E.E.C. threat on butter

Press, 26 July 1984, Page 16

E.E.C. threat on butter

If the European Economic Community sells huge quantities of butter to the Soviet Union and the Middle East, at low prices, the price of butter will fall dramatically world wide and New Zealand will stand to lose many millions of dollars. The E.E.C. plans to sell the butter at not less than SUSI2OO a tonne, which is the minimum price set by the General Agreement on Tariffs and Trade. The world price for butter is SUS4OO to $5OO a tonne above the G.A.T.T. floor price. The world price will plunge if the sale goes ahead. Even if the E.E.C. does not sell the butter, the world price may still be affected. Countries in the market for butter will have taken note that the E.E.C. is prepared to quit its surplus cheaply; if a potential customer is patient there should be a lot of cheap butter available. The attitude is likely to be: why pay the present world price when butter is likely to be available for $4OO or $5OO a tonne cheaper? The sale is not yet certain. The E.E.C. may not be able to afford it. Farmers have already been paid by the member States of the Community. When the Community sells the butter it has to reimburse the States. Since the States paid roiighly SUSI3OO a tonne for the butter, and will want to be paid that by the Community, it will cost the Community the difference between the intervention price and the price received for the export of the butter. Considering the state of the Community’s finances — it is expected to run out of money later this year — supporting the sale of butter to the Soviet Union, or elsewhere, in such large quantities may be the straw that breaks the camel’s back. The proposal by the European Commission that the butter be. sold in this way came almost immediately after the Finance and Foreign Ministers of the Community failed to agree on continued finance for the Community. Among the proposals put to a meeting of the Ministers this week was that an increased Value Added Tax should be introduced sooner than January, 1986, the time agreed, and the possibility that the Community could use money from next

year’s Budget to support its present activities. Some Community members say that agricultural programmes should be supported regardless of cost; others want Community spending to be brought under control. The quantities of butter that may be sold are very large. The intention is to sell 50,000 tonnes this year, and up to 150,000 tonnes next year and in subsequent years. Where all this butter would go is not clear. Although the Soviet Union and the Middle East have been spoken of as possible markets, the Soviet Union has so far this year shown no interest in buying butter. Its own production has been good. The conclusion to be drawn is that the Community will sell the butter where it can. New Zealand estimates that the total demand for butterfat in international trade is 240,000 tonnes a year. At present, New Zealand has about one-third of the international trade in butter. A European butter sale on the scale proposed would not only be a bid to grab the lion’s share of the international trade, but would be an attempt to do so at almost any cost. The European Economic Community would lose money, but the cost to New Zealand in lost trade would be even greater. An understanding about trade in butter has existed between New Zealand and the E.E.C. Together they control about two-thirds of the world’s trade in dairy products. They have cooperated in keeping the price of dairy produce up. The European Commission’s proposal appears to signal that the understanding is at an end. The Commission’s proposal may not be acceptable to the member States of the Community, but the fact that the proposal has been made introduces an element of distrust between New Zealand and the Community. The possibility remains that the Commission made the butter sales proposal as a way of forcing the hand of the Ministers over providing more money for the Community’s Budget. If that is the case, the economic weapons that the Commission is using have the potential to damage seriously New Zealand’s trade in dairy products.