from €50 to €54 per 100kg.

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