Processor and producer officials have expressed disappointment in the European Union's proposal to delay reforms within the EU dairy industry.  One official also questions whether the action indicates that the EU is serious about reducing "their trade distorting measures" in the next round of international trade talks.

Janet Nuzum, vice president and general counsel, International Dairy Foods Association, says the U.S. dairy industry is "adversely affected,  because of the degree of (EU) dairy export subsidies will not be reduced before 2003."  Between now and then, "we'll likely face the same distorting influences as a result of the EU's subsidy policies.  To some extent the delay "may even worsen because of the additional (milk) production that's going to come on stream in the 2000 and 2001 periods.

Five member states have specific tonnage increases in their production quotas that are phased in over the 2000-01 and 2001-02 periods, she said.  Starting in 2003, supports are reduced for butter and nonfat dry milk by 15% over three years.

"Once price cuts kick in," says Nuzum, "international milk prices will be brought down toward world milk prices, so the gap is lowered."  That will reduce the amount of export subsidies the EU needs to have its product competitive on world markets.  "It's a good thing, but they'll still need subsidies," she adds.

IDFA's reaction to the EU proposal "is that it's a tremendous disappointment; it's a more modest level of reform than we were expecting and hoping for, and it certainly postpones the reforms for at least four years."

Nuzum said another reaction is that the EU "may actually be worsening the situation for the first couple of years, because of the increase in production quotas for five member states.  That suggests there's going to be more milk production coming on stream."

Peter Vitaliano, vice president, international trade, economics and market research for the National Milk Producers Federation, questions whether the EU is positioning the dairy industry for the next round of international trade talks or whether it is "basically preparing to reduce their dependence on export subsidies and open their markets to further imports."  Both "are going to be key goals of the U.S. and other countries in the next round of negotiation," he adds.

Instead of allowing increased production in the selected states, he says, it would seem that if the EU was preparing to "reduce the level of trade distorting actions they take vis a vis dairy" production should be decreased.

"What they're doing could be viewed as a long-term approach to reducing prices to get closer to world prices.  But they're not
going to get there," he said.

Another issue of reform concerns expanding the EU membership.  "They can't afford to bring in new members while the Common Agricultural Policy still provides very generous prices.  So by lowering the price support level of time, they presumably make it less generous to new members, because they won't be offering them this high guaranteed price."

"I assume the by reducing price support levels, the main thing they're dealing with is preparing for an eventual EU enlargement."

But the "big question," he continues, concerns how this moves the EU closer to trade policy reform.  "I don't see that, even though I understand politically why (increased production) was probably the best deal they could get" from the five member nations. "It seems to move them further away and in the wrong direction," Vitaliano adds.