EU ends export subsidies on dairy products

print this

The European Commission announced unexpectedly last week that all subsidies on dairy exports are to be reduced to zero. Particularly affected will be the Russian exports of Valio, the largest dairy business in Finland.
      The decision was made by the dairy management committee, involving experts from the EU and member states. The reform was said to be the result of exceptionally good conditions on the global market for dairy products.
      The Commission believes that the higher world prices have rendered the export subsidies for dairy products unnecessary.
     
The heating-up of the dairy product market is the result of recent drought in the major food export countries Australia and New Zealand, as well as of the increased demand for milk products in Asian countries, following their rising standard of living.
      The export subsidies for dairy products have been in effect over the entire period of Finland’s EU membership, while subsidies on cereal were first brought to zero and then reactivated again, when the market situation changed.
      For example, still last year the export subsidy for butter was one euro per kilo, and was gradually reduced by half. Today the export price for butter is EUR 2.50 per kilo, while the domestic kilo price for butter is EUR 3.30 to 3.50.
      "The rapid decision is hurting a dairy country like Finland. From the standpoint of Europe as a whole the situation is naturally sound, provided that export is possible without subsidies", says Anu Turkkila from the Finnish Agency for Rural Affairs.
      Last year the Agency’s Department of Market Support granted a total export support of EUR 44 million to the food industry, some EUR 33 million of this sum having been allocated to dairy products. Moreover, a total of almost EUR 13 million was given to these products already during the first part of the current year.
      Technically speaking, the EU Commission reduced the subsidies to zero, while their legal basis remains, and they could be reactivated in the future. However, Turkkila fears that the subsidies will not be brought back, as the purpose is to abolish the subsidies anyway in due course.
     
"On a short-term basis, Valio was hit hard by this decision”, says Valio’s Veijo Meriläinen, Senior Vice President, International Sales.
      However, he notes further that three years ago the subsidies were EUR 72 million, while last year they were already 50 per cent smaller.
      The losses of income have principally been transferred to the market prices, and the good market situation of milk powder, cheeses, and fresh milk products will make the upcoming adaptation process that much easier.
      According to Meriläinen, Valio’s target is to maintain the present market share and export volume even in the future.
      The end of subsidies will cause around EUR 10 million in losses of income at the end of the year.
      Furthermore, it will not be possible to transfer the 25 per cent increase to market prices rapidly. For cheeses it is easier, as the subsidy on them is only about six per cent, said Meriläinen.
      Valio pays producer prices according to its results. In Meriläinen’s view the pressure to raise market prices is higher than that to touch producer prices.


Previously in HS International Edition:
  Social Democrats launch surprise attack on agricultural subsidies (27.10.2005)

Links:
  Finnish Agency for Rural Affairs

Helsingin Sanomat