Commission Studies Dairy Issues

April 11, 2000

The Commission on 21^st Century Production Agriculture is taking three days this week to study dairy issues. One of those international issues involves the anomaly that although the United States leads the world in milk production, it is a relatively minor player in trade.

About 2-4% of domestic milk production is exported. Imports total about the same percentage in milk equivalent but considerably more in terms of value. Dairy product trade, the commission says in a fact sheet, is a "hot topic of discussion" because of dairy product prices that "hover around support," a slower rate of increase in domestic per capita dairy product consumption, brief periods when non-fat dry milk prices increased to U.S. levels with resulting surges in exports and U.S. milk prices, incidents of success by U.S. firms in selling differentiated products in Asia, Mexico and other countries, and major customers, such as McDonalds and Pizza Hut, taking suppliers, including dairy processors, with them abroad, "whether they wanted to go or not."

The United States "is unlikely to become a major exporter unless major changes are made through the World Trade Organization and/or through changes in European Union domestic dairy policy," a working paper the commission is using continued.

Europe is "by far" the dominant player in world dairy export markets with annual sales exceeding $5 billion. "It is important to note that the EU outproduces domestic needs by a considerable margin because of its dairy program and in turn subsidizes heavily its excess production."

The major dairy nations, including the United States, continue to support production heavily except for New Zealand and Australia. Supports in 1996-98, the paper pointed out, ranged from virtually nil in New Zealand, 28% in Australia, slightly less than 50% in the United States, slightly greater than 50% in the EU and Canada to almost 80% in Japan.

Through the WTO negotiation process, the paper said, dairy trade negotiations will travel a "long and bumpy" road. "More troubling, nobody is quite sure where the road to further liberalization will lead except that Japan, the EU and Canada will be sure losers and Oceania the sure winner."