Dairy Exporters Face Cow Of A Year

The Age

Saturday May 25, 2002

Philip Hopkins

Australia's $3 billion dairy exports face a subdued market in 2002-03 because of subsidies and protectionist pressure in Europe and the United States, according to Victoria's peak dairy body.

The poor outlook followed a fall in international dairy prices in the last months of 2001, the United Dairyfarmers of Victoria said in its annual report released this week. Australian dairy exports are dominated by Victorian producers.

The UDV said this year's World Trade Organisation trade reform talks would take place when international dairy prices ``will significantly reflect current policy settings and internal market developments in the EU and US". The UDV said there was a distinct risk that the US would cut its minimum support price for skim-milk powder this year.

``A significant cut in US support prices would limit the scope for recovery in international SMP prices later in the year," the report said.

``The absence of meaningful reform in the current US Farm Bill suggests that the US dairy industry will continue to push for increased protection against dairy imports."

There would also be a renewed push for sales under the Dairy Export Incentive Scheme later this year.

The UDV said last year's lower dairy prices were due to factors including uncertain global economic growth after the US terrorist attacks, and Japan's poor economic performance.

This had affected likely income growth in Asia, whose dairy buyers had decided to defer shipments into the new year. China was the only exception.

Latin America, a big milk-powder importer, had also cut demand due to lower economic growth, weaker currencies and rising self-sufficiency in Brazil.

Argentina's economic crisis had badly affected dairy production and consumption, and led to discounted Argentinian products being offered to non-traditional markets.

The UDV said European and US stockpiling of dairy products had also affected world market prices. The US now had 400,000 tonnes of surplus SMP stockpiled, more than half its annual production. With US milk output rising, the government had targeted exports, raising subsidies under DEIS to reduce its SMP surplus. In March last year, the EU Commission had also begun stockpiling SMP for the first time since 1998.

The UDV said that to try to limit stock purchases, both the EU and the US had sharply increased export subsidy payments for milk powders.

``Coupled with exchange-rate movements and increased supply competition from Oceania, these higher subsidies pushed international spot prices for milk powders back down to the levels prevailing in the late 1990s," the report said.

The UDV said a strengthening Australian dollar would put extra pressure on farm-gate returns over 2002-03.