Higher global milk price drives subsidies down

Export subsidies on dairy products in major exporting countries have tended to decline in the past one year.

However, the trend is not indicative of any willful reduction in subsidies as required under the World Trade Organisation (WTO), but is due chiefly to hardening of global prices of these products.

Despite decline in export subsidies, the amount of subsidy required to bring domestic prices for dairy products in high-cost producing countries down to world market levels remains substantial, according to a recent UN Food and Agriculture Organisation (FAO) report on global milk and milk products sector.

The international dairy product prices rose perceptibly, especially during the second half of 2003, due to limited supplies and sustained import demand.

The FAO price index for dairy products stood at 123 in October 2003, against 114 about six months before and merely 90 a year earlier.

As a result, average monthly export subsidies on skimmed milk power in the USA declined from $ 142 a tonne in March 2003 to $ 121 in August.

Similarly, in the European Union, export subsidies for dairy products have fallen. The biggest drop, around 10 per cent (from Euro 1108 a tonne to Euro 1000) has been in cheese. The EU export subsidies on milk powder and butter fell by some 4 per cent.

FAO said it anticipated continuation of a modest uptrend in global dairy products prices for some more time due to sustained demand and limited export supplies.

As in the recent past, the products like butter and cheese might witness relatively greater price surge.

In the case of world milk production, FAO said it expected it to rise marginally by 1 per cent in 2003-04 seasons of differ countries "" from 594 million tonnes to around 599.1 million tonnes.

The increase is confined mainly to Asia, Central America and New Zealand. While no increase in output is projected for eastern Europe, a declining trend has been forecast for Latin America.

India's milk output is predicted to scale a new high of 90 million tonnes in 2003-04. This is attributed chiefly to larger availability of fodder in the wake of good monsoon rainfall. Milk output in China and many other Asian countries, including Pakistan, Thailand and Philippines, too, is projected to rise.

With consistent rise in milk production, India continues to be the world's single largest producer though the output of EU as a whole is higher (126.8 million tonnes) than India's 90 million tonnes. The US is the second largest milk producer with a projected output level of 77.5 million tonnes.