Thisdraftreport willbesubmitted foradoption totheCommittee onCertain Milk Products
atitssecond session.
95-1133RESTRICTED
WORLD TRADE WT/SPEC/4
3May1995
ORGANIZATION(95-1133)
International Dairy Agreement
COMMITTEE ONCERTAIN MILK PRODUCTS
Draft Report oftheFirst Session
(20-21 March 1995)
1. TheCommittee onCertain Milk Products helditsfirstsession on20-21 March 1995.
2. TheCommittee adopted thefollowing agenda:
A. Election ofChairperson
B. Information required bytheCommittee:
(i) Replies toquestionnaires:
Questionnaire 1:Milk Powders
Questionnaire 2:Milk Fat
Questionnaire 3:Cheese
(ii) Summary tables
(iii) Other information
C. Transactions other thannormal commercial transactions
D. Sales under derogation
E. Review ofthemarket situation
F. Monitoring oftheDecision tosuspend minimum prices forbutter andanhydrous milk
fat(DPC/PTL/40 andL/7568)
G. Oralreport totheCouncil
H. DateofnextmeetingWT/SPEC/4
Page2
A. Election ofChairperson
3. Inaccordance withRule15oftheRules ofProcedure, Mr.Masato Ito(Japan) waselected
Chairperson oftheCommittee onCertain Milk Products for1995/96.
B. Information required bytheCommittee
(i) Replies toQuestionnaires 1,2and3
4. TheCommittee reviewed thereplies toQuestionnaires 1,2and3.Parties wererequested to
provide alltherelevant information concerning thefirstquarter of1995 by15June1995.
(ii) Summary tables
5. TheCommittee tooknoteofthesummary tables based oninformation provided uptothethird
quarter of1994inrespect ofmilkpowders, milkfatandcheese, issued asdocument IDA/CMP/W/1.
(iii) Other information
6. TheCommittee alsotooknoteoftheinformation which theSecretariat hadcompiled on
production, trade, stocks andconsumption ofdairy products intheUnited States.
C. Transactions other thannormal commercial transactions
7. Therepresentative oftheEuropean Community informed theCommittee thatactual food-aid
deliveries ofmilkpowders in1994 amounted to31,727 tonsofwhich 29,703 tonswereofskimmed
milkpowder; deliveries ofbutter oilwereat453tons. These deliveries werewellbelow thequantities
of50,000tonsofskimmedmilkpowderand4,000tonsofbutteroilprovidedinthefood-aidprogrammes
of1994. Inthefirsttwomonths of1995, 11,900 tonsofmilkpowders were allocated asfoodaid.WT/SPEC/4
Page3
D. Sales under derogation
8. TheCommittee wasinformed thatnonewinformation hadbeenreceived bytheSecretariat
under thisheading.
E. Review ofthemarket situation
9. Parties gavethefollowing reports onthemarket situation intheirrespective countries.
European Community
10. Themarket situation inthedairy sector intheEuropean Union hadcontinued toimprove since
thelastmeeting oftheInternational Dairy Arrangement inDecember 1994. Supplies weretightand
bothinternal andexternal demand werestrong. Factors contributing tothisbuoyancy werereduced
milksupplies intheEuropean Union duetoproducers 'efforts toremain within theirquotas; Russian
demand, particularly forbutter; andtheentry intoforce ofUruguay Round commitments from
1July1995.
11. Theworld market wasmarked bythelower thanexpected availabilities inOceania, particularly
inNewZealand, duetopoorweather conditions. Theweakness oftheUnited States dollar hadalso
contributed tothestrong world market prices denominated inthatcurrency.
12. Against thisbackground, theCommission hadmade itsannual price proposal totheCouncil
inmid-February. Themain elements oftheproposals inthedairy sector werea2percentreduction
inthebutter intervention price andaconsequent reduction inthetarget price formilkof1percent,
andtheintroduction ofaminimum protein content forskimmed milkpowder eligible forintervention.
13. TheCommission waspreparing areport ontheimplementation ofthequota system inGreece
andItalybefore making proposals totheCouncil onthemaintenance ofthetemporary quota increases
agreed in1994/95.WT/SPEC/4
Page4
14. Production intheECdairy sector incalendar year1994 andinthefirsttenmonths ofquota
year1994/95, compared tocalendar year1993andthecorresponding months ofquota year1993/94,
wasasfollows:
Calendar year
January-December 1994
January-December 1993Quota year
April 1994-January 1995
April 1993-January 1994
Milk deliveries Nochange +0.6%
Production
Skimmed milkpowder
Other milkpowders
Butter
Cheese-6.5%
+5.4%
-3.0%
+1.5%-7.0%
+5.3%
-2.3%
+1.6%
15. Milkdeliveriesin1994wereabout103.2milliontonsintheEU-12.Butterproductionamounted
toalmost 1.5million tons, skimmed milkpowder output to1.2million tonsandother milkpowders
toabout 890,000 tons. Deliveries inthelastthree months of1994 andinJanuary 1995 were well
above thelevels oftwelve months earlier andmost oftheincreased deliveries went intocheese
production.However,inDecember1994andJanuary1995skimmedmilkpowderandbutterproduction
began toshow some increasing trends, inlinewiththeimproved market conditions fortheseproducts.
16. Since December 1994, butter andskimmed milkpowder prices hadincreased respectively by
about 4.5percentandby6percent. While thepurchases ofbutter intointervention intheperiod
1Januaryto15March1994hadamountedtoalmost10,000tons,therehadbeennosignificantpurchases
intointervention in1995. Thevolume ofbutter usedinthepastry andice-cream sector intheperiod
1January to15March 1995 amounted toabout 75,000 tonscompared toabout 124,000 tonsinthe
corresponding period of1994 (adecline by40percent). Thetotalvolume ofbutter allocated tothis
industry in1994amounted to535,000 tonsor13percentmore thanin1993. Thebutter market was
buoyant inearly 1995, requiring therelease ofsome intervention stocks ontothemarket inFebruary
which werequickly taken upat329Ecu/100 kg.Thelevels ofaidonbutter usedinthefoodindustry
hadalsobeenprogressively reduced.
17. Skimmed milkpowder prices werepresently atabout 110percentoftheintervention price.
Thissituation required therelease ofsome stocks fromintervention. About 20,000 tonsofskimmedWT/SPEC/4
Page5
milkpowder hadbeensoldfromintervention stocks foruseinthecalffeedsector atprices above the
intervention price. In1994, almost 11million tonsofliquid skimmed milkweresubsidized foruse
intheanimal feed andcasein manufacturing industries, about 4percentlessthan in1993.
Approximately 65percentofthese subsidized volumes were usedinthecalffeedindustry.
18. Thestocks ofdairy products inintervention stores hadalsofallen toverylowlevels. Public
stocks ofbutter werecurrently at23,000 tonsandprivate stocks at2,000 tons. Present skimmed milk
powder stocks were at43,000 tons. Thevolume ofcheese subject toprivate storage contracts was
relatively stable at95,000 tons.
19. TheEuropean Union 'sexports ofdairy products in1994 were considerably below the
1993 levels. Export dataforthewhole yearwasavailable from onlyfourmember States while for
theother member States datawasavailable forthefirsteighttoeleven months of1994. Theabsolute
volumes exported in1994andthepercentage changes compared withthecorresponding datafor1993
were thefollowing:
Quantity
('000tons)Percentage change
1994/93
Fresh products
Condensed milk
Skimmed milkpowder
Whole milkpowder
Butter
Butter oil
Cheese304
247
127
527
67
45
464+0.5
-20.0
-54.0
-0.6
-31.0
-34.0
-2.3
20. Nevertheless, themarket situation inJanuary 1995 wassuch thatexport refunds forall
products were reduced by3percentexcept forbutter andwhole milkpowder where a5percent
reduction wasimplemented. Three further reductions inthebutter export refund wereimplemented
inthecourse ofJanuary andFebruary 1995.WT/SPEC/4
Page6
21. TheEuropean Union 'scalculated export prices forthefirstquarter of1995 wereasfollows:
US$pertonf.o.b.
Skimmed milkpowder 1,900-2,250
Whole milkpowder 1,900-2,250
Butter 2,100-2,430
Butter oil 2,210-2,580
Cheese 2,250-2,375
22. These relatively highprices werenotsustainable because oftheirpossible effects ondemand.
However, themarket would remain firmforthecoming months asthefactors causing these prices
would notdisappear quickly. Thelargevolumes ofdairy products allocated bytheUnited States under
theirDairy Export Incentive Programme forthefirstsixmonths of1995 would haveaninfluence on
these prices andshould giverisetosome concern. However, thebonuses orsubsidies paidforthese
exports hadbeenrecently reduced. Itwasdifficult topredict whatthecoming months would bring
buttheincrease inproduction intheUnited States andtheriseincownumbers inOceania caused doubts
astothemaintenance ofthepresent highlevels ofprices.
Switzerland
23. Milkdeliveries totalled 3.062 million tonsin1994, anincrease by1.6percentcompared with
1993. However, deliveries were estimated tohavedecreased by2percentinthefirsttwomonths
of1995 compared withthecorresponding months of1994.
24. Comparing thewhole year1994 with1993, production ofskimmed milkpowder increased
by7.5percentto24,500 tonsandconsumption by4.4percentto23,800 tons. Exports decreased
toonly400tonscompared to7,500 tonssoldin1993. Stocks attheendof1994, at3,700 tons,were
9percenthigher thantheirleveloneyearearlier.
25. Production ofbutter in1994 increased by5percentto34,100 tons, compared to1993. As
aconsequence, imports decreased byasmuch as52percentto3,000 tons. Consumption increased
tosome 42,000 tonsin1994 compared to38,600 tonsin1993. However, consumption figures for
1994 should beanalyzed withcaution astheywere influenced bythereduction inprices attheend
oftheyear. Year-end stocks were atnormal levels.WT/SPEC/4
Page7
26. With regard tocheese, output decreased by0.6percentto134,900 tonsin1994 while
consumption increased slightly to101,800 tonscompared to101,400 tonsin1993. Exports decreased
by2percentto59,300 tonswhile imports increased by2.4percentto30,200 tons. Thissituation
wasduetothestrengthening oftheSwiss francagainst othercurrencies which inturncaused anincrease
inexport prices andadecrease inimport prices. Asaconsequence ofincreasing imports anddecreasing
exports, anddespite thedecrease inproduction, stocks attheendof1994 increased to29,900 tons
compared to26,100 tonsoneyearearlier. Thishighlevelofcheese stocks wasofconcern.
Norway
27. Withrespect totheimplementation oftheUruguay Round Agreement onAgriculture, thetariff
ratesaslaiddown intheAgreement wereimplemented asof1January 1995. Norway would fulfil
itsreduction commitments for1995. Import quotas wereopened on1January 1995, buttheoldsystem
forassigning quotas toimporters would notbereplaced byanewoneuntil1July1995attheearliest.
Itwasassumed thattheAgreement onAgriculture willleadtoincreased competition ontheNorwegian
foodmarket. Domestic support willbeadjusted inaccordance withtheUruguay Round commitments
through theNational Agricultural Agreement of1995. Thegovernment willconsult boththeUnion
ofNorwegian Farmers andSmallholders andtheNorwegian Farmers 'Union astohowtheNorwegian
commitments regarding domestic support andother reductions should befulfilled. Thecommitments
toreduce export refunds willbekept.
28. Total production ofmilkin1994decreased by2.4percentto1.823 million tonsduetoreduced
quotas; theoutlook for1995wasforstable production. Decreased production in1994 wasreflected
inlower production figures forthemost important dairy products. Total domestic consumption of
liquid milkdecreased by1.7percentin1994 compared to1993. Moreover, ithadbeendropping
steadily byapproximately 1percentperyearforthepastfifteen years. Thismight beseenaspart
ofanoverall trend inwhich certain meals, especially breakfast, nolonger heldthesame importance
asbefore andsoftdrinks seemed toreplace fresh dairy products indaily life.
29. TheMinister ofAgriculture proposed asystem involving buying andselling ofquotas. Agroup
consisting ofbothgovernment andorganization representatives wasworking onaproposal forhow
thesystem could work. Noconclusions hadbeenreached atthisstage, however, thetarget wasto
finish thework inthegroup byearly April sothatthesystem could bediscussed andpossibly adoptedWT/SPEC/4
Page8
inthisyear'sNational Agricultural Agreement. Theoverall aimofthispolicy wastoencourage more
efficient production andtofurther reduce subsidies andprices paidformilktoproducers.
30. Production ofskimmed milkpowder in1994 decreased by12percentcompared with1993.
Consequently, exports decreased by80percentwhile domestic consumption remained virtually
unchanged. Production ofwhole milkpowder in1994 declined by15percentcompared with1993.
Consumption decreased alsoby14percent,inlinewithproduction. There werenoimports norexports
ofwhole milkpowder in1994.
31. Production ofbutter in1994 declined by16percentduetoreduced milk production.
Consumption declined by2percentcompared with1993. Exports ofbutter decreased by47percent,
which wasnotsurprising asexports hadaregulatory function onlyandhadserved toempty warehouses.
Imports ofbutter were nilin1994.
32. Production ofcheese in1994declined by2percentwhile consumption increased by1percent
comparedwith1993.Bothimportsandexportsofcheesedecreasedin1994,by4percentand3percent
respectively compared with1993. Themain destinations oftheexports were theUnited States and
Japan, followed bytheEuropean Union andAustralia.
Japan
33. Despite thecontinued strong demand fordrinking milk, milkproduction inJapan continued
todecrease inthefourth quarter of1994, which inturnledtoasharp decrease intheproduction of
dairy products. Theriseindemand forskimmed milkpowder consequently made itsmarket situation
tightsince thebeginning oftheautumn. Inorder tomeetthedemand, theLIPC imported 13,000 tons
ofskimmed milkpowder inNovember andDecember 1994. Furthermore, inNovember, themilk
producers 'organization setanadditional quota of75,000 tonsofskimmed milkpowder asanurgent
temporary measure forfiscal year1994. Regarding butter, themarket remained over-supplied and
butter stocks werestillatahighlevel. Inorder topromote thedemand forbutter, theCentral Dairy
Council forAgricultural Cooperative Association launched anational television commercial campaign
inDecember 1994.WT/SPEC/4
Page9
34. Comparing thefourth quarter of1994 withthesame period of1993, totalmilkproduction
fellby3.3percent. Thedemand fordrinking milkincreased by2.2percent; however, milkused
forprocessing dairy products decreased by18.6percent. Consequently, theproduction ofbutter and
skimmed milkpowder alsodecreased sharply by30.5percentandby16.9percent, respectively.
Despite thereduction intheproduction, butter stocks werestillhigh. Incontrast, duetothecontinuing
demand forcheese, itsproduction increased by3percent.
35. Inthefourth quarter of1994, imports ofskimmed milkpowder increased by15percentto
25,900 tons(including 13,000 tonsimported bytheLIPC) incomparison withthesame period ofthe
preceding year. Theaverage import price ofskimmed milkpowder forhuman consumption roseby
25percentandthatforanimal feedroseby3percentcompared tothethirdquarter of1994. Compared
tothesameperiod oflastyear, however, theaverage import priceofskimmed milkpowder forhuman
consumption rosebyonly2.4percentandthatforanimal feedfellby16.1percent.
36. Butter imports roseby64.8percentinthefourth quarter of1994 to603tons. Since
September 1994, theimport price ofbutter hasfallen gradually andtheaverage import price inthe
fourth quarter of1994 was11.8percentlessthaninthecorresponding quarter of1993.
37. Compared withthesame period oflastyear, natural cheese imports increased by2.9percent
inthefourth quarter of1994 andprocessed cheese imports increased by3.1percent. Theprice of
natural cheese imports roseby6percentovertheprevious quarter, whereas thatofprocessed cheese
remained stable withariseofonly0.8percent. Incomparison tothesame period oflastyear, the
import price ofbothnatural cheese andprocessed cheese fell,thefirstby3.2percentandthelatter
by3.4percent.
Argentina
38. In1994, bothproduction andexports ofmajor dairy products recovered compared with1993.
Production ofskimmed milkpowder almost doubled in1994to25,000 tonscompared to13,000 tons
in1993. Exports increased substantially to8,500 tonscompared toonly160tonsin1993. Production
ofwhole milkpowder increased from70,900 tonsin1993to86,000 tonsin1994. Exports increased
sharply to13,400 tonscompared to4,500 tonsin1993.WT/SPEC/4
Page10
39. Incontrast tomilkpowders andcheese, production ofbutter decreased in1994to43,400 tons
compared to49,600 tonsin1993. Imports increased by32percentto2,500 tonswhile exports
decreased by16percentto770tons. Export prices increased substantially inthefourth quarter of
1994.
40. Production ofcheese in1994increased by7percentto345,400 tons. Imports increased from
2,800 tonsto5,400 tonsandexports alsoincreased from 3,500 tonsto10,000 tons. Stocks atthe
endof1994, at18,200 tons, were 21percentlower thantheirleveloneyearearlier.
NewZealand
41. NewZealand 'stotalmilkproduction (interms ofmilksolids) was600.6 million kg.forthe
period June1994-February 1995, a2.7percentdecline from thelevel recorded inthesame period
lastyear. Milk production forthemonth ofFebruary 1995 was63million kg.,6.4percentbelow
thelevelinFebruary 1994. Monthly milkproduction hadbeenconsistently below previous yearlevels
since October 1994, withtheexception ofNovember when milkproduction was1.3percenthigher.
Thedrought conditions intheNorth Island contributed tothelower milkproduction. Total milk
production forthe1994/95 season wasexpected tobe707.9 million kg.,a3.7percentdecrease from
the1993/94 season. Inrecent months dairy production hadshifted from skimmed milkpowder and
butter production tomore whole milkpowder andcheese production.
42. Regarding skimmed milkpowder, although strong growth inproduction andexports occurred
for1994 asawhole, output began toslowlatein1994 andthiscontinued into1995. Thegrowth in
exports ledtostock levels of45,400 tonsattheendof1994, from 78,000 tonsinDecember 1993.
43. Whole milkpowder production rose2percentin1994 to304,000 tonsrelative to1993, but
declined inthelastquarter of1994 by5percentcompared tothelastquarter of1993. Exports of
whole milkpowder roseby5percentin1994, butlevelled offbythefourth quarter asthedrought
began tohavenegative effects onproduction.
44. Butter production in1994 roseby2.3percentbutfellsharply inthelastquarter. Exports
ofbutter fellfrom193,000 tonsin1993to191,200 tonsin1994. Production ofbutter oilfellfromWT/SPEC/4
Page11
48,500 tonsin1993to46,400 tonsin1994andthedecline wasmoremarked inthelastquarter. Exports
ofbutter oil,however, increased during 1994 from 41,700 tonsin1993 to55,800 tons.
45. Cheeseproductiongrewstronglyfrom163,400tonsin1993to191,000tonsin1994.However,
therateofgrowth slowed inthelastquarter of1994. Export demand forcheese wasstrong and
NewZealand 'sexports rosefrom 126,500 tonsin1993 to159,400 tonsin1994.
46. InFebruary 1995, theNewZealand Dairy Board decided toincrease theadvance milkprice
by20c/kg. toNZ$2.80/kg. milksolids forthe1994/95 season. Theend-of-year payout islikely to
beintherange from NZ$2.85-NZ$2.95/kg. milksolids. TheNewZealand dollar hasappreciated
by8.4percentagainst theUnited States dollar since June1994. Theadverse impact onearnings of
thiscurrency movement wasestimated toreduce theoverall return by33c/kg. milksolids compared
tothe1993/94 year.
47. Internationaldairypricesweregenerallystrong,underpinnedbytightmarketsupply(inparticular
lowEUintervention stocks) andstrong market-demand. Reduction intheEUrefund rateshadalso
helped firmed international prices. Skimmed milkandwhole milkpowder prices remained buoyant.
Butter prices were currently stable butwere expected torisefurther astheEUbutter stock level
decreased.
48. Indicative international prices were asfollows:
US$pertonf.o.b.
Butter 2,000-2,350
Anhydrous milkfat 2,200-2,300
Skimmed milkpowder 2,000-2,180
Whole milkpowder 2,000-2,250
Cheeses 1,980-2,400
Hungary
49. In1994, theHungarian dairy market wascharacterized byaslight improvement afterseveral
years ofdecline. Thereduction inmilkproduction anddeliveries hadslowed down. However, noWT/SPEC/4
Page12
expansion wasforeseen inthenearfuture. There wasaslight increase inpercapita consumption of
dairy products, especially during thefourth quarter of1994.
Australia
50. Milkproduction fortheseven months prior toJanuary 1995was5,617 million litres, almost
5percentahead of1993/94 levels forthesame period; however, production trends were showing
increased variability across thestates. Thecurrent national forecast ofa3percentincrease inproduction
to8,300 million litresfortheyear1994/95 should bemet,provided thattherewerereasonable autumn
rainstocover lateseason milkproduction. Despite expected higher milkproduction forthe1994/95
yearcompared to1993/94, thetotalsupply ofmilkfat for1994/95 willremain inlinewiththeprevious
year, duetoafallintheaverage fatcontent ofmilkthisseason.
51. Milkpowders production hadrisensteadily inresponse tofirming international demand and
prices. Compared tothesameperiod in1993/94, skimmed milkpowder production forthesixmonths
uptoDecember 1994 increased by6percentto133,000 tons, while whole milkpowder production
rosebyover40percentto68,750 tons.
52. Butter production declined byalmost 3percentduring thethird quarter of1994 compared
tothesame quarter in1993, however, butter supplies inthefinalquarter increased by5percentover
thesame period in1993. Total butter supplies forthesix-month period toDecember increased by
2percentto82,100 tons. Despite thisincrease, strong international demand forbutterfat meant that
company stocks continued todecrease inearly 1995.
53. Cheese production ofaround 119,000 tonsduring thesecond halfof1994 wasdown 5per
centoverthesame period lastyear, although production wasexpected toincrease incoming months
tomeetexport anddomestic commitments. Production offresh andshort shelflifeproducts suchas
yoghurt andcream continued toexpand, although growth inrecent months hadslowed.
54. Domestic demand fordairy products hadbeenvariable. Sales ofliquid drinking milkinthe
sixmonths toDecember 1994 hadincreased by3.2percentoverthesame period lastyearbuoyed
byincreased marketing efforts. National retail salesofbutter andbutter blends hadfallen slightlyWT/SPEC/4
Page13
during thattimebecause ofstrong pricecompetition frommargarine. Retail cheese salesshowed solid
growth throughout 1994, rising by2to3percent, withnon-cheddar varieties showing thestrongest
growth.
55. International dairy prices roseacross theboard inFebruary andinearlyMarch, andspotprices
wereathistorically highlevels.Skimmed milkpowder wascurrently trading intherange ofUS$2,100-
2,150 perton.Powder prices hadresponded tosolidinternational demand andverylowEUandUS
public stocks, andinthesixweeks totheendofFebruary EUspotprices forskimmed milkpowder
increased byaround US$150 perton. Factors influencing increased skimmed milkpowder prices
included recent substantial salestoMexico, Algeria andBrazil, anacute shortage ofEastEuropean
skimmed milkpowder andarecent 18,000 tontender toJapan. EU'spublic stocks ofskimmed milk
powder currently stood at55,897 tons, while US'stocks totalled 13,546 tons. InJapan, skimmed
milkpowder production in1994 fellby17.2percentcompared with1993. Coupled withastrong
domestic demand, stocks ofskimmed milkpowder fellsharply in1994 andinto1995. Asaresult
ofthisshortfall, theJapanese Government called theeemergency import tenders totalling 35,000 tons
betweenNovember1994andFebruary1995.Thelatestofthesetenders,for18,000tons,wasannounced
inearly March, withdeliveries intwotranches, bytheendofApril andtheendofMay. Asproduct
wastobeshipped after1April, itcould fullymeetthe1995annual market access commitment made
byJapan under theUruguay Round. Australian andNewZealand suppliers wereshortofuncommitted
product, andtherefore most ofthetonnage (14,821 tons) wasawarded totheEuropean Union.
56. Whole milkpowder prices picked upstrongly inFebruary, andwere currently intherange
ofUS$2,100-2,150 perton.Price increases hadbeenduetovarious factors including higher milkfat
prices, lower NewZealand production (andhence exports) andstrong demand fromRussia andAsian
markets.DemandinAsianmarketshadresultedfromgrowingconsumerdemandforwholemilkpowder
sachets fordrinking milkpurposes inpreference tothetraditional reliance onsweetened condensed
milk. Thedurability ofpowder prices would betested inApril/May when European milkdeliveries
reached theirseasonal peak.
57. Anumber offactors hadinfluenced higher milkfatprices, including tightEUandUSmarket
conditions reflected inverylowbutter stocks; decreased production intheEuropean Union (butter
production in1994compared with1993wasdown by3.6percentto1.4million tons); thereduction
ofEUbutter export subsidies by17.2percentsince January primarily totakeupward pressure offWT/SPEC/4
Page14
internalmarketprices;strongdemandfromAsiaandRussiaandunavailabilityofproductfromAustralia
andNewZealand forspottrade.
58. Butter prices were currently around US$2,000 perton(US$650 above theIDAminimum),
while anhydrous milkfatprices ranged fromUS$2,100-2,200 perton(atleastUS$475 above theIDA
minimum). EUpublic stocks were athistorically verylowlevels, andcurrently stood ataround
28,820 tons,theirlowest levelsince December 1989. Similarly, USpublic stocks stood atanhistoric
lowof10,072 tonson17February 1995.
59. Thecollapse oftheRussian dairy sector haddriven Russian demand forbutter. Initial demand
(preChristmas) coincided withverylowEUpublic stocks andboosted EUwholesale prices. Market
strength continued intothefirstquarter of1995, highlighted bystrong Asian import demand fromnon-
European Union sources, andtheabsence ofintervention salesintheEuropean Union. Russian demand
however, began tailing offinMarch. Thedurability ofbutter prices would betested inApril/May
when European milkdeliveries reached theirseasonal peak.
60. Cheddar cheese hadbeenslower thanother major products tojointhepriceupswing. Despite
recent demand forcheese fromRussia, competitive pricing fromIrish-sourced product hadhelddown
cheddar prices andcounteracted thefavourable impact oftheweaker USdollar against European
currencies. EUcheese production in1994wasupby1.6percentfromtheprevious year, andin1995
European cheese markets hadbeenweak, withample supply tomeetdemand. Bulkcheddar cheese
wascurrently trading intherange ofUS$1,900-2,000 perton.
Poland
61. Dairy cownumbers continued todecline in1994 buttherateofdecrease diminished.
Consequently, production ofmilk decreased further in1994 byapproximately 3percentto
11.6million tons. Thevolume andstructure ofdomestic dairy production wasgradually adjusted to
thedecreasing domestic demand andforeign market possibilities.
62. Production ofskimmed milkpowder decreased by28.5percentin1994to105,000 tonsand
domestic consumption declined by12.7percentto55,000 tons. Therateofdecrease ofwhole milkWT/SPEC/4
Page15
powder production was9.2percent,oradecrease by6,000 tonsfrom65,000 tonsin1993. Domestic
consumption ofwhole milkpowder dropped by20percentto51,500 tons. Exports ofskimmed milk
powder decreased by19.7percentto69,000 tonswhereas exports ofwhole milkpowder increased
verysubstantially (by143percent)to8,900 tons. Attheendof1994, stocks ofmilkpowders were
lower thantheirleveloneyearearlier.
63. Productionofbutterdeclinedby20.8percentin1994to110,000tonsanddomesticconsumption
by12.7percentto109,000 tons. Exports ofbutter increased by5percentto17,900 tonsofwhich
3,900 tonswere exported totheformer Soviet Union. Stocks ofbutter attheendof
December 1994, at2,200 tons, weresubstantially lower thantheirlevelof14,900 tonsattheendof
December 1993.
64. Cheese production increased in1994 by16percentto123,000 tonswhereas consumption
decreased by13.3percentto110,000 tons. Exports rosesubstantially from 11,700 tonsin1993 to
29,900 tonsin1994, whereas imports dropped sharply from37,400 tonsin1993to9,900 tonsin1994.
Stocks ofcheese attheendof1994 were lower thantheirlevelatthebeginning oftheyear.
65. Theaverage export prices inthefourth quarter of1994 were asfollows:
US$pertonf.o.b.
Skimmed milkpowder 1,570
Whole milkpowder 1,894
Butter 2,000
Cheese 2,287
66. Theupward trend intheexport prices ofbutter wasalsonoticeable during thefirsttwomonths
of1995 withaverage prices ofUS$1,972 pertoninJanuary andUS$2,236 pertoninFebruary and
there were noexport transactions atprices below thesuspended IDAminimum price.
South Africa
67. Milkproduction inSouth Africa increased by4percentto2,030 million tons, illustrating a
long-term growing trend. Fresh milkconsumption increased alsoin1994.WT/SPEC/4
Page16
68. However, production ofmilkpowders, butter andcheese decreased in1994. Consumption
ofskimmed milkpowder increased whereas thatofwhole milkpowder, butter andcheese decreased
in1994. Exports ofmilkpowders increased whereas thatofbutter andcheese decreased in1994.
Stocks ofallthese products attheendof1994 were lower thantheirleveloneyearearlier.
Canada
69. Thecurrent 1994/95 dairy yearwasprogressing asexpected withgrowth inproduction and
consumption ofdairy products reflecting thestrong recovery intheCanadian economy andreflecting
alsoanapparent endtotheconsumption trend ofshifting away from butter fat.
70. With regard totheimplementation oftheUruguay Round commitments, tariffication wasin
place asof1January 1995. However, theUnited States hadraised some concerns withtheCanadian
tariffication ofmeasures inrespect ofdairy products andother commodities. Interms oftheCanadian
dairy programme, itwasanticipated thatthere would beverysignificant programme changes forthe
1995/96 dairy year(starting 1August 1995) inresponse toCanadian commitments intheUruguay
Round. These werelikely toinclude extending provincial end-use pricing because oftheclassification
ofproducer-financed levypayments asexport subsidies intheUruguay Round. Changes hadalsoto
bemade totheoffer-to-purchase programmes fordairy products andprobably some degree ofrevenue
pooling would beintroduced between provincial boards andagencies, initially inrespect ofsome classes
ofindustrial milkandperhaps lateronawider range ofmilk.
71. With regard tothedairy aspects oftheFederal Budget of1995, direct payments todairy
producers forindustrial milkandcream would bereduced by15percenttoCan$4.62 perhectolitre
asof1August 1995 andbyafurther 15percenttoCan$3.80 perhectolitre asof1August 1996.
TheFederal Government would beconsulting withinterested parties in1996 withregard tothe
reorienting ofresidual funding toother usesafter1August 1996. Inaddition, theoverall agricultural
programmes intheagriculture andagri-Food budget would bereduced by19percentandthe
departmental employment levelintheDepartment ofagriculture andagri-Food would bereduced by
18percentin1995. Inother parts oftheFederal Government 'sbudget for1995, fouragricultural
production transportation programmes would beeliminated which would affect thecostsofdairy feed
inputs.WT/SPEC/4
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FAO
72. TheFAO estimated world output ofmilkfrom cows, buffaloes, camels, sheep andgoats to
havebeen528million tonsin1994, asimilar level totheprevious year. Output continued torise
inthedeveloping countries, growing by2percentfrom178million tonsin1993to181million tons
in1994, thusrepresenting athirdoftheworld total.
73. Among thedeveloping countries, Asiahadbeentheprincipal driving forcebehind theexpansion
inconsumption andproduction and,though growth thereslowed in1994, itstillaccounted fortwo-thirds
ofmilkproduced inthesecountries. India, which wasthelargest producer among developing countries,
experienced some disruption inmilksupplies asaresult ofheavy rainsinthecentral partofthecountry
inAugust andSeptember andproduction increased ataslower ratethaninrecent years. Inorder to
maintain supplies ofliquid milktothecities, some Indian processors reduced output ofdairy products.
Thisresulted inashortage ofbutter andgheeandledtothegovernment establishing a20,000 tonimport
quota forbutter oil.InChina, theprevious year'sincrease inprices offeedrelative tomilkpersisted
andhindered growth inoutput. Elsewhere inAsia, production inthePhilippines grew following a
large-scalegovernmentprogrammetoexpanddomesticsuppliesoflivestockproducts,andintheRepublic
ofKorea growth inthedairy herdandinyields provided more milk. Production alsoincreased in
Bangladesh, SriLanka andPakistan. InPakistan, thegovernment hadsponsored twodairydevelopment
projects aimed atimproving livestock genetics andfeed.
74. Economic growth inanumber ofcountries inLatin America stimulated demand formilkand
dairy products. Furthermore, priceliberalization inseveral countries continued toprovide anincentive
toproducers toincrease output, which roseby2percenttoreach 47million tons. Production benefitted
fromgenerally favourable weather conditions; however, therewasadecline insomecountries inCentral
America where rainfall wasdeficient. Exports ofdairy products fromsome southern Latin American
countries increased in1994 onthebackofexpanded production.
75. Africa 'sdeveloping countries were estimated tohaveproduced asimilar amount ofmilkas
theprevious year: 12million tons. Favourable weather conditions inmostofwestern, central and
eastern Africa werebelieved tohaveresulted inincreased production; however, thiswastempered
byashortage ofrainfall inthelastquarter oftheyearinnorthern andsouthern Africa which isbelieved
tohavehadanegative impact onmilkproduction inthese tworegions.WT/SPEC/4
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76. Interms oftrade, developing countries asawhole remained netimporters ofdairy products.
Theestimated relative share ofdeveloping countries inworld imports ofthemain dairy products in
1994 was:
Whole milkpowder 89percent
Skimmed milkpowder 88percent
Butter andghee 59percent
Cheese 36percent
77. Withregard toprospects for1995, milkproduction growth wasanticipated torecover inAsia
asoutput inIndia increased inlinewithpasttrends. Production could alsoincrease inChina should
prices paidtoproducers riserelative tofeedprices. Inseveral Latin American countries, astrengthening
ofdemand ondomestic markets andprice liberalization could contribute toexpansion inoutput.
Furthermore, theestablishment oftheMERCOSUR common market should encourage regional trade
indairy products. Finally, assuming rainfall nearthehistorical mean, Africa could register amoderate
increase inmilkproduction.
78. World milkdemand andproduction wereforecast toriseto565million tonsby2000. This
would imply aslower annual rateofgrowth thanthatseeninthe1980's.Developing countries 'share
ofglobal demand wasprojected torisefrom30percentinthebaseperiod (1987-1989) to40percent
in2000, while theiroutput in2000wasprojected at204million tons, 36percentoftheworld total.
Production inthedeveloping countries wasprojected togrow mostwhere consumption alsoincreased,
particularly inAsiaandLatin America.
F. Monitoring oftheDecision tosuspend minimum prices forbutter andanhydrous milk
fat(DPC/P12/40 andL/7568)
79. Asof4May1994, theCommittee oftheProtocol Regarding MilkFatdecided tosuspend the
minimum export prices forbutter andanhydrous milkfatforaperiod ofuptotwelve months. Intaking
theDecision theCommittee agreed tokeepthelevelofworld market prices under regular review based
onanalyses bytheSecretariat. Participants agreed toprovide totheSecretariat, every twomonths,
themostrecent information available tothem ontheirexport salesofbutter andanhydrous milkfat.
TheCommittee tooknoteofthedocument prepared bytheSecretariat onthebasis ofinformationWT/SPEC/4
Page19
furnished byparticipants for1994 (IDA/CMP/W/2). Thisdocument willberevised toinclude new
available information. There waspreliminary exchange ofviews withregard totheappropriate level
oftheminimum prices forbutter andanhydrous milkfatfollowing theexpiration ofthesuspension.
G. Oral report totheCouncil
80. TheCommittee agreed thatanoralreport ofthediscussions ofthepresent session would be
submitted totheCouncil. Thisreport wasincorporated inthereport oftheCouncil (IDA/2).
H. Date ofnextmeeting
81. Thenextregular session oftheCommittee willbeheldon19-20 June1995, subject to
confirmation bytheSecretariat.