New US dairy subsidy raises hackles in Australia, New Zealand

Despite US president Barack Obama's repeated assurances that America will not spoil its relationship with trading partners, the US government is planning to reintroduce dairy export subsidies, raising fears of protectionism.

The American plan, announced at the weekend by US secretary for agriculture Tom Vilsack, is to subsidise the export of about 90,000 tonnes of dairy products (68,201 tonnes of nonfat dry milk, 21,097 tonnes of butterfat, 3030 tonnes of cheeses and 34 tonnes of other dairy products).

Although the US administration is claiming that the plan is in response to a similar move by the European Union earlier this year, farmers all over, especially in Australia and New Zealand, condemn the move. Neither Australia nor New Zealand subsidises dairy produce.

"It's primarily targeting those exports by other subsidised origins, such as the European Community," Vilsack said in a statement.

In January, the EU decided to reactivate export subsidies for a series of dairy products - butter, cheese and skimmed milk powder - to help its struggling exporters better compete on the depressed world market.

However, the Europe's farm chief hit back US accusations.

"We did not introduce our export refunds until we had calculated the effect on the market ... and we have not covered the gap between the EU and international price," EU agriculture commissioner Mariann Fischer Boel told reporters in Brussels.

Australia's trade minister Simon Crean said the plan was ''a kick in the guts'' for the nation's farmers. He formally protested to the US government.

''The plan was a retrograde step that risked a lurch back into protectionism, Crean said, adding that it could lead to other countries blocking free trade.

''The decision comes as dairy farmers around the world are struggling with the global recession and lower milk prices and flies in the face of the commitments made by G-20 leaders not to impose protectionist measures,'' he noted.

"Instead of breaking down artificial trade barriers such as tariffs, subsidies and quotas to jump-start economies the world over - including the floundering US economy - and give new impetus to global markets, the US is regressing into imaginary harbours that give it no protection at all," said David Crombie, president of Australia's National Farmers' Federation.

In New Zealand, trade minister Tim Groser said he will be making a case to have US dairy subsidies overturned when he meets trade and agriculture representatives at the Cairns Group international agriculture coalition meeting in Bali next month.

The problem with subsidies and protectionism is that, while they may bolster domestic jobs in the short-term, they reinforce the inherent distortions that plague international trade and entrenches inefficient allocation of resources that economies could ill afford, he said.

Australia, which has already registered its objection at senior levels with the US administration, will seek urgent meetings with the US and non-subsidising dairy exporters including New Zealand to help minimise the impact on Australia's dairy export markets, Crean said in a joint statement with agriculture minister Tony Burke.

The US decision underscores the importance of concluding the Doha Round of world trade talks, which would see the complete elimination of export subsidies, they said.

Obama in February, under world pressure, retracted from a 'buy American' statement saying that it would be a "mistake" to send a protectionist trade message at a time when the global economy is in decline.

"I think it would be a mistake though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade,'' Obama said at that time.

However, the US is repeating the same mistake again, an analyst pointed out.

Australia is a free trade partner of the United States, and New Zealand is hoping to negotiate a similar US bilateral trade accord.

The European Union last year accounted for 32 per cent of the dairy commodity export market by volume, with New Zealand on 22 per cent and the US third on 16 per cent.