The butter mess

Press, 28 October 1982, Page 16

The butter mess

Although an agreement has yet to be signed, New Zealand’s access to the European Economic Community for 87,000 tonnes of butter next year seems to be assured. France appears to want to link this right to sell butter with an agreement within the Community for subsidised butter to be sold to the Soviet Union, though it is not certain that France would actually stop the signing of the agreement on this ground.

New Zealand had pressed for access for 90,000 tonnes; the European Commission proposed 89,000 tonnes; the Council of Agriculture Ministers settled for 87,000 tonnes, though it went some distance towards acknowledging the validity of New Zealand’s case by arranging the levy that New Zealand pays so that New Zealand will be compensated for not sending 90,000 tonnes. New Zealand, for its part, has undertaken to market its butter in Britain in an orderly manner.

Economics and politics both sizzle in the butter arrangements. France is facing a severe balance-of-payments problem and is becoming increasingly determined to export more of its agricultural produce. New Zealand could shrug this off, were it not for the distorting effect that the Common Agricultural Policy has on agricultural production and marketing. In the European Economic Community as a whole, production is much higher than the consumption of milk powder, cheese, sugar, butter, wheat, barley, beef and veal. Production of fresh milk products and pork runs marginally higher than consumption. Only in cereals, vegetables, fruits, and lamb is the E.E.C. less than self-sufficient. This condition of the market has been brought about by the high prices paid to E.E.C. farmers. The sale of subsidised agricultural products to other countries means that the industries and taxpayers of the E.E.C. are subsidising the sale of these products to other markets. . This causes a political row over sales to the Soviet Union. The argument is that the Soviet Union should not be able to buy butter more cheaply than the Europeans at the expense.of the Europeans. For the last 18 months the sale of subsidised butter to

the Soviet Union has been banned by the Community as a mark of disapproval over the Soviet invasion of Afghanistan. This, incidentally, has meant a bonus for New Zealand because it has had the Soviet market almost to itself.

Pressure has mounted within Europe for sales of subsidised butter. At this point, the politics and the economics become blurred. Pressure from the United States has helped to maintain the European ban on the sale of subsidised butter. The United States, however, has recently sold grain to the Soviet Union and the United States appears to be set upon selling a large amount of its surplus butter on the international market. One way or another this will mean that butter will reach the Soviet Union. Since the Soviet Union is the only substantial customer in the international market for butter, this strengthens the arguments of those Europeans who want to see the sales made.

If the trade with the Soviet Union were straight competition between New Zealand butter and unsubsidised E.E.C. butter, New Zealand could manage to live with such competition. What New Zealand cannot compete against is the sale of butter from countries that support their farmers for largely political reasons. New Zealand and the E.E.C. co-operate extensively in third markets. They come close to managing third markets and, presumably, the same arrangements will apply in future sales to the Soviet Union.

The mess that is brought about by the Common Agricultural Policy will be made worse by the sale of the American surplus. An unfortunate part of this mess is that New Zealand has to appear a supplicant in the international dairy market. Occasionally, New Zealand is unjustly placed in the position of being a country that strains the patience of certain other countries. Some optimists argue that measures taken within the European Economic Community and within the United States will eventually have the effect of reducing the excessive output of expensively produced dairy products. To accept that this is already happening strains honest belief.