EU Dairy Trade Almost Ho-Hum

May 29, 2002

A USDA attaché report says for the past year and a half not much has been happening on the European Union's dairy export agenda except for "a timid first attempt" to promote EU dairy products in third countries and a revised import regime which has produced encouraging but not convincing first results.

"Dairy policy continues to be governed by domestic production quotas and export subsidies. The dairy quota system is in place until 2008. The mid-term review to be announced in June will discuss the fate of quotas after 2008 but should not be earth-shaking as the Agenda 2000 dairy reform will only enter into force as of 2005," the report says.

Export subsidies expenditures continue to decline due to lack of demand for EU products. Upcoming food safety legislation could influence the sector in the mid-term and the accession of ten Central and Eastern European countries will provide for readjustments in the longer term.

In 2000, the EU concluded "double zero" agreements with ten Central and Eastern European countries (Poland, Slovenia, Slovakia, Bulgaria, Romania, the Czech Republic, Hungary, Latvia, Lithuania, Estonia) that have applied for EU membership. Under these arrangements, about 75% of EU agricultural imports from these countries were able to enter the EU at zero duty while EU export possibilities to these countries at zero duty (and without export refunds) doubled.

By this past January, the European Commission started a new round of negotiations with a view to finalizing the liberalization of agricultural trade started with the double zero agreements before final accession. These "double profit agreements" would be implemented tentatively as of July 1. The double profit approach, i.e. the removal of all export refunds and import duties, would affect cereals, most dairy products and beef.

For fiscal year 2002, the estimated EU dairy budget amounts to €1.9 billion, or about 4.3% of the total agricultural budget and down from 2.3 billion in fiscal 2001. The preliminary draft budget for fiscal 2003 earmarks €2.1 billion for the dairy sector.

The mid-term review of Agenda 2000 dairy provisions was expected in 2003, but it was scheduled instead for this year. The USDA report notes that as Agenda 2000 measures will be implemented for the dairy sector as of 2005 and the quota system already has been extended until 2008, this mid-term review will be limited to a discussion on the fate of the quota system after 2008.

Since the situation of the EU dairy sector has worsened significantly over the last six months, with intervention stocks filling up and exports lagging, it seems that the Commission could be open to a debate about support price adjustments and a reassessment of the fat/protein ratio in dairy aid schemes.