European Union is boosting its dairy industry by reintroducing its export subsidies at the face of a global economic downturn.

 

The maximum refund for butter has been set at 500 euros (GBP469; US$650) per tonne and the maximum for skimmed milk powder is 200 euros per tonne.

 

Such refunds were given to dairy farmers in June 2007.

 

The European Commission said the subsidies comply with rules set by the World Trade Organization (WTO).

 

According to Agriculture Commissioner Mariann Fischer Boel, European exporters are unable to compete with world market prices now below EU intervention.

 

So far, the maximum export refunds apply to 2,299 tonnes of butter and 5,612 tonnes of skimmed milk powder. 

 

Overproduction has plagued the dairy sector in the EU in the past.

 

The basic level of refunds for dairy produce - known as "standing" refunds - is lower, applying to regular tenders.

 

A commission statement said the measure will only apply for as long as market conditions so dictate.

 

 

Agriculture spokesman Michael Mann said that in 2007-2008 there was "a huge explosion in dairy prices, but then a slump in the middle of last year, and they are now down to very low levels".

 

He said some small vulnerable milk producers would go out of business if the government did not react.

 

Dairy farmers get additional support from EU intervention - European Commission purchases of surplus produce at a guaranteed price.

 

The next round of intervention will be from 1 March to 31 August, and the annual limit is 30,000 tonnes of butter and 109,000 tonnes of skimmed milk powder.

 

But the agriculture commissioner says the intervention is "necessary to support the market beyond this limit".

 

Further quantities may be accepted with prices to be fixed through fortnightly tenders, she added, as this was allowed under the revised Common Agricultural Policy.

 

Mann said the latest measures would not mean any return to the milk lakes and butter mountains of the 1980s, when generous EU price support encouraged farmers to overproduce.

 

The EU still plans to phase out milk quotas by 2015 and to limit market intervention, with a view to scrapping it in the long term.

 

Mann said various factors had combined to hurt EU dairy farms, including an increase in dairy output globally and a fall in sales to Russia because of the rouble's devaluation.

 

Mann said for Alpine milk farmers the fear is that if they go out of business, they won't come back, adding that "they're not just milk producers - there is the environment to consider, too."