Milk Powder Rebound A Swallow Not A Summer?
March 9th, 2009
Fonterra has been careful not to make too big a deal of the 16.6% jump in whole milk powder prices at its latest online auction, the first increase recorded on the trading platform. Head of Fonterra GlobalTrade, Kelvin Wickham, says the rebound may signal the supply-demand balance coming back into equilibrium. If sustained, it will give NZ more ammunition to lobby the EU to adopt alternatives to export subsidies, including private storage aids and intervention buying, which has been allowed since March 1. Both provide ways for the EU to dispose of product internally.
US subsidy threat. The EU decision on subsidies hasn’t yet proven as severe as feared. Of 17,000 tonnes of skim milk powder put forward for subsidy, only about 6,000 tonnes has been taken up. Of more concern to NZ is a noticeable step-up in US farming groups lobbying US Agriculture Secretary Tom Vilsack. When prices were high, the US didn’t employ its Dairy Export Incentive Programme (DEIP) but now farmers who ramped up production in the good times want DEIP re-activated. Playing in NZ’s favour, the Obama administration’s nominee for trade representative, Ron Kirk, hasn’t yet been ratified and Vilsack may wish to discuss the imposition of subsidies with him, given the trade implications.
Trade crucial. NZ’s next opportunity to tackle export subsidies will be at what was originally planned as the G-20 meeting starting April 2. The event has morphed into the London Summit, with PM Gordon Brown gaining support from President Barack Obama to generate international action on the economic and financial crisis. NZ will argue the first decline in global trade volumes in 30 years means keeping markets open is essential. The issue of protectionism is expected to be very much as the forefront in London.
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