Group on Dairy Products

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   This document has been made available in electronic format  
            by the Committee for the Promotion and 
               Advancement of Cooperatives COPAC
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                  GROUP ON DAIRY PRODUCTS

                      18th April 1996

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                    SUMMARY AND CONCLUSIONS
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1.   Under the chairmanship of John Boddy (New Zealand), the IFAP
Group on Dairy Products was welcomed to France by Guy de Haut de
Sigy, Director of the Federation of French Milk Producers. In a 
detailed presentation on the French Dairy sector, attention was
drawn to the economic importance of the dairy sector both in the
national economy and as exports. It was noted that the sector had
been encouraged to undergo substantial restructuring over recent
years which had contributed to its increasing efficiency and
competitiveness.

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World production and outlook
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2.   The world dairy situation in 1995 was characterised by
increasing production in the major dairy producing countries
including South America, strong import demand by developing
countries, especially Asia, and strong domestic demand from many
of the traditional dairy exporting countries. This led to a
significant drawdown of public stocks of dairy products to very
low levels and a substantial increase in world prices for dairy
products especially butter. 

3.   The outlook for 1996 is optimistic although world prices for
grains and other feeds could be a disincentive to expand milk
production in some countries. Whilst the sharp increase in world
prices could affect the ability of lower income developing
countries to import, it might also act as a stimulus for them to
expand domestic production. Both Uruguay Round commitments  and
dairy policy reforms are likely to affect the  European Union and

United States' dairy sectors. Although prices have fallen from
their year-end peak, they remain firm. In view of this, concern
was expressed as to whether Russia will remain the key butter
importer to offset its falling production, or resort to cheaper
vegetable fats.

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Major policy developments
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4.   Major policy developments were outlined in country or
regional presentations.

     i)    In the European Union, consideration is being given
     by some members to two proposals: i) a two-tier price
     system which would allow  production of milk for exports,
     not regulated by EU's market and subsidy schemes and ii) a
     quota exchange similar to that in Canada to advance both
     flexibility and transparency in quota reallocation and
     reduce capitalization. However, it was pointed out that
     this debate is only in the initial stages and many members
     are not in favour of a two-tier system,  fearing that milk
     for export will drag down the higher price for domestic
     milk. 

     ii)   Despite their enormous production potential, the
     countries of central and eastern Europe face enormous
     structural problems especially with regard to lack of
     capital and infrastructure and an inefficient food
     processing industry.  A major factor will be their expected
     membership in the European Union and how the subsequent
     enlargement of the EU will be managed in terms of dairy
     support policy. 

     iii)  In the United States, the dairy sector will be
     affected by changes enacted in the 1996 US Farm Bill. 
     These are aimed to i) phase out the support price  leading
     to  greater reliance on the market, including international
     markets, ii) step up export programmes including maximum
     funding for the Dairy Export Incentive Programme and iii)
     reform the federal milk marketing order system.  It was
     pointed out that reaching consensus on dairy policy is
     difficult in the US,  due to competing interests between
     producers and processors and because of regional
     differences.

     iv)   In Canada, producers and other stakeholders entered
     into a number of agreements which have had the effect of
     significantly modifying the operation of supply management
     while at the same time preserving its essential elements.
     One of the major elements in 1996 will be the outcome  of
     the US/Canada NAFTA trade dispute over the validity of
     Canadian tariff equivalents applied to dairy products.

     v)    From Oceania, concern was expressed on two accounts.
     At international level, there was considerable disquiet
     over the decision by the United States to use the Dairy
     Export Incentive Programme to subsidise exports
     particularly into Asia - traditional export markets of
     Australia and New Zealand - and on the timing of delivery
     which coincides with their main production and selling
     season. At domestic level, the growing influence and
     concentration of power at retail level means that farmers
     are not recouping the benefits of higher world market
     prices, which are being captured by retailers and
     consumers. Further deregulation was leading to an imbalance
     in the market place to the detriment of farmers. A problem
     shared by many countries present, the issue was raised as
     to what system can best guard the incomes of farmers so
     that they keep a fair share of the consumer dollar.

     vi)   Zimbabwe - reviewing the situation for the dairy
     industries of the southern and central African regions -
     stated that  imports into South Africa - particularly from
     countries with high subsidies - had increased dramatically
     since quantitative import controls had been replaced by
     tariffs and these were presenting a major problem for
     producers. In Zimbabwe, the high expectations of producers
     to working in a deregulated market environment have been
     destroyed by interest rates in excess of 30 percent which
     has made it very difficult for private processing to
     develop. Many are thoroughly disillusioned and leaving the
     industry whilst others are investigating alternative
     options for financing. 

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Bovine Spongiform Encephalopathy
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5.   The Dairy Group joined the Meats Group session to hear a
presentation by the World Health Organization on the health and 
safety aspects of hormone use in livestock production and the
latest scientific report on Bovine Spongiform Encephalopathy. 
With regard to the latter, it was clearly stated that milk and
milk products were completely safe even in countries where there
was a high incidence of BSE, since the BSE agent cannot get into
cow's milk. 

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Adaption strategies for dairy products market
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6.   In an interesting study presented by J.M. LeMetayer,
President of the Federation of French Milk Producers, various
underlying factors which influence the main producer countries'
export strategies in  dairy products market,  were examined.
Several issues were raised including: 

     i) the differences between Anglo-Saxon countries and 
     Continental Europe in the bases used for milk payment
     systems; 

     ii) the questioning of  the single  concept of a world milk
     price - because milk is usually traded in a highly
     processed form, rather than in a  raw state, and  

     iii) the evolution of the dairy economy at world level -  
     whether there should be unbridled dairy liberalism or
     regional consolidation accompanied by a code of practice
     for international trade.

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Futures market for dairy products
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7.   A presentation by the National Farmers Union (US) gave an
overview of the functioning of the newly-established futures
market for fluid milk and certain dairy products. It was noted
that as government price supports are reduced and eventually
eliminated, dairy farmers will be facing greater instability in
the market with increased price volatility. The futures market
could offer a tool for reducing the risk of price variability but
it remains to be seen whether trading futures and options will
offer this stability.

8.    It was also noted that an individual producer's ability to
use the futures market would be limited by certain factors such
as accurately predicting costs of production. However, dairy
cooperatives could find it a useful tool for minimising risks and
strengthening financial stability.  Several cooperatives were
already investigating its use in the cheese futures market and
just starting to trade in fluid contracts. However, concern was
expressed on several accounts including the possibility of price
speculation and manipulation, and the focus on trading dairy
products as commodities  which are at the lowest end of the food
chain rather than emphasising brand marketing which is at the
value-added end. 

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Biotechnology in the dairy sector
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9.   The increased application of biotechnology is likely to be
one of the major tools for improving both the efficiency and
quality of dairy production. Its application now extends the
length of the milk and dairy chain from upstream of production
to final consumption. However, consumer reaction to such
developments will be a key feature in establishing its ultimate
viability. In his presentation on the issue of public attitudes
to biotechnology, Mark Cantley of the OECD pointed out that the
perception of risk is a potent factor in consumer attitudes to
biotechnology.  Scientific logic is not synonymous with consumer 
acceptance which can only be built up through  effective
communication and dialogue. 

10.   Various sectors were identified as having a role in
building up the trust and confidence of consumers through public
education and in the voluntary provision of information 
including scientists and retailers. It was suggested that in
managing situations such as the BSE crisis, public debate by
farmers' organizations with the consumers' movement and with
scientists, would set the problem in its true context and order
of magnitude of risk. 

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Election of officers
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11.   Since John Boddy was stepping down as Chairman after only
one term of office, elections were held.  Pat Rowley (Australia) 
was elected as Chairman and Ian Webster (Zimbabwe) was returned
as Vice Chairman for a second term of office.

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Other business
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12.   Concern was expressed about a perceived marginalisation of
farmers' in the activities of the International Dairy Federation.

It was hoped that previous close connections between the two
organizations could be reestablished particularly through the
traditional 'Farmers' Lunch' at its annual sessions.