Dairy Industry to Suffer After EU Subsidies

New Zealand's biggest export industry is set to take a hit after the European Union announced it is resuming farming subsidies.
 

The decision is a reaction to the worldwide credit crunch, but New Zealand's trade negotiators are calling it a backward step.
 

Consumer demand for dairy products has fallen dramatically because of the global recession, and that has lowered the prices paid to New Zealand farmers.
 

The last thing they need now is for Europe to subsidise its farmers to help them through the crisis.
 

"This is very negative. This is like going back to the bad old days of subsidised exporters looking after their producers first at the cost of our farmers," says Fonterra's global trade director Kelvin Wickham.
 

The European Union has not released specific details about the export refunds which will apply next week to butter, cheese and milk powder, so it is is not yet known what it means for New Zealand farmers.
 

"A lot of dairy farmers are now under pressure as dairy prices have come off the peaks, as much as 40% - 50%, they're heading south. This will make them head south further, so it's very unhelpful," says Trade Minister, Tim Groser.
 

The minister rejects European suggestions that the subsidies are partly in response to Fonterra getting rid of its surplus and forcing down prices.
 

"It's just a pack of nonsense. We compete on the basis of our competitive strengths, not subsidies," he says.
 

Fonterra is also worried that other countries might jump on the protectionism bandwagon.
 

"We would be concerned that other exporters, for example the US, decide to also introduce subsidy regimes and that again will just further depress the global market and delay any recovery," says Wickham.
 

The minister says he will try to drum up support against the European subsidies when he meets fellow trade ministers in Switzerland later this month.
 

But the big fear now is that the issue will slow progress on a world trade agreement to completely abolish export refunds.