The US last week detailed its contentious dairy subsidy payments for the year to producers and hinted the programme could be extended to mid-2011. If that suggestion is played out, NZ dairy farmers can forget about depressed prices rebounding in the short to medium term. Unveiling the initial payment allocations of the Dairy Export Incentive Programme (DEIP) for 2009-10, US agriculture secretary Tom Vislack defended the slide back towards subsidies by claiming the move as "˜a measured approach ... fully consistent with our WTO commitments'. "˜The programme helps US dairy exporters meet prevailing world prices and encourages the development of international export markets in the areas where US dairy products are not competitive due to subsidised dairy products from other countries,' Vislack says. "˜It appears that our international markets continue to erode and the European Union (EU) has shown no indication that it will refrain from providing dairy export subsidies.' The initial DEIP allocations detailed last week cover the period July 1, 2009 to June 30, 2011, but the US Department of Agriculture has hinted it could carry the subsidies into the 2010-11 year.The move has infuriated NZ and Australian producers because, as the NZ Institute of Economic Research (NZIER) states, subsidies give farmers incentives to overproduce, putting downward pressure on world prices. "˜This will cause Kiwi farmers' incomes to fall"¦ through no fault of their own,' says NZIER deputy chief executive John Ballingall in a recent report on the issue.Ballingall says a 5% increase in US and EU subsidies would see NZ's dairy output falling by 5%, and the value of dairy exports declining by 8%. The net impact on the economy would be $122m lost "“ mostly through a falloff in terms of trade as dairy export prices drop. Land values would also decline by "˜over 2% as output decreases'. "˜While output and exports increase significantly in the US and EU as expected, the 5% increase in dairy subsidies does not lead to the EU economy being better off in welfare terms,' concludes Ballingall. "˜It suffers a significant loss of efficiency as resources flow into dairy from other more efficient sectors.
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