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26 February 1997

Cheese is bright spot in world dairy trade, says WTO secretariat report

World prices for cheese remained firm in 1996 in contrast to lower prices for milk powders and butter. Cheese production continued its world-wide upward trend while the European Communities, Australia and New Zealand consolidated their role as the world's leading cheese exporters.

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These are among the findings contained in the WTO's second annual reportSee footnote 1 on the international dairy products market, published today. The report reviews the situation in the world dairy market in 1995 and the first half of 1996. Highlights include:

-    In 1996, the prospects are for an increase in world milk production, driven by further expansion in developing countries and Oceania (Australia and New Zealand). Milk production is expected to stabilize in the Commonwealth of Independent States (CIS) and Eastern Europe. At the farm level, there appears to be a tendency for the number of milk producers to decrease while average dairy herd size is increasing. The dairy processing industry tends to become more and more concentrated.

-    World production of skimmed milk powder declined in 1995 while production of whole milk powder increased. World exports of both powders increased. In January 1996, stocks of skimmed milk power in the European Communities and the United States were low. Prices were strong during the first three quarters of 1995, reflecting tighter supplies, but dipped in the last quarter of the year and in the beginning of 1996 as demand slackened.

-    World production of butter and butter oil increased marginally in 1995, ending a long-term downward trend. Exports of butter and butter oil recovered in 1995 as demand, particularly from the Russian Federation, the Near and the Far East, was strong. By the end of 1995, high prices and low stocks were key features of the world butter market. However, prices decreased in the first half of 1996 due to weaker demand.

-    Cheese production continued its world-wide upward trend. Production of cheese is expanding more rapidly than milk production which reflects a progressive shift towards the production of value-added products. World cheese trade also increased in 1995. Price increases for cheese during 1995 were less pronounced when compared to other dairy products. However, in contrast to prices of milk powders and butterfat, cheese prices have remained firm in 1996 as demand from major imports has been strong.

Regarding trade policies, the WTO report notes that from early 1995 to mid-1996, export restitutions for selected cheeses in the European Communities were cut substantially in successive steps. In the United States, a new law (the Federal Agricultural Improvement and Reform or FAIR Act) was approved in April 1996. The FAIR Act funds the US Dairy Export Incentive Program up to the limits imposed by the US export subsidy reduction commitments under the WTO Agreement on Agriculture.

Note to Editors:

The International Dairy Agreement entered into effect on 1 January 1995. It replaces the International Dairy Arrangement, which had operated since 1980. As of January 1997, the following were parties to the International Dairy Agreement: Argentina, Bulgaria, the European Community (15), Japan, New Zealand, Norway, Romania, Switzerland and Uruguay.

The primary objectives of the Agreement are to advance the expansion and liberalization of world trade in dairy products under as stable as possible market conditions, on the basis of mutual benefit to exporting and importing countries, and to further economic and social development in developing countries. In adopting these objectives, the economic importance of milk and dairy products to many countries was recognized, as well as the need to avoid surpluses and shortages and to maintain prices at an equitable level. An International Dairy Council and a Committee on Certain Milk Products have been established to administer the Agreement. Previously three Protocols were annexed to the International Dairy Arrangement; under the International Dairy Agreement these have been combined into a single Annex on Certain Milk Products. This Annex establishes minimum export prices for skimmed milk powder, whole milk powder, buttermilk powder, anhydrous milk fat, butter and cheese.

The International Dairy Council, on 17 October 1995, noted that limited membership in the Agreement, and in particular the absence of some major dairy exporting countries, made the operation of the minimum price provisions untenable. It decided to suspend minimum prices for all dairy products from 18 October 1995 until 31 December 1997. The Committee on Certain Milk Products, whose work was related directly to the implementation of the minimum prices, was also suspended until 31 December 1997. As several parties expressed doubts about the continued usefulness of the current Agreement in view of the Uruguay Round results, at its meeting on 17 September 1996, the Council invited the Chairperson to undertake informal consultations on the future of the Agreement.

Footnote: 1The World Market for Dairy Products 1996 - Second Annual Report in English is available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21, Switzerland. Price: SwF 15.- The French and Spanish editions will be available soon.