Washington, May 22 - The United States moved to subsidize some of its dairy exports on Friday, saying it was forced to respond to new European subsidies that have made it hard to compete in global markets depressed by the economic downturn.
The U.S. Agriculture Department said it will subsidize about 92,000 tonnes of dairy products headed for the world market to help U.S. farmers hit by plunging international prices and trade volumes, the first time in five years it will use its subsidy program, a spokeswoman said.
"These (subsidy) allocations illustrate our continued support for the U.S. dairy industry, which has seen its international market shares erode, in part, due to the reintroduction of direct export subsidies by the European Union earlier this year," Agriculture Secretary Tom Vilsack said in a statement.
The administration of U.S. President Barack Obama remains committed to refraining from protectionism, Vilsack said.
Several years of strong demand and tight supplies had buoyed the U.S. dairy industry, pushing prices to their highest on record in 2007. But milk prices have since plummeted by 50 percent as consumers at home and abroad trimmed spending amid the economic downturn and a glut of world supply. [ID:nN05370249]
In January, the European Union revived its export subsidies for butter, cheese and skimmed milk powder, which had been suspended since 2007, to help its struggling exporters better compete on the depressed world market. [ID:nLE361019]
"The EU's action is seriously undermining the competitiveness of U.S. dairy products and has forced the United States to respond," said Nefeterius McPherson, a spokeswoman for the U.S. Trade Representative's office.
The U.S. crafted its program to keep U.S. products competitive in certain key markets, a "measured response" which complies with World Trade Organization rules, McPherson said.
"We urge the EU to reconsider its dairy export subsidy program and are prepared to sit down with EU representatives to discuss the deactivation of the dairy export subsidy programs," she said.
The U.S. response clouds global efforts to end export subsidies, said Gary Blumenthal, a trade analyst with World Perspectives, noting the real problem for the U.S. dairy industry is a large drop in demand, not unfair competition from the European Union.
"The ambition is still there to remove export subsidies around the world, but this is just one more signal that nobody is ready to go that way yet," Blumenthal said in an interview.
U.S. dairy groups and congressional lawmakers applauded the decision, which they said would help U.S. farmers.
"The full elimination of all export subsidy programs around the world remains a priority goal of ours," said Tom Suber, president of the U.S. Dairy Export Council.
"However, until that goal is achieved, and especially during extremely challenging times like those we are currently facing, we must employ all available tools to assist our industry to compete against the active export subsidy programs of the European Union," he said.
The U.S. subsidies cover 68,201 tonnes of nonfat dry milk, 21,097 tonnes of butterfat, 3,030 tonnes of various cheeses and 34 tonnes of other dairy products. The program will run from July 2008 through June 30, 2009, the USDA said.
Last year, U.S. exports of nonfat dry milk totaled 402,500 tonnes, butter and milkfat 90,700 tonnes, and cheese 131,400 tonnes, according to industry data.