New York Times - 22 Jan 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 13 Oct 09)

Europe to Buy 30,000 Tons of Surplus Butter

Published: January 22, 2009

BRUSSELS - Two years after it was supposed to have gone away for good, Europe's "butter mountain" is back.

Faced with a drastic drop in the price of dairy goods, the European Union will buy 30,000 tons of unsold butter - reviving one of the abiding symbols of Europe's generous farm subsidy system.

While the butter sits in cold storage, more than three times that amount in skimmed milk powder will accumulate in warehouses on the European Union's expense.

The collapse in the price of dairy products has also prompted officials to announce that they will resume subsidies for the export of a range of goods. Officials argue that, by historical standards, the purchase is insignificant. In 1986, the European Union bought 1.23 million tons of butter.

But the announcement that butter stocks had disappeared completely in 2007 was seen as a milestone in the overhaul of Europe's Common Agricultural Policy, which spends about 50 billion euros or $65 billion a year.

Surpluses, however, have returned because of the sharp drop in the price of butter and milk resulting partly from the global slowdown. A big decline in the value of the ruble has also made it hard for Europeans to export butter to Russia, one of their best markets.

In response, the union's executive body, the European Commission, said it would buy 30,000 tons of butter at a price of 2,299 euros a ton, and 109,000 tons of skimmed-milk powder at 1,698 euros a ton.

Michael Mann, spokesman for the European Commission, said that the move was temporary but that if necessary, the European Union would buy more than those quantities of butter and milk powder - though not at the same price.

In addition, export subsidies will be given to skimmed-milk powder, butter, butter oil and cheese, a committee of experts agreed Tuesday.

Critics say the subsidies allow the European products to be dumped in third world countries, undermining domestic farming.

The move has been welcomed by organizations representing farmers, including the European group Copa-Cogeca. But its spokesman, Simon Michel-Berger, added that further measures might be needed.

"What we need in general," Mr. Michel-Berger said, "is for European institutions to look at the dairy market and see how the situation can be improved in the long term. This might just be a drop on a hot stone."

According to Copa-Cogeca, the price of a ton of skimmed-milk powder, which in the summer of 2007 was above 3,000 euros, had fallen roughly in half. In Germany it is around 1,400 euros, the organization said.

Mr. Michel-Berger said farmers had been hit by a slump in demand for commodities caused by the global financial slowdown, and by the strength of the euro.

"We export a lot to Russia in terms of butter, cheese to the United States and milk powder to Africa and Asia, and all these are hit by the strength of the euro," he said.

Though the European Union managed to dispense with its butter stocks in 2007, surpluses of grain and wine still exist.

The latest figures show that 717,810 tons of cereals were piling up, along with 41,422 tons of sugar and 2.3 million hectoliters of wine, according to the European Commission.

Carlos Galian, agriculture expert for Oxfam International, said the resumption of export subsidies worried him.

"Once you start using export subsidies," Mr. Galian said, "the E.U. opens the door to pressure from other groups to press for them. In terms of global trade negotiations, it does not give a good signal to developing countries."