The dairy sector has warned that it faces a crisis as a result of proposals to slash export subsidies for its products by 80% by 2010.
Jim Begg, director general of the trade organisation Dairy UK, said that if the proposal agreed last month by the Cairns Group and G-20 group of agriculture-exporting developing nations went through, it would “seriously damage” the EU dairy industry. “The proposal would require deep cuts either in EU prices or in production quotas,” he said. “We need a flexible framework to adapt to life without subsidies.”
The proposed cuts in subsidies to remove market distortion are aimed particularly at dairy, rice and sugar and are part of the Doha round of world trade talks. The negotiations on the subsidies are expected to reach a critical point in July.
The Cairns and G-20 groups, which produce more than 40% of the world's agricultural exports, want subsidies cut by at least 50% in 2008 and at least an additional 30% by 2010, with the balance cut by the end of 2013.
"It will cause pain and suffering,” said Nick Holt-Martyn, director of the Dairy Group consultancy, about the proposal. “We are already embarked on a pathway to achieving what the G20 and Cairns groups want, but not in this timescale.”
He warned that smaller producers could be particularly in trouble because they were not likely to be as flexible as larger companies in switching to alternative products. “In the UK model, commodity is squeezed out of the equation,” he said. “Westbury, and others like it, will find it very difficult unless they can find a product that will give them a higher income, whereas Dairy Crest is big enough to flex into different markets.”
Holt-Martyn claimed that a rapid cut in subsidies would destabilise the market. But he acknowledged that the UK was in a better position than other EU states. “The UK industry is ahead of the pack in some respects. We've had volatility in the UK because of deregulation and exchange rates; we've seen troubled times. But the rest of Europe hasn't seen these changes, so they will perhaps suffer more."
Dairy UK's office manager Peter Dawson said the proposal was “destructive to the negotiation process” and would put exports into a “straightjacket”. Instead, he said an incremental export subsidy reduction of one seventh a year would give industry a chance to adapt.
Dawson said that talks might be progressed at the Organisation for Economic Cooperation and Development's meeting in mid-July and, if not, then negotiations would effectively come to an end on July 30. “It will be another two or three years before talks start again,” he added.