The European Dairy Sector at a Crossroad: Production Quota and Export Refund Opting Out

The European Union (EU) reactivated export refunds for dairy products on January 2009. These world market distortive instruments had been previously eliminated from the 2007 second semester on as a result of relative high world prices. This short period went in favour of the European disposition to ban them within a global trade agreement concluding the Doha Round. In a parallel track, the EU decided to open milk quotas restricting production for a quarter century. A reorientation towards market considerations may sequentially lead to a European price drop – strengthening the export refund outlaw initiative. This development is coherent with the policy targeting trend which prevails in Europe but also requests adjustments in the dairy supply chain.

Yet dairy market evolution along with a broad-based European policy led to export refund reintroduction. The World Trade Organization is genuinely not proficient in disciplining export refunds since the EU would be able to spend annually more than 2.3 billion euros in subsidizing its dairy exports while still respecting its multilateral commitments. Between 1995 and 2008, European dairy products sold on foreign markets, mostly developing and least-developed countries, received more than 15 billion euros. Negative welfare effect on net importing countries resulting from a 2013 hypothetical ban of export refunds shall not be underestimated whereas it shall constrain either a decrease in European guaranteed prices or competitiveness damage to few exporting agri-food firms. It sheds light on the close articulation between local, regional and multilateral regulatory reforms.