Return of the butter mountain

It was the recession of the 1930s that ushered in agricultural protectionism and subsidies, not least in the United States. Now the European Union has reverted to two of its old favourite policy instruments: intervention buying and export subsidies in the dairy sector just when we thought we had seen the last of them. Stocks of butter disappeared completely in 2007.

Faced with a drastic drop in dairy prices, the EU is to buy 30,000 tons of butter at a guaranteed price. Over three times as much skimmed milk powder is to be purchased – 109,000 tons. In addition, export subsidies will be given to skimmed milk powder, butter, butter oil and cheese. These subsidies are, of course, particularly damaging to developing countries where they undermine the viability of local farmers. As Oxfam has pointed out, once the EU starts using them, other countries may follow suit.

Officials argue that, by historical standards, the amount being bought is more of a butter molehill than a mountain. In 1986, the EU bought 1.23 million tons of unwanted butter. However, farm organisations have argued that more intervention may be required. The fall of the rouble has dented one important export market. The price of a ton of skimmed milk powder has roughly halved since the summer of 2007.

As far as other intervention stocks are concerned, the EU has 717,810 tons of cereals in the grain mountain and 41,422 tons of sugar, while the wine lake has 2.3m hectolitres of wine in it.

Let’s hope it’s not back to the future.

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