EU Dairy Export Subsidies Draw Fire from Cairns Group

28 January 2009

Citing a decline prices for farm goods, the EU has re-introduced export subsidies for some dairy products after two years of suspending the payments. The Cairns Group of agriculture exporters at the WTO responded vocally, decrying the subsidies as "not the leadership we require from key economies at this point in time."

The EU’s ‘export refunds’ are focused on dairy products such as butter, cheese, and milk powder but will also apply to several other goods, including frozen poultry and eggs. The payments to farmers will cover the gap between domestic ‘floor’ prices and international prices. The EU will provide subsidies of up to 50 percent on dairy exports and increase subsidies by one third and one half for frozen poultry and eggs, respectively.

Export subsidies have long been one of the most controversial trade-distorting measures used by rich countries. Many farm exporters expected that a Doha Round deal would eliminate such subsidies by 2013, as per an EU commitment made in 2005. Draft modalities of a Doha trade agreement have included such a provision since that time.

Officials in New Zealand and Australia, among leading dairy exporters, have been very vocal in their criticism of the measures. Tim Groser, the former chief WTO negotiator for New Zealand and current Trade Minister, commented that "it is clear that unless we move forward soon, unsubsidised producers like those from New Zealand will continue to bear the cost of the trade-distorting measures of others." Among developed countries, New Zealand is one of the most market-oriented agricultural exporters, having eliminated subsidies almost entirely since reforms began in 1984.

A Cairns Group statement on the issue called for a return to the negotiating table for a "fair and market oriented agricultural trading system" and the elimination of the subsidies because "farmers in many developing countries, which cannot afford to engage in subsidy wars, stand to suffer most from increased distortions in world agricultural markets."

According to the EU's Agriculture Commissioner, Mariann Fischer Boel, the current measures are being taken because European "exporters are no longer able to compete." Moreover, Boel argues that "this situation is aggravated by the already existing a result of the financial credit crisis."

Delegates in Geneva expressed concern for the measures. However, some exporters remain hopeful that the 2013 deadline for the elimination of export subsidies will be met. As one developed country trade official noted,"there is no sense that the EU would move away from 2013."
ICTSD reporting; “Subsidies move rocks dairy farmers,” NEW ZEALAND FARMERS WEEKLY, 26 January 2009.

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