V. MILK AND MILK PRODUCT POLICY DEVELOPMENTS

The role of government policy in dairy markets remained high during the review period, but has diminished in several countries. The substantial fall of international prices for dairy products from mid-2001 to late 2002 led to several policy interventions by both importing and exporting countries. For countries preparing to join the European Union, adjustments in their national policies to bring them into line with those of the Union was a major element in dairy policy change over the period. Improving quality standards on-farm was another issue where policy changes were introduced in a number of countries. Such changes included both incentives to raise the hygienic quality of the milk, as well as regulations governing the treatment and care of livestock and the environment.

Production Policies

In anticipation of accession to the European Union, a number of applicant countries introduced production quotas similar to those prevailing in the EU. For example, Poland's Parliament approved new legislation in January 2002 which mirrors elements of the EU's dairy regime and contains provision for the gradual implementation of similar elements such as a milk quota system, intervention purchases for butter and skimmed milk powder, subsidies for private storage and a subsidy for school milk. In other countries expecting to join the EU, price intervention instruments were adjusted to bring them into line with those prevailing in the Union. For example, in the Slovak Republic, at the beginning of 2001, the payment system for milk produced under the country's quota system was changed from one based on fixed prices to one in which minimum prices were specified.

A number of countries in Eastern and Central Europe introduced incentive payments linked to improved milk quality over the period. Romania's Government announced that it would increase the milk quality payments to dairy farmers by 20 percent during the period October 2002 to April 2003. The previous rate for top quality milk was 1 800 ROL/litre (US$ 0.06/litre). The subsidy is paid to producers of both cow and buffalo milk. In May 2002, Poland's Government introduced a quality incentive of 7 PLZ (US$ 1.8) per 100 litres for farmers supplying the highest quality of milk (of a quality fully conforming to EU standards). In January 2002, Hungary raised recommended purchase prices for highest quality milk. In addition, a HUF 5.20/litre (US$ 0.02/litre) producer payment was granted for premium quality milk. In Bulgaria, the State Agriculture Fund will double the subsidies to milk producers in 2003. Subsidies currently stand at 0.04 BGN (US$ 0.02) per litre of extra quality milk and 0.03 BGN per litre of first quality milk and total 2.3 million BGN (US$ 1.17 million). From 2003, sheep milk will also be subsidised. As regards improvements in milk quality amongst European Union members, Belgium introduced legislation in November 2000 to intensify checks on the presence of antibiotics in milk. As a result, during 2001, the number of cases of milk showing the presence of antibiotics dropped by two-thirds. In 2002, the Netherlands also approved legislation setting standards for on-farm milk quality.

Raising the quality of milk was also an important policy issue in other countries. For example, in September 2002, the Brazilian Government published new technical specifications for the production, identification and quality of different categories of milk. The new regulations require that all milk should be cooled on-farm. In addition, the current lowest quality of milk "class C" will be abolished in 2005 in most of the country. In support of this programme, the Government has introduced a fund "Pro-Leite", valued at BRL 200 million (US$ 63.4 million), aimed at increasing milk quality and on-farm productivity. Also in South America, in Venezuela, the Government agreed to raise the minimum farm-gate price for milk from VEB 270/litre (US$ 0.2/litre) to VEB 345/litre in August 2002. It was anticipated that this price increase would be passed on to the consumer. The move was in response to farmers finding that production was uneconomic at the previously specified minimum prices.

Despite the European Union having a substantial surplus of milk, and using policy measures such as subsidised domestic disposal, export subsidies, and intervention stocks to regulate the market, additional milk quotas were introduced in April 2000 and 2001 for Greece, the Ireland, Italy, Northern Ireland and Spain, as a consequence of the Agenda 2000 Agreement. Together, the two new allocations of quota represent 1.4 million tons, or an increase of slightly more than 1 percent in the total EU milk quota.

Elsewhere in Europe, in Norway in 2001, the Norwegian Agricultural Authority, the sole authorised purchaser of milk production quota rights, reduced national milk production by 1 percent, or 20 million litres. This move was in response to lower domestic consumption and WTO commitments on the maximum level for export subsidies for dairy products. In Switzerland, milk quotas were first raised then reduced over the period. In May 2001, the Government increased the national milk quota by 3 percent to 3.3 million tonnes. Subsequently, in 2002, the quota was increased by a further 1.5 percent. The consequent increase in milk supplies led to a sharp fall in domestic prices. As a result, in November 2002, producers agreed to voluntarily reduce milk output by 2 percent. From 2003 onwards, quota levels will be set by the Swiss milk producers association, not by Government: a further fall in quota, perhaps by 4 or 5 percent, is anticipated for 2003.

The Government of the Republic of Korea also sought to combat over-production of milk by the introduction in 2002 of a policy to slaughter 10 percent of the nation's dairy herd (30 000 cattle). In Israel the national production quota was reduced in 2002, from 1.20 to 1.17 billion litres. This was in line with a four-year process of dairy reform begun in 1999, which aimed at reducing the number of small-scale dairy farms and encouraging farmers to invest in more efficient, larger-scale production. The objective of the reform is to make the Israeli dairy sector more competitive, in the light of increased imports resulting from Uruguay Round Agreement commitments. As part of the process, the annual target price for milk is to be reduced by four percent per year for the period of the reforms. In addition, in order to encourage a more regular supply of milk throughout the year, producers are paid a bonus, equivalent to US$ 0.10/litre, if they shift their in-quota production from winter to summer periods; if production moves in the opposite direction, producers must pay a penalty of US$ 0.10/litre.

In China, the Government is seeking to stimulate milk production, with the Ministry of Agriculture's production plan aiming to raise per capita consumption of milk and milk products to 10 kg by the end of 2005; it is currently 7 kg/per person/year. Subsequently, it is planned to raise per capita milk consumption to 16 kg by the end of 2010 and to 23 kg by the end of 2015. In support of the plan, the Government has initiated a programme to improve herd genetics via embryo implantation. In addition, in July 2002, a CNY 400 million (US$ 48 million) dairy development programme was initiated.

In Canada, during the period 2000 to 2002, the Market Sharing Quota (MSQ) for industrial milk was adjusted a number of times in the light of domestic market conditions. For example, in May 2002 it was decreased by one percent and subsequently in November 2002 it was increased by 1.5 percent to stand at 46.31 million hectolitres. In February 2002, the target price for industrial milk was set at CAD 58.87 (US$ 37.09) per hectolitre, an increase of CAD 1.01 (US$ 0.64) per hectolitre over the previous year: support prices for skimmed milk powder and butter were raised accordingly. Also in Canada, a Federal dairy subsidy paid to producers was eliminated in January 2002, following a five-year period of phased reduction. In May 2002, the United States adopted new farm legislation, which is scheduled to run for a period of six years. Under the new legislation, the United States' previous milk price support programme was extended until 2007 and continued to be set at US$ 9.90 per hundred pounds (US$ 21.83 per 100 kg) of 3.7 percent fat milk. Under the same legislation, a system of direct support payments has been introduced. The system is based on the difference between the prevailing Boston area Class I milk price and a reference price of US$ 16.94 per hundred pounds of milk. Should the Boston price be less than the reference price in any month, producers will receive 45 percent of the difference. Payments to individual operations are capped at 2.4 million pounds (1.1 million kg) of milk marketed per year. This amount would be equivalent to the average annual production of a herd of 130 to 140 dairy cows. The measure runs from December 2001 to September 2005. In 2002, as domestic prices for milk in the United States were at historically low levels, payments to some farms under this scheme were estimated to have been as much as US$ 25,000 to US$ 30,000. For the 2003 financial year, total payments to farmers under this scheme could exceed US$ 2 billion. Also in the United States, a number of dairy producers received compensation as a result of milk production being affected by drought during 2001 and 2002. Qualifying producers received a fixed payment of US$ 31.50 per dairy cow. Up to the end of November 2002, US$ 100 million had been paid to dairy producers under this programme.

In order to facilitate easier movement of milk within the country and allow milk production to develop more flexibly, Japan replaced a system of guaranteed prices for milk and related price support measures with a system of direct payments in April 2001. Producers will in future receive a set annual amount of money based on the previous year's payment and changes in the cost of production. In order to protect producers from low prices, an income stabilisation fund was established (financed by producers and the Government in the ratio of 1:3) to compensate farmers, should average manufacturing milk prices fall below the average for the previous three years. Japan has operated a voluntary quota system for milk production since 1979. Under the 2001 reforms, the number of geographical units to which milk quota is allocated was reduced from 47 to 10.

Animal welfare issues were an important element of policy changes during the period under consideration. For example, in New Zealand, the Animal Welfare Act became effective at the beginning of 2000. The Act sets obligations covering animals' physical, health and behavioural needs. Elsewhere, in Belgium, a general quality assurance scheme was introduced for the dairy sector in July 2000. The scheme pays particular attention to production conditions including animal health and welfare, the environment and methods of milking. By the end of 2001, over 60 percent of milk delivered to dairies was covered by this scheme. As part of a wide reform of agricultural support introduced in April 2001, Japan established a system of direct payments to dairy farmers linked to environmental conservation measures.

In Indonesia, the Government regularly imports improved breeding stock which are supplied to artificial insemination and embryo transfer centres located throughout the country. In 2000 and 2001, the number of animals imported (both meat and dairy breeds) were respectively 95 and 1 711 head. In addition, the Government provides a number of reduced cost services to dairy farmers, including credit programmes, subsidised medicines and drugs and an extension service. In Burkina Faso, the Government adopted an action plan for the livestock sector in October 2000. Included in the plan are: government involvement in the distribution of veterinary products, a programme to facilitate access to fodder and feedstuffs, an artificial insemination programme and a scheme to introduce tropical milking breeds, such as Azawack and Gir. In addition, the Government encouraged the formation of milk producers organisations, built 30 mini dairies and provided dairy processing training for 250 technicians. In the Côte d'Ivoire, one of the Government's priorities is the development of milk production. Interventions include assistance aimed at improving milk collection and distribution, genetic improvements and the development of intensive production systems In Thailand, government assistance is provided to improve animal genetics and health, and farm management. In Bolivia, the Government began a project to develop milk production in the Altiplano region. The project is financed by Danish aid and has a budget of US$ 4.4 million. A major focus of the project is the genetic improvement of the regional dairy herd.

Consumption and Marketing Policies

In the period under review, the most substantial change in domestic marketing policy occurred in Australia. There, policy reform implemented in July 2000 simultaneously removed support measures, a domestic market support scheme and fresh milk market regulations, which regulated domestic milk prices. Subsequently, prices have been determined by market forces. In conjunction with this action, an AUD 1.78 billion (US$ 1.06 billion) package of assistance was introduced via the Dairy Industry Adjustment Act 2000 to allow farmers to choose between adjusting to lower market returns or to leave the industry. The assistance package is funded by a levy on domestic sales of fresh drinking milk of AUD 0.11/litre (US$ 0.07/litre) and will remain in place for a period of eight years. In 2001, the Government announced a Supplementary Adjustment Programme with the objective of assisting farmers whose dairy operations were badly affected by the reforms of 2000 - mainly those who were highly dependent on sales of drinking milk to the domestic market. The programme is funded by the dairy adjustment programme levy and allows for the disbursement of funds up to a maximum of AUD 120 million (US$ 67 million). Also in Australia, the Competition and Consumer Commission granted an interim ruling in 2001 allowing dairy farmers to negotiate collectively with milk processors on the supply and pricing of raw milk. The ruling is set to expire on 1 July 2005.

In the United States, in May 2001 the Government reduced the support purchase price of skimmed milk powder by 10 percent, to US$ 1 984 per ton, and increased the support price for butter by 30 percent to US$ 1 844 per ton. Subsequently, in November 2002, prices for these products were further adjusted by increasing the support purchase price for butter to US$ 2 314 per ton and decreasing that for skimmed milk powder to US$ 1 763 per ton. These adjustments were felt to be necessary to bring support prices more in line with prevailing domestic prices, as the previously relatively high price for skimmed milk powder had resulted in a substantial build up of government stocks involving increased export subsidies. In February 2001 and 2002, the Canadian Dairy Commission raised the support prices for skimmed milk powder and butter. For 2002, stemming from a hike in the target price for industrial milk, the support price for skimmed milk powder was raised from CAD 4.84 to CAD 4.99 (US$ 3.14) per kg and that for butter from CAD 5.73 to CAD 5.90 (US$ 3.72) per kg. In Poland, in July 2002, the Government announced that, in order to support the domestic market, it would make intervention purchases of 10 000 tons of skimmed milk powder and finance a storage programme for 3 000 tons of butter, 40 000 tons of skimmed milk powder and 4 500 tons of cheese. In Switzerland, for the marketing year 2002/03 (May-April) the amount of government funds available for market price support for dairy products was reduced by 10 percent to CHF 609 million (US$ 411 million), this followed a reduction of 7 percent in the previous marketing year. Most of the reduction concerned price support for butter; however, support to the domestic price of fresh cheese and cheese export subsidies was also diminished. However, in August 2002, the Government decided to grant exceptional aid, totalling CHF 68 million (US$ 46 million), to a market support fund with the objective of reducing cheese and butter stocks and financing export subsidies for milk powder. In October 2002, it was agreed that Swiss milk producers should increase their contribution to the market support fund to CHF 0.02/kg.

In Colombia, the Ministry of Health considered recommendations by the dairy industry in 2002 to ban the use of milk powder for reconstitution as drinking milk. Current regulations allow drinking milk to be composed of up to 30 percent of reconstituted milk. In Thailand, the Government introduced legislation requiring detailed labelling, including addition of milk powder, for drinking milk. In October 2002, Mexico's Secretariat of Health (SAA) published specifications for a range of dairy products (butter, cream, sweetened condensed milk, fermented and acidified milks, and sweets made from milk) covering chemical and microbiological tolerance levels, allowed additives, labelling, packaging, storage and handling. The standards applied to both domestic and imported products.

In the United Kingdom, the Milk Development Council was given approval by the Government to restore a 0.06 pence (US$ 0.09) per litre milk promotion levy, in October 2002. The funds will be combined with monies for the European Union and UK milk processors to provide a fund of GBP 3 million (US$ 4.7 million) for financing generic marketing campaigns for milk and milk products.

There were a number of developments in school milk programmes and policies during the period under consideration (see box below). These include the establishment of new programmes, often in countries where they did previously exist, and the adjustment and refocusing of existing programmes to make them more effective. By creating demand, school milk programmes may benefit dairy development, particularly in countries with relatively undeveloped dairy industries.

Other Related Domestic Policies

The two main cooperatives in New Zealand (Kiwi and the New Zealand Dairy Group - which jointly accounted for 96 percent of national milk production) merged in 2001 to form a new company: Fonterra. Associated with this development, the New Zealand Government passed the Dairy Restructuring Act in September 2001. Under the Act, the New Zealand Dairy Board became a subsidiary of Fonterra and the Board's monopoly export rights were removed. However, Fonterra retains licensing and tariff rate quota rights in some overseas markets for a period of six years. After this, these rights will be phased out over a further four-year period.

In India in February 2002, the Government removed restrictions on private companies establishing new dairy processing plants, an area that had been regulated since 1992. At the same time, the delineation of milk-shed supply areas, which gave preferential access to milk supplies to co-operatives, was abolished. Under the same legislation, the National Dairy Development Board's tax-free status was revoked.

After many years without government intervention, Argentina's Secretariat for Agriculture announced in 2002 that it intended to create a Programme for National Dairy Policy. The goal of the programme will be to provide a forum for discussing issues of importance to the dairy sector. Current issues identified for discussion include: domestic taxes, market transparency and support to international trade negotiations. The programme will also work towards establishing medium and long-term policy aims. The idea of establishing a national dairy promotion board is also being considered.

In Australia, Federal legislation was passed in 2002 to enable the examination of a proposal put forward by the dairy industry to restructure its support organisations. Under the Australian Dairy Industry Council's proposal, a single, corporate organisation, to be known as Dairy Australia, would replace the current two statutory authorities: the Australian Dairy Corporation and the Dairy Research and Development Corporation.

In Uruguay, as a result of general economic difficulties in 2002 and their effects on the milk producers, the Government introduced a US$ 80 million scheme to provide funds to the dairy sector. The focus of the programme is on providing production incentives, improving milk quality and financing stocks of milk powder. In August 2002, Lithuania's government granted 11 million LTL (US$ 3.12 million) of financial support to dairy processors. The funds were allocated to try and stabilise the Lithuanian dairy market, which saw milk purchasing prices drop by almost 20 percent during the first half of 2002. In Chile, in 2002, there was a court decision that processors must give at least 6 months' notice if they wish to stop taking a producer's milk.

International Trade Policies

A fall in international prices which began in mid-2001 and persisted until the last months of 2002, led to a number of trade-related policy measures. For importing countries, these consisted of raising tariffs and introducing other barriers to trade. For a number of exporting countries, low international prices meant that increases in export subsidies were required in order to allow participation in the external markets.

Import Measures

In December 2000, Brazil increased its common external tariff for imports of dairy products from non-Mercosur members by 2.5 percent. For the most commonly traded products, milk powder and cheese, this meant that the tariff was raised to 17.5 percent. In June 2001, the Government subsequently applied a 27 percent import tariff on all imports of milk powder and certain types of cheese, including products originating in Mercosur countries. Furthermore, following a ruling of the Brazilian Foreign Trade Board (CAMEX) in 2002 that some countries had been guilty of dumping milk powder on the Brazilian market, additional rates of duty on milk powder ranging between 3.9 and 16.9 percent were applied to specified companies in New Zealand and the EU. The duties will remain in place for a period of five years. Argentina and Uruguay, which had also been cited in the anti-dumping case, negotiated a minimum import price and so were not subject to any additional duties. Subsequently, in August 2002, Brazil included whey powder in the list of products excluded from preferential access for Mercosur members. Consequently, all exporters were required to pay both the Mercosur common external tax of 15.5 percent and the 27 percent import tariff. In Thailand, in July 2000, the Government raised the tariff on whole milk powder imports from 5 to 18 percent. Under the WTO, Thailand has a tariff rate quota of 55 000 tons per year for skimmed milk powder, with an in-quota tariff of 5 percent. In 2001, an additional quota of 10 000 tons was granted, in order to meet the requirements of domestic processors. In mid-2002, a request for additional quota was withheld because of adequate domestic supplies of milk.

For the period January 2001 to July 2002, the Government of the Russian Federation introduced new import tariff rates on many items, including dairy products. For example, tariffs on milk powder and yogurt rose from 10 percent to 15 percent, while the tariff for butter fell from 20 percent to 15 percent. Subsequently, as a result of a sharp rise in butter imports, the authorities applied a special protective duty of 20 percent to this product, with a minimum of Euro 0.29 (US$ 0.28) per kg, effective for the period from 24 September to 31 December 2002. In Colombia, the Government lowered the international marker prices for milk during 2002. This was accompanied by an increase in the variable level of import duty from 22 percent to 40 percent. The move stemmed from a build-up of stocks of nationally produced milk powder. Kenya's Government increased tariffs on imported dairy products from 35 percent to 60 percent in March 2001. The move was in reaction to excess supplies of domestic milk.

On China's accession to the WTO in December 2001, tariffs on a number of dairy products were reduced. For example, the tariff on milk powder, which accounts for around 50 percent of China's imports of dairy products, dropped from 25 percent to an average 15 percent. This, combined with low international prices, led to a substantial increase in China's imports of milk powder in 2002.

To meet domestic processors' requirements, Mexico announced in October 2002 that it would increase its WTO Tariff Rate Quota (TRQ) for milk powder - set at 80 000 tons/year - by 42 571 tons for 2002. For the additional quantity, an import duty of 7 percent was set, as opposed to zero duty for the standard tariff rate quota. In June 2000, India established a tariff rate quota for skimmed milk powder: imports up to 10 000 tons are charged a tariff of 15 percent, while any quantities above this level attract a tariff of 60 percent. Also in India, the Government's 2002 budget reduced the import duty on butter and butter oil from 40 percent to 30 percent. In 2001, India approved standards for food imports, including dairy products, whereby all imported milk products must conform to the standards specified under the Prevention of Food Adulteration Act. In addition, skimmed milk powder, whole milk powder, condensed milk and infant milk must also conform to standards specified by the Bureau of Indian Standards. Also, all food imports into India should have at least 60 percent of their specified shelf-life remaining. During the period under review, a number of countries, for example the Philippines and Brazil, introduced more stringent measures for certifying and approving overseas dairy processors wishing to export to their markets.

Under new farm legislation approved in May 2002, the United States extended the National Dairy Promotion and Research Assessment (equivalent to US$ 0.15 per hundred pounds of milk, or US$ 0.33 per 100 kg of milk) to imported dairy products.

Export Measures

Following the fall in international prices from mid 2001, a number of countries raised the level of subsidies paid on exports, in order to allow their domestic processing industries to compete on the world market. In the case of the EU and the United States, where levels of export subsidies are adjusted periodically in the light of prevailing international market conditions, subsidies rose significantly (Table V-1). Towards the end of 2002, as international prices increased, the level of export subsidies in both countries fell. Elsewhere, funds for financing export subsidies are frequently allocated on an annual basis. Also here, low international prices meant that a number of countries decided to provide increased subsidies. For example, in Hungary new levels of contributions to the Dairy Products Council's intervention fund, which finances subsidised exports, were set at HUF 3.60/litre (US$ 0.02/litre) for both producers and processors in January 2002, representing an increase of HUF 0.60/litre over the previous year. In the Slovak Republic, in March 2002, the Agricultural Intervention Agency (IPA) raised export subsidies for whole milk powder from SKK 10 000/ton (US$ 208.2/ton) to SKK 26 000/ton (US$ 541.3/ton) and also increased the export subsidy for skimmed milk powder. The rise was originally intended to last three months, but was subsequently extended for a further period of three months. In Poland, in July 2002, the Government announced that it would guarantee export subsidies for 33 700 tons of milk powder. The Czech State Agricultural Intervention Fund (SZIF) announced that it would spend CSK 2.2 billion (US$ 61 million) in subsidising the export of milk and dairy products during 2002. This compared with a figure of CSK 0.9 billion in 2001, when international prices were higher. In Colombia, in 2002, the Government authorised an increase in producer-financed subsidies for the export of milk powder to Venezuela. The subsidy was increased to approximately US$ 500 per ton, following a fall in international prices, and was financed from the Stabilisation Fund for Milk and Meat, which is managed by the National Cattle Producers Association (FEDEGAN). However, as a result of a surge of such exports, Venezuela banned milk powder imports from Colombia in August 2002 - alleging that part of the trade consisted of trans-shipped product from third countries. As of October 2002, the ban was the subject of discussions between the two governments. In Honduras, in December 2000, the Government initiated a project, PROLAC, to encourage exports of dairy products - especially local cheeses.

In Argentina, following the devaluation which took place at the beginning of 2002 (one US dollar went from one peso to 3.60 pesos); the Government established a "retention tax" on all exports. Commodities in general were subject to 20 % retention tax and dairy products to a tax of 5 %. In late 2002, the dairy industry in Argentina was trying to have this tax removed, as the sector had suffered a sharp decline in output due to the unprofitability of milk production relative to alternatives.

Canada's Special Milk Class Pricing and Pooling System (SMCPP) was changed as a result of a decision of the WTO Dispute Settlement Body in 1999, upholding a claim by the United States and New Zealand that some elements of the SMCCP constituted an export subsidy as they allowed processors to purchase milk for export at a rate, determined by the Government, which was significantly below domestic levels. In response to the WTO's ruling, Canada changed its export pricing system, eliminating government involvement and encouraging producers to contact directly processors interested in supplies for export. The revised system was also challenged by the United States and New Zealand. In June 2002, a WTO compliance panel reaffirmed the judgement that the SMCCP was not in line with Canada's WTO commitments on subsidised dairy exports. Canada appealed the judgement, but in December, 2002 the panel's decision was upheld by the Appellate Body.

In Australia, the single desk selling arrangement under which the Australian Dairy Corporation (ADC) managed sales of Australian cheese to Japan for processing and shredding was terminated in June 2002. The move was precipitated by the country's largest dairy processor indicating that it intended to withdraw from the arrangement. No legislative changes were required to implement the decision. Other elements of ADC's single desk selling arrangement - sales of skimmed milk powder and butter to Japan and cheese sales to the EU - have yet to be determined.

Table V-1: EU and USA Export Subsidies for Dairy Products (Euro-US$/Mt)

* Cheese = Gouda

Source: European Commission - Milk and Milk Products Management Committee

Note: Export refunds are set periodically by the European Commission, in consultation with the Milk Management Committee which is composed of the Union's member states. Dates shown represent the day from which a change in export subsidies applied for one or more products. (Conversion of Euro to US$ at exchange rate on 15^th of prevailing month.)

USA:

... = no allocation

Source: USDA Dairy Market News

Note: Under the Dairy Export Incentive Program (DEIP), U.S. exporters are paid export subsidies for specified dairy products (skimmed milk powder, butter and cheese) and destinations. Monthly figures represent weighted average allocations of export subsidies (only months when export subsidies were allocated are shown).

Conclusions

For the period under consideration, a number of important policy changes occurred:

• While a number of countries' dairy sectors remain highly regulated by government policy, there is a discernible movement away from direct government intervention in some countries. To cite some diverse examples, the handing over of quota regulation to the dairy farmers association in Switzerland, the removal of restrictions on new private sector investment in processing capacity in India, and the abolition of domestic prices controls on milk in Australia;

• Several countries introduced policy measures with the objective of improving quality standards on-farm. Such changes included both incentives to raise the hygienic quality of the milk, as well as regulations governing the treatment and care of livestock and the environment;

• For countries that are preparing to join the European Union, adjustments in their national policies to bring them into line with those of the Union was a major element in dairy policy change over the period;

• The substantial fall in international prices for dairy products from mid-2001 led to a number of high-cost milk producing countries increasing the level of export subsidies for dairy products. At the same time, low international prices led to some countries raising import tariffs;

• There were a number of instances where the effect of WTO commitments on national dairy policy was evident. These included: a reduction in the milk production quota in Norway in order to meet limits on export subsidies; a reduction in China's import tariffs for dairy products, following WTO membership in 2001; and the management of imports by tariff rate quotas in Mexico and Thailand;

• Within trading groups, for example Mercosur and the Andean Pact, difficulties in domestic markets and lower priced imports, led some countries, for example Brazil and Venezuela, to introduce measures limiting imports of dairy products from other member countries.