Parties wishing tomake corrections tothisdraftshould submit themtotheSecretariat assoon
aspossible andnotlaterthan13December 1996. IftheSecretariat hasreceived nocorrections by
thatdate, thedraftreport willbeconsidered asapproved (Rule 8oftheRules ofProcedure).
96-5019RESTRICTED
WORLD TRADE IDA/SPEC/1
27November 1996
ORGANIZATION(96-5019)
International Dairy Agreement
INTERNATIONAL DAIRY COUNCIL
THIRD SESSION
Draft Report
Chairperson: Ms.BridCannon
1. TheInternational Dairy Council helditsthirdsession on17September 1996.
2. TheCouncil adopted theagenda assetoutinWTO/AIR/413.
Election ofChairperson
3. InaccordancewiththeRulesofProcedure,Ms.BridCannon(Ireland)wasre-electedChairperson
oftheInternational Dairy Council for1996/97.
Admission ofobservers
4. TheCouncil welcomed representatives fromCanada, Korea andPoland (Rule 10oftheRules
ofProcedure). TheCouncil alsowelcomed therepresentatives fromtheOECD andUNCTAD (Rule
14oftheRules ofProcedure).
Evaluation oftheworld dairy market situation
5. Foritsevaluation ofthesituation andoutlook fortheworld market fordairy products, the
Council hadbefore itvarious documents prepared bytheSecretariat: theStatus Report ontheWorld
Market forDairy Products (IDA/W/12), summary tables (IDA/W/13) andanoteonfood aid
(IDA/W/13). Parties made thefollowing statements onthemarket situation intheirrespective countries.IDA/SPEC/1
Page2
European Communities
6. TherepresentativeoftheEuropeanCommunitiespresentedanoverviewonmarketdevelopments
intheCommunities. Accordingly, since theprevious meeting oftheCouncil inOctober 1995, both
theCommunities 'market fordairy products andtheworld market hadconsiderably changed. From
about May1994 toOctober 1995, market reports noted animproving tobuoyant development inthe
dairy sector. However, since November 1995, thistrend hasbeenreversed. Market prices havebeen
declining, asworld demand fordairy products weakened andworld milksupply somewhat increased.
7. Theannual pricefixing decisions atCommunity levelhadnoinfluence onthemarket situation.
Thedecisions taken inJuly1996retained theinstitutional prices without change. Themarketing year
fordairy products waschanged from April toMarch toJulytoJune.
8. Production intheEC-15 dairy sector in1995 developed asfollows:
1995 over1994
(calendar year)
Milk deliveries +1.4%
Production
Skimmed milkpowder -1.6%
Whole milkpowder -1.2%
Butter +1.8%
Cheese +2.4%
Milkdeliveries reached 113.2 million tonsin1995. Butter production roseinresponse tohigher export
demand. Theexpansion ofcheese production ledtolower internal prices asmanufacturers andtraders
sought toincrease market share internally inanticipation ofreductions insubsidized exports.
9. Production intheEC-15 dairy sector inthefirstsixmonths of1996andinthefirstthreemonths
ofquota year1996/97 developed asfollows:IDA/SPEC/1
Page3
January-June 1996 April-June 1996
overJanuary-June 1995 overApril-June 1995
Milk deliveries +0.8% +0.7%
Production
Skimmed milkpowder -3.0% -2.4%
Whole milkpowder -14.4 % -12.9%
Butter +0.2% +2.2%
Cheese +2.6% +4.1%
10. Thebutter market peaked atabout 107percentoftheintervention price towards theendof
1995 andsubsequently fellsteadily toabout 94percentoftheintervention price inSeptember 1996.
Thelower prices ledtointervention purchases ofalmost 31,000 tonsinthefirstninemonths of1996.
During thesame period, theuseofbutter forthemanufacture ofpastries andice-cream fellbyabout
42,000 tonsto279,000 tons. Thebuying-in priceremained unchanged atECU 125/100 kgs.ofbutter.
However, theexport refund onbutter wasincreased ontwooccasions in1996(inApril andSeptember),
soastoremain competitive ontheworld market.
11. Prices forskimmed milk powder alsodecreased. They fellfrom apeak ofabout
ECU 228/100 kgs.inOctober 1995toabout ECU 204/100 kgs.inSeptember 1996. Weak demand,
particularly export demand, ledtopurchases of128,000 tonsintointervention before buying-in ceased
on31August 1996. Subsidized domestic consumption ofskimmed milkandskimmed milkpowder
declined byabout 4percent(liquid milkequivalent) during thefirstseven months of1996compared
tothecorresponding period of1995. However, theoverall decrease masked varying performances
under different schemes. Theuseofskimmed milkpowder forcalffeedwas7½percentlower than
in1995, while theuseofskimmed milkforcasein manufacture increased by2½percent.
12. Competition onthedomestic cheese market remained fierce astraders sought newoutlets for
increased production.
13. Intervention stocks ofdairy products increased substantially sinceOctober 1995. Butter stocks
(public andprivate) increased byabout 33percentfrom their September 1995 level toreach
206,000 tons. Skimmed milkpowder stocks increased to128,000 tonsinSeptember 1996, upfrom
20,000 tonsoneyearearlier.IDA/SPEC/1
Page4
14. ECexportsofmajordairyproductsfellsharplyin1996,exceptforfreshproducts.Theavailable
datafor1996 compared tothecorresponding period in1995 indicate thefollowing changes:
Condensed milk -18%
Skimmed milkpowder -49%
Whole milkpowder -29%
Butter -71%
Butter oil -34%
Cheese -4%
Fresh products +2%
15. Inthethirdquarter of1996, ECexport prices fordairy products fluctuated within thefollowing
ranges:
US$pertonf.o.b.
Skimmed milkpowder 1,800-2,000
Whole milkpowder 1,800-2,000
Butter 1,600-1,700
Butter oil 2,000-2,100
Cheddar cheese 2,300-2,400
NewZealand
16. Therepresentative ofNewZealand reported thathiscountry 'smilkproduction forthefirst
halfof1996wasup18½percentoverthefirstsixmonths of1995, reaching 574,000 tons. Themain
factor behind thisjump inproduction wastheweather. From December 1994untilMarch 1995, large
parts ofNewZealand hadsuffered from drought conditions withtheresult thatproduction forthe
1994/95 season (which ended 31May1995) changed littlefrom thatoftheprevious season. While
milkproduction inthefirsthalfofthe1995/96 season remained atabout theoneyearearlier level,
from December 1995 onward, NewZealand enjoyed weather conditions thatwere veryfavourable
fordairying. Warm temperatures coupled withrecurrent rainfalls boosted grassgrowth andmilkoutput.
These conditions continued untiltheendoftheseason. Forthefirstquarter of1996 themonthly
increases ofmilkproduction were 24percent, 20percentand17percent, respectively. Most of
theincrease wasusedtoproduce skimmed milkpowder andbutter. Winter conditions inmid-1996
ledtothepastures being ingood condition forthestartofthe1996/97 production season, although
itwasstilltooearly topredict whateffect thiswould haveonmilkproduction. Overall, output was
expected in1996/97 toincrease byaround 3percent. Themaincause ofthiswasthecontinuing increase
incownumbers, asexisting farms wereincreasing thesizeoftheirherdandlessprofitable sheep farms
converted todairying.IDA/SPEC/1
Page5
17. Therepresentative ofNew Zealand noted thattheimplementation oftheUruguay Round
commitments would gradually reduce theglobal volume ofsubsidized exports ofdairy products over
theremainder ofthedecade, butthatthatvolume would stillremain large. Inaddition, Australia and
NewZealand werebothexpected toincrease theirexport supply intheshort aswellasinthemedium
term. Problems inkeymarkets suchasVenezuela, Algeria, Iran,Mexico andRussia were likely to
constrain export opportunities andmight cause demand tofallintheshort term. Incontrast, demand
fordairy products inAsiawasexpected tomaintain itsupward trend, reflecting afurther improvement
ofliving standards intheregion, butgrow ataslower paceduetoanexpected slow-down ineconomic
growth. Thehighworld price levels in1995 were theproduct ofunusually tightsupply conditions
andgreater thanexpected demand. Inresponse toamore elastic supply andinthefaceofuncertain
demand conditions, prices began toeaseinthefirsthalfof1996.
18. Inthefirstquarter of1996, therange ofindicative export prices forproducts shipped from
NewZealand wasasfollows:
US$pertonf.o.b.
Skimmed milkpowder 1,950-2,150
Whole milkpowder 2,000-2,200
Butter 1,850-2,100
Butter oil 2,250-2,550
Cheddar cheese 1,950-2,200
19. Theshort-term outlook wasforafurther softening ofprices, which nevertheless wereexpected
toremain above thelevels ofearly 1995. European prices werecurrently around theUS$1,600 per
tonlevel, andweak domestic demand inEurope hadalready prompted afurther increase inbutter and
whole milkpowder refunds inorder toreduce stocks. Thisaction would affect world prices. The
world market formilkpowders wasalsoweak, although prices werenotexpected todropmuch further
thanthecurrentrangeofUS$1,725-US$1,775pertonforskimmedmilkpowderandUS$1,825-US$1,875
pertonforwhole milk powder. Cheese prices were likely tostayattheir current level of
US$2,100-US$2,200 perton.
20. Inthemedium term, world dairyprices wereexpected tofirmup.Themainfactors contributing
tothisincluded continued demand growth intheAsian region, especially forcheese andmilkpowders,
reflecting ongoing economic growth, andthedecline insubsidized exports resulting fromthestep-wise
implementation oftheUruguay Round commitments. Therecovery inprices waslikely tobetempered,
however, bycontinuing (although decreasing) subsidized supply from major dairy producers; theIDA/SPEC/1
Page6
expansion ofsupply fromnon-subsidizing countries; andcontinuing economic orpolitical problems
insome ofthemajor milkpowder importing countries (e.g.Mexico, Venezuela andAlgeria) which
might constrain demand.
Japan
21. Therepresentative ofJapan provided thefollowing information. During thesecond quarter
of1996, totalproduction ofrawmilkincreased by3½percentcompared tothecorresponding quarter
of1995. Thedemand fordrinking milkincreased slightly (by1½percent)andmilkusedforprocessing
dairy products by7percent. Theproduction ofbutter andskimmed milkpowder wasupby8and
6½percent,respectively. Demand forcheese wasstillgrowing anditsproduction increased by1½
percent.
22. Inthesecond quarter of1996, imports ofskimmed milkpowder fellby19½ percentto
22,500 tons. Compared totheprevious quarter, theaverage import price ofskimmed milkpowder
forhuman consumption roseby38percent. Inthefirstquarter of1996, theaverage import price
ofskimmed milkpowder foranimal feedroseby53percentcompared tothecorresponding quarter
in1995.
23. Inthesecond quarter of1996, butter imports increased by237percentto181tons. Theaverage
import price was38percenthigher thanduring theprevious quarter.
24. Compared tothesame period lastyear, natural cheese imports increased by4percentinthe
second quarter of1996, while processed cheese imports increased by54percent. Import prices of
natural cheese andofprocessed cheese were, respectively, 37½and20percenthigher.
25. Several dairy products, such asbutter andskimmed milk powder, usedtobesubject to
quantitative import restrictions. Asof1April 1995, however, these products hadbeentariffied in
accordance withtheUruguay Round Agreement onAgriculture. TheLivestock Industry Promotion
Corporation (LIPC) handled in-quota imports ofdesignated dairy products forgeneral use,which,
under thecommitments toensure current access opportunities, amounted to137,202 tons(whole milk
equivalent basis). Inthisregard, 17,700 tonsofskimmed milkpowder were imported before July
1996, andabout 3,000 tonsofwhey andmodified whey werescheduled tobeimported bytheLIPC
soastomeetthecurrent access levelinautumn. Inaddition tothetariffratequota imports, 15,000 tons
ofskimmed milkpowder would beimported inOctober inresponse tostrong domestic demand.IDA/SPEC/1
Page7
Norway
26. Therepresentative ofNorway informed theCouncil thatthereply toQuestionnaire 5recently
submitted totheSecretariat contained information ondomestic policy andtrade measures, and,in
particular, onthereform ofthedairy market organization. Thisreply would soonbedistributed as
document IDA/INV/1/Add.1/Suppl.2.
27. There wasacontinued decline intheproduction ofmilkastheceiling setfortotalproduction
within thequota system hadbeen, andstillwasbeing, reduced bytheGovernment. Total production
ofmilkin1995 declined by½percentascompared to1994. Total consumption offresh products
decreased accordingly andwasexpected toremain onthistrend in1996.
28. Skimmed milkpowder production decreased by12½percentin1995. However, powder
foruseasfodder increased. Exports, allofwhich foodaid,sharply fellby64½percent. Domestic
consumption alsodeclined by20½percent. Production ofwhole milkpowder increased slightly (by
1percent) in1995 while consumption remained stable.
29. Production ofbutter andanhydrous milkfatdecreased in1995, by3percentand25percent,
respectively. Exports ofbutter increased by10percentin1995while imports werenil.There were
noexports norimports ofanhydrous milkfatduring 1995. Domestic consumption ofbothbutter and
anhydrous milkfatremained relatively stable lastyear.
30. Production ofcheese increased by3percentto83,000 tonsin1995andwasexpected toremain
atthislevelin1996. Exports increased by1½percentin1995butadecrease wasexpected for1996.
Themain destinations were theUnited States, Japan andCanada. Imports ofcheese were stable in
1995. Domestic consumption ofcheese increased by2½percent, following thetrend overthepast
fewyears.
Replies toQuestionnaires 1to5
31. TheCouncil reviewed thereplies toQuestionnaires 1,2,3and4-A,forthethirdandfourth
quarters of1995 andforthefirstandsecond quarters of1996. Ittooknoteofthesummary tables
(IDA/W/13) based oninformation provided uptothefourth quarter of1995inrespect ofmilkdeliveries,
milkpowders, milkfatandcheese. TheCouncil alsotooknoteoftheinformation which theSecretariat
hadcompiled onproduction, trade, stocks andconsumption ofdairy products intheUnited States.IDA/SPEC/1
Page8
Parties wererequested toprovide alltherelevant information concerning thethirdandfourth quarters
of1996 by15March 1997.
32. TheChairperson recalled thatannual dataondairy products other thanthose covered bythe
Annex onCertain Milk Products wastobeprovided inQuestionnaire 4-Baccording toRule23of
theRules ofProcedure. TheCouncil tooknoteofthechecklist ofreplies toQuestionnaire 4(IDA/W/15)
aswellasofreplies subsequently received fromtheEuropean Communities, Hungary, Japan, Norway
andSwitzerland.
33. TheCouncil tooknoteofthechecklist ofreplies toQuestionnaire 5(IDA/INV/1/Rev.2) as
wellasthereply received fromNorway which wasnotinthechecklist. TheChairperson noted that
todateonlythree Parties hadreplied toQuestionnaire 5.Under Rule23oftheRules ofProcedure,
parties hadagreed tosubmit thisinformation, intheformat ofQuestionnaire 5,within fourmonths
following theentry intoforce oftheAgreement, orwithin fourmonths following theiracceptance of
theAgreement.
34. Inconcluding thedairy market review, theCouncil tooknoteoftheStatus Report, other
documents andrelated statistical information, ofamendments suggested concerning these documents,
andofother comments made. TheCouncil agreed thattheStatus Report (IDA/W/12) asamended
andcompleted inlightofmorerecent information andtaking account ofthecomments made, bereleased
forpublic distribution astheSecond Annual Report oftheInternational Dairy Agreement.
Functioning oftheAgreement, including itsfuture operation
35. TheCouncil considered thefunctioning oftheAgreement including itsfuture operation. In
view ofthefactthatcertain Parties expressed doubts about thecontinued usefulness ofthecurrent
Agreement inlightoftheUruguay Round andnewdisciplines ininternational trade, theCouncil invited
theChairpersontoundertakeinformalconsultationsinthisregardpriortothenextmeetingoftheCouncil
in1997.
Report totheSingapore Ministerial Conference
36. TheCounciltooknotethatatthemeetingoftheGeneralCouncilon16April1996,theChairman
hadrequestedsubsidiarybodiesoftheGeneralCounciltosubmittheirrespectivereportstotheSingapore
Ministerial Conference inaccordance with the schedule ofmeetings circulated inIDA/SPEC/1
Page9
document WT/GC/32/Rev.1 andhadinvited theChairpersons ofthesubsidiary bodies tomake the
necessary arrangements. Inresponse tothisrequest, theChairperson, Ms.Cannon, hadsubmitted
adraft report totheParties. TheCouncil discussed thisdraft report andadopted itwithcertain
amendments forthepurpose oftheSingapore Ministerial Conference.
Derestriction ofdocuments
37. Considering theDecision adopted bytheGeneral Council onProcedures fortheCirculation
andDerestriction ofWTO documents of18July1996(WT/L/160/Rev.1), andparticularly footnote 1
ofthisDecisionwhichrequiredthatPlurilateralTradeAgreementstake"appropriateaction",theCouncil
adopted aDecision onderestriction ofInternational Dairy Agreement (IDA) documents.
Other business -Chairperson 'snoteofthemeeting
38. TheChairperson presented abriefsummary oftheresults oftheCouncil meeting.
Date ofthenextmeeting
39. Thenextregular session oftheCouncil isscheduled for16September 1997, subject to
confirmation bytheSecretariat.