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IPC Position Paper No. 2

Dairy Policy in the
Post-Uruguay Round Era

An Overview

Dairy was one of the principle agricultural sectors left largely untouched by the Uruguay Round Agreement of GATT when it was concluded in December, 1993. This omission inspired the International Policy Council on Agriculture, Food and Trade to develop recommendations to advance the reform of global dairy policies.

In order to determine the challenges facing the industry and to better formulate its recommendations, the IPC conducted two years of consultations with farm leaders, government officials and industry representatives from important dairy producing and importing countries around the world. Meetings were held in Australia and in Europe. The IPC Position Paper, "Dairy Policy in the Post-Uruguay Round Era" -- which received the approval of the IPC Membership in Brussels in May -- is the product of these extensive consultations.

The high level of support and protection it receives in many countries has made dairy one of the most distorted agricultural sectors in the world. As a result, world dairy prices are low and consumers face high domestic prices. Meanwhile, producers in countries where dairy is not supported are denied the opportunity to advance their economic growth through fair competition.

While the Uruguay Round Agreement fell short of alleviating this situation, it is unlikely that dairy will be similarly left out in future multilateral negotiations. This fact, plus the effects of continued industry consolidation and restructuring, technological progress, competition in value-added products, political change in key producing countries, and fast-paced developments in global marketing and investment, make it clear that current dairy policies are unsustainable. All of these forces combine to make policy reform inevitable.

It is therefore essential for governments to begin the discussion of the future of global dairy policies now. The IPC believes that dairy policy should be based on the following foundations:

  • Increased market access through lower tariffs;
  • Higher minimum access levels;
  • The elimination of export subsidies;
  • The elimination of deficiency payments and other production-distorting subsidies;
  • The use of temporary direct income support only if restructuring of the dairy sector is necessary to become more efficient; and
  • Permanent direct income support for social and environmental reasons only.

The IPC recognizes that the transition to more open and competitive markets will be arduous and painful, and that these recommendations will pose difficulties for some governments. However, in a world of ongoing trade liberalization, there is no real alternative. The choice is therefore clear: Countries can either continue to insulate their dairy producers from the world market -- leaving them to supply a declining market share -- or they can implement policies that will encourage their producers and processors to compete in a growing global market.

The IPC advises governments and highly protected dairy sectors to prepare themselves, along the lines suggested in its Position Paper, for the inevitable changes to come over the next few years. The IPC proposes that one result of the first WTO Ministerial Conference in Singapore in December be an invitation to the WTO to initiate discussions on a timetable and basis for multilateral reform of global dairy policies.

FULL TEXT (.pdf format)


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