ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)444
Vol.1979/0155

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79 )444 final
Brussels ,31st July 1979
REPORT FROM THE COMMISSION TOTHE COUNCIL
ONTHE DAIRY SITUATION INTHECOMMUNITY ,THEWORLD MARKET
AND INNEW ZEALAND INRELATION TOTHE IMPORT OF
NEW ZEALAND BUTTER INTO THE UNITED KINGDOM
hV 1^ .../.-Λ
-l j
V •t
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"V
C0MC79 )444 final

REPORTFROMTHECOMMISSION TOTHECOUNCIL
ReportonthedairysituationintheCommunity,
theworldmarketandinNewZealandinrelation
totheimportofNewZealandbutterintothe
UnitedKingdom
I.Introduction
1.Article5(2)ofProtocol 18oftheActofAccessionstatesthat:
"Appropriate measurestoensurethemaintenance,after31December
1977,ofexceptional arrangements inrespectofimportsofbutter
fromNewZealand,includingthedetail-sofsucharrangements ,shall
bedetermined bytheCouncil,actingunanimously onaproposal
(1)fromtheCommission,inthelightofthatreview.
2.OnthisbasistheCounciladoptedRegulation (EEC°No1655/76of
29June1976extendingthetransitional arrangement fortheimport
ofNewZealandbutterintotheUnitedKingdomatthefollowing
ίι<2>levels :
1978:125000tonnes,
1979:120000tonnes,
1980:115000tonnes.
Furthermore,thesameregulation laysdowntheconditions under
whichthesequantities canbeimported.
3.Inadoptingtheabove-mentioned regulationtheCouncilenteredthe
followingstatementinitsMinutes(Doc.R/1574f/76(AGRI461):
"1.TheCouncildecidesnottoincludeArticle9ofthedraft
regulationwhichreferredtothepossibility ofappropriate
measurestobeadoptedconcerningtheimportsofNewZealand
butterafter1980asitconsidersthat,notwithstanding the
(1)0JNoL73,27.3.1972,p.174
(2)0JNoL185,9.7.1976,p.1.

periodsspecifiedinthisregulation,furtherapplicationofArticle5(2)
ofProtocol18isnotexcluded.
2„TheCouncildrawsattentiontothedesiresexpressedbytheHeadsof
GovernmentintheDeclarationoftheEuropeanCouncilinDublin
on10March1975totheeffect"thatinthesamespiritwhichthe
CommunityapproachestheapplicationofProtocol18,aneven-closer
co-operation bedevelopedbetweentheinstitutionsoftheCommunityand
theNewZealandauthoritieswiththeobjectiveofpromotingintheir
mutualinterestanorderlyoperationofworldmarkets."
TheCommunityandworldmarketsforbutter
1.TheCommissionsubmittedtotheCouncilon27September1978a
fullreportonthemilksituationwithintheCommunity(C0MC78)430final)
lhatreportcontainsadetailedanalysisofthetrendsinproductionand
consumptionanddrawsattentiontotheimbalanceontheCommunitymarket
formilkproductsanditsconsequences.TheCommissionoutlinedaseries
ofmeasureswhichinitsviewwerenecessaryinordertofaceuptothis
situationandhassubsequently madespecificproposals(C0MC7910final).
ThearrangementsforNewZealandmustthereforebeseenaciainstthe
backgroundofcontinuingdifficultiesrequiringactionintheCommunity
market.
2.ButterproductionintheCommunityreachedabout1,96milliontonnes
in1978,anincreaseof156,000tonnescomparedwiththe1977Level.
This,togetherwithanopeningstockof195,000tonnesandimportsof
125,000tonnesofNfe?wZealandbutter,resultedinatotalavailability
ofbutterduring1978of2e2milliontonnes.Totaloff-takeinthe
Communityisestimatedatabout1.63milliontonnesoradecreaseof
about80,000tonnesfrom1977.Animportantseriesofspecialmeasures
havebeensetintraininordertogiveCommunityconsumersthebenefits
ofsurplusesandtostimulatetheuseofbutter.Thesemeasuresinclude

-3-
salesofbutteratreducedpricesforbakeriesandfortheproductionof
icecream;cheaperbutterforarmies,hospitalsandsocialwelfare;
specialprogrammes suchas"Christmasbuttersales";andgeneralbutter
subsidies nowbeingappliedinIreland,Denmark,Luxembourg andthe
UnitedKingdom.TheCommunityisnowstrengthening theseactions.
Thedifficulties ofdisposingofsurplusbutterhaveincreased.Such
measurescannotbedeveloped muchfurtherwithoutriskofreduced
economic andfinancialeffectiveness .
3.TheCommission remainsfirmlycommittedtoanactiveexportpolicyfor
milkproductsandtoareasonable shareofskimmedmilkpowderand
butteroiIinthefoodaidprogramme,subjecttotheneedsofthe
recipients.
Atpresentexportrefundsforbutterrepresentabout70%ofitsvalue.
ComparedwiththespecialmeasuresfordisposalontheCommunity
marketthebudgetarycostofexportsofdairyproductsisgenerally
lower.Salespossibilities ontheworldmarket,however,remain
limited,particularly forbutter.
4.TheCommission hasalreadystatedinC0M(78)430that"itisfalseto
believethatstoppingimportswouldsolvethemilkprobleminthelong
termandrelievetheCommunityofitsresponsibility torestorebalance."
Nonetheless,theimportanceoftheactionnecessary ontheinternalmarket
shouldcertainly bereflectedintheapproachtoobligations onimports
ofbutterfromNewZealandfrotheperiodafter1980.
5.Following ageneraldepressionoftheinternational tradeindairyproducts
during1975,thesituation onworldmarketsimprovedduring1976andnotably
during1977.In1977totalworldtradeincreasedby52%forskimmedmilk
powder,23%forbutter,47%forwholemilkpowder,16%forcondensedmilk
and9%forcheesecomparedwith1976.
TheCommunity'scommercialexportsofdairyproductsduring1978showed
ageneralimprovement comparedto1977,whichinitselfwasagoodyear.
Exportsofallproductsexceptthoseofcondensedmilkwerehigher.Exports
ofbutter(includingbutteroiIequivalent )were2.7%higher;skimmedmilk
powder+0.4%;cheese+5.2%;andwholemilkpowder+1.5%.Moreover,
firstresultsin1979againshowanincreaseintheCommunity'sexportsof
manydairyproducts.
6.Thegeneralpricelevelfordairyproductsontheworldmarketimproved
graduallyduringthepasttwoyears,mainlyreflectingincreasedcosts
andthedepreciation oftheU.S.dollar.Returnsfromtheworldmarket

however,relatively low.Actualofferpricesrangefrom1,100
to1,200US2(85-90ECU/100kg)fobforbutterandfrom1,275-1,350 USSf
<97-103ECU/100kg)fobforAMFcomparedwiththeEECintervention price
levelforbutterof284.97ECU/100kg.
Lookingtotheimmediatefuturetherearemorefactorspointingtowards
increasesinglobalmilkproductionthanelementstendingtolimit
production.Givenfavourableeconomicconditions (economicgrowth/
industrialization )thereisstillscopeforincreasedconsumption at
commerciallevelbothindevelopedanddevelopingcountries.The
influenceonworldtradeis,however,difficulttoforecastasthe
degreeofself-sufficiency isinfluenced byincreasesinproduction
andbecausenewbilateralandinternational agreements makeitdifficult
toforecasttradepatterns.Totalworldmilkproductionin1978increased
byapproximately 2%,comparedtoanincreaseof3%in1977.Hence,a
5%increaseintheCommunityin1978wascounteredbyslightreductions
inNorthAmericaandU.S.S.R.andmorepronouncedreductionsinOceania.
However,importantincreaseshavealsotakenplaceincertainEuropean
countriesoutsidetheEEC(Switzerland,Sweden,Spain,Czechoslovakia ,
EastGermanyandHungary)andinJapan.
Notwithstanding theslowergrowthin1978,totalworIdmiIkoutput
continuestosubstantially exceedcommercial demand.Forthisreason
mostcountrieswithinterestsinmilkproduction orintheinternational
milkmarkethavestartedtodiscussortointroducemeasuresaimingat
abetterbalancebetweenoutputanddemand.
Medium-termforecaststipto1982showanexpectedincreaseinmilk.
productioninOECDcountriesby1%peryear,corresponding to2miIlion
tonnesmiIkequivalent.Thisreflectsaslowdownirvtheexpectedincrease
inmilkoutputintheCommunity.Itispossiblethatthesupplyofthe
worldmarketfromOECDcountrieswhich,withEastern .Europeancountries,
accountforthedominantshareofthetradeindairyproducts,will
increaseeachyearbytheequivalentofabout80,000tonnesofbutter
and160,000tonnesofskimmedmilkpowder.TheCommissionestimatesthat
formilkproductsasawholethelikelyproductionincreasewilloutpace
actualchangesinconsumption .Thepossibilityofasignificint ..
supplementary disposalbymeansoffoodaiddoesnotseempracticablein

-5-
theshort-term,becausetherecipientcountriesarehamperedby
inadequatedistribution andstructural systems.
8.Itisestimatedthattheactualworldcommercialtradeinbutter/butteroiI
(excludingfoodaid)averagesaround500,000tonnes(1975-77)peryear.
IftheimportofNewZealandbutterintotheUnitedKingdomisdeducted,
about375,000tonnesremains.Thisissmallinrelationtothetotal
worldproductionofabout6milliontonnes.Exportfiguresare:-
(000tonnes)
Exportsofbutter(includingbutteroilequivalent butexcluding
EECfoodaid)
EEC NewZealand
1975 32 65
1976 73 104
1977 219 63
1978 213 56
III.EconomicsituationinNewZealanddairysector
1.Theagriculturesectorhasalwaysbeenthemostimportantpartof
theNewZealandeconomyaccountingforthemajorpartofNewZealand
foreignexchange.NewZealandhasmanagedtoreducetheshareofthe
agricultural sectorinitsexportearningsfrom83.5%in1970to73.9%
in1977,whiletheshareofthenon-agriculture sectorincreasedfrom
5.6%to14.8%in1977.Itisclear,however,thatagriculture wi11
remainforalongtimethemainitemforexportfronNewZealandand
thatdiversification toindustrialexportswillremainslight,because
ofthescaleoftheireconomyandgeographicsituation.
NewZealand'sseriouseconomicdifficulties are.illustrated bythefact
thattherecentrecessionhasinvolveda14%fallinrealincomeper
head.
2.TheNewZealanddairyindustryearns17%ofthecountry'stotalforeign
exchange.Dairycownumbershavedeclinedslightlyinrecentyearsbut
thishasbeenoffsetbyincreasesinproductionpercow.Totalmilk
productioninrecentyearshasbeen-
1,000tonnes
1973-745,688
1974-756,096
1975-766,269
1976-776,648
1977-786,080
1978-796,1185,688
6,096
6,269
6,648
6,080
6,118

Therewillprobablybearound5.5milliontonnesofmilkorbetween2:>0000
and260,000tonnesofmilkfatavailableforprocessingannually
inthenearfuture.Around80%ofthemilkfatisprocessedinto
butterandanhydrousmilkfat(AMF).Cheeseproduction washelddown
inrecentseasonsasaresultoflimitedopportunities inoverseas
markets.Therehasbeenasubstantial increase,however,inthe
productionofotherwholemilkproducts,particularly inwholemilk
powder.
Althoughtotalbutterconsumption inNewZealandhasdeclined,it
stillamountsto46,000tonnesannuallyor14.1kgpercapita.Little
changeisexpectedinthispatterninthenearfuture.Asaconsequence,
NewZealandwillbeseekingexportmarketsinthefutureforthe
equivalentofaround200,000tonnesofbutter.
ThebulkoftheexportsofbutterstillgototheUnitedKingdom.
EffortstodiversifyitstradeinbutterhavebeenmadebyNewZealand.
InJapan,inparticular,strongpressureshavebeenappliedtoobtain
stableaccess.Thesearecontinuingbutatthismomentthereisno
tangibleevidenceofanewstableoutletforNewZealanddairy,products
inJapan.
ExportsofthemajorNewZealandproductsduringthelast3yearsare
givenbelow;-
Table1:NewZealand'sexportsofdairyproducts
(tonnes)
1976 1977 1978
1.Butter:EEC(UK)- 111,935 138,373126,501
Other 59,908 27,17727,377
Total 171,843 165,550153,878
2.AMF+Ghee 36,388 29,67028,883
3.Cheese:EEC(UK) 32,273 12,772
Other 47,158 60,87858,592
Total 79,431 73,65058,592
4.SkimmedmiIkpowder 127,391 167,178130,717
5.Wholemilkpowder 34,869 65,78562,160
6.CaseinEEC 7,617 12,5599,019
Other 41,001 60,88954,466
Total 48,618 73,48863,485

-7-
6.ItshouldbenotedthatcheeseexportsincreasedtoJapanandthe
UnitedStates.Exportdiversification intowholemilkpowderand
caseinhasbeenverysuccessful.Forbutter,however,theCommunity
remainssubstantially themostimportantmarketforNewZealand.
IV.TheMultilateral TradeNegotiations
TheDublindeclaration oftheEuropeanCouncilofMarch1975notesthat
anevencloserco-operation bedevelopedbetweentheInstitutions of
theCommunityandtheNewZealandauthorities withtheobjectiveof
promotingintheirmutualinterestanorderlyoperationofworldmarkets
andthatsuchco-operation shouldprovideabasisfromwhichtoachieve,
inawiderframework,theconclusionofaneffectiveworldagreement./
TheCommissionconsidersthatthisco-operation wasshowninthedairy
sub-groupoftheTokyoRoundoftheMultilateral TradeNegotiations
andcontributedsubstantially totheachievement ofaninternational
agreementofdairyproducts.Thisagreementshouldleadtoimprovedstability
intheinternational marketforbutteroil,skimmedmilkpowder,wholemilk
powderandcheese.
V.Problemsinthecurrentarrangement forNewZealandbutterandpossible
adaptation
1.Underthepresentarrangement fortheimportofNewZealandbutterinto
theUnitedKingdomuntiltheendof1980,NewZealandhastorespecta
specificpricec.i.f.UnitedKingdom.Monetarycompensatory amounts
arepaid.AspeciallevyisfixedtobringthepriceofNewZealand
butterinlinewiththemarketpriceforbutterofCommunityorigin
soldontheUnitedKingdommarket.
2.Theimplementation ofthespecialarrangementfortheimportof
NewZealandbutterhasgivenrisetodifficulties .Ithasnot
beeneasytodetermineonacontinuingbasisthespeciallevyto

bringthesellingpriceforNewZealandbuttertotheappropriate
levelinrelationtobutterofCommunityoriginontheUnited
Kingdommarket.SincethebulkofNewZealandbutterisnormally
importedbetweenSeptemberandFebruaryandatcertainperiodsofthe
yeartherecanbesubstantial stocksalreadyimportedandavailable
forsaleoverarelativelylongperiod,itisnecessarywhenfixing
anewlevytoforeseethefutureevolutionofbutterpricesinthe
UnitedKingdom.Anewspeciallevyonlyhasaneffectontheprice
forNewZealandbutterafterexisting,alreadyimportedstockshave
beensold.
Changesinintervention pricelevelsintheUnitedKingdomresulting
fromtheActofAccession,changesinthevalueofthegreenpound,
changesinmonetarycompensatory amountsandtheintroduction orwith­
drawalofconsumersubsidiesaffectedthedevelopment ofbutterprices
insuchawaythatreliableforecastsofthepricesdevelopment have-
notbeeneasytomake.TheCommission has,therefore,concludedthat,
ifanyspecialarrangement fortheimportofNewZealandbutteris
continuedafter1980,thepresentsystemshouldbemodifiedsothat
theseproblemscanbeavoided.
Thefollowingmodifications inthespecialarrangement wouldbe
possible.Insteadofthefixationofa)aspecificc.i.f.price
toberespectedatimportbyNewZealand,b)aspeciallevywhich
hastobeadaptedtothemarketdevelopment andc)theapplication
ofmonetarycompensatory amountstotheNewZealandbutterimports,
thenewsystemcouldmerelyconsistoftheestablishment of
-anannualquotaand
-aspeciallevywhichwould,inprinciple,befixed.
Suchasystemwouldavoidthedifficultmanagementofthespecial
levyandwouldintheviewoftheCommission removetheproblems
whichvariationsinthespeciallevyhavesometimescausedforthe
Community'sownbutterproducers.TheNewZealandDairyBoard,
beingthesoleexporter
willrecognizethatitisinitsowninterestnotonly
tousethequotabutalsotomaximizeitsfinancialreturnfrom
themarket.Asthespeciallevywouldnotbevariable,theBoard
wouldbeabletoarrangeitsshipments,storageinbondedordebonded
storesandsalesprogrammeinthelightofthedevelopment ofthe

-9-
marketratherthanofthespeciallevy.
5.Asystembasedonquotaanda(fixedlevycanonlybeacceptablefor
boththeCommunityandNewZealandifatleasttwoconditionsare
fulfilled-first,thattheCommunitymarketshouldnotbedisturbed
and,secondly,thatNewZealandreceivesasatisfactory returninterms
ofexportearnings.Thespeciallevy,therefore,shouldrepresentthe
differencebetweenapredetermined andsatisfactory "takehomeprice"
ontheonehandandanacceptablesellingpriceforNewZealandbutter
ontheother.
ι
Undertheproposednewsystemmonetarycompensatory amountswouldno
longerapply.Itwouldbenecessarytoprovidethat,inthecaseof
animportantadjustmentinthevalueofcurrenciesorothermajor
economicchanges,theamountofthefixedlevycouldbereviewed.
VI.Futurearrangements
1.TheCommission considersthatthefactorstobetakenintoaccountin
thedecisiononimportsofbutterfromNewZealandafter1980are:-
1)theimportanceof theUnitedKingdommarketasanoutletforthe
Community'sownproducersofbutter
2)thehighlevelofproductionwithintheCommunityandthenecessity
totakemeasurestorestrainincreasesinmilkproduction,including
restraints onCommunityproducer'sprices
3)themaintenance ofbutterconsumption throughreasonablepricesto
consumers
4)thetraditional linksbetweenNewZealandandtheEEC
5)thedesireforcloserco-operation betweentheinstitutions ofthe
theCommunityandtheNewZealandauthorities withtheobjectiveof
promotingtheorderlyoperationofworldmarketsintheirmutual
4-Jinterestandthefactthatsuchimportarrangementswillobviously
beofmutualpoliticalandeconomicinteresttobothparties.In
regardto,the'latterpointitshouldbeborneinmindthatnotonly
NewZealandisdependentontheCommunitymarketbutalsothatthe
NewZealandmarketisimportanttotheCommunity
6)theneedtoavoiddrasticeffectsontheNewZealandeconomy,taking
accountofthelong-standing positionofNewZealandasabutter
exporter

-10-
7)theneedtoassureacertainstabilityintheCommunitybuttermarket
(and,inparticular,theUnitedKingdommarket)tothebenefitofall
suppliers.
2.Takingaccountofthesefactorsandoftheparticularshort-termdifficulties
intheUnitedKingdombuttermarket,theCommissionwillrecommendtothe
Councilthatdecisionsintheautumn,onthebasisofCommissionproposals,
shoulddealatthesametimewithwaysofimprovingtheU.K.buttermarket
situation,mainlyintheinterestsofCommunityproducersintheremainderof
1979and1980,aswellaswithfuturearrangements after1980.Inorderto
changethequantityin1979and1980itwillbenecessarytohavetheagreement
ofNewZealandandtheCommission hasaccordingly begunconsultation withthem.
3.Theelementswhichshould beconsideredinthisapproachwouldbeasfollows.
First,inviewofthepresentoverloadonCommunitybuttermarkets.NewZealand
wouldbeaskedtomakesomereductioninthevolumeofsendingstotheUnited
Kingdommarketin1979and1980belowtheentitlement .Secondly,itshouldbe
theobjectivetoestablishtheNewZealandtake-homeprice,nowsubstantially
belowthereturntoCommunityproducers andsubjecttodifficult arrangements
forreview,atasomewhathigherlevelandtomaintainitinamorerealistic
andcontinuingrelationship totheCommunityintervention price.Thirdly,
consideration shouldnowbegiventofutureimportarrangements forNewZealand
butteronamorelastingbasis.Sucharrangements shouldbemadeforthe
Community asawholeandnotonlyfortheUnitedKingdom.Inthelightofthe
effortwhichtheCommission considersthattheCommunity'sownproducers need
tomakeinordertorestoreabetterbalanceintheCommunity'smilkproduct
market,itisessentialthatthereshouldbesomeelementofquantityreduction
anddegressivity upontheestablishment ofalonger-term arrangement foraccess
forNewZealandbuttertotheCommunitymarket.Fourthly,intheinterestsof
astablemarketsituation,aregularpatternfordebonding NewZealandbutterinto
theCommunitymarketshouldalsobeconsidered .Fifthlyitisclearthatan
importantelementintherecentpressures ontheUnitedKingdombuttermarket
hasbeenthatCommunityproducers foundthemselves competingforashareofa
decreasing market.Itwould,therefore,bedesirableinanewarrangement for
NewZealandtomakeprovisionforreviewifforreasonsnotforeseenwhenthe
arrangement issettledthevolumeofbutterconsumption shoulddeclinesubstan­
tially.Finally,theCommission isoftheop.inionthatrecenteventshave
strengthened thecaseforearlyintroduction oftheimprovements intheoperation
ofthesystemreferredtoinsectionVabove.

-11-
4TheCommissionispreparingproposalsontheselinesandconsidersthat
onthisbasisitwillbepossibletoimprovetheopportunitiesforthe
Community'sownbutterproducersintheUnitedKingdommarket,interms
bothofquantityandmarketstability,whilecontinuingtoprovidea
smallerbutnonethelessimportantoutletforNewZealandbutterinthe
Community.

ABLEI
NEWZEALANDBUTTEREXPORTS
(tonnes)
Région 1976 1977 1978
EEC 112113138675126848
EasternEurope 9100 35034000
OtherWestern
Europe 9212 2046 626
NorthAmerica 171 204 323
Japan 977838I263
WestAsia
(MiddleEast) 10467 61206179
SouthEast&
EastAsia 2312 34347749
AfricanContinent 9290 618 924
Caribbean &
CentralAmerica 4402 4550?.049
SouthAmerica 1-729 3027 1195
Oceania 3267 37113-722
TOTAL 171829165550151878
NZExports
OutsideEEC j59716
j2687527030
Source:NZDepartmentofStatistics

TABLEII
NEWZEALAND'SEXPORTS OFANHYDROUS MILKFAT(AMF) 1
!
(tonnes) !
I
Region 1976 1977 1978
EEC22
EasternEurope
Otherwestern
Europe
NorthAmerica 535 536 536
Japan 945 466 252
WestAsia
(MiddleEast) 683 1150 895
SouthEastand
EastAsia 12577 157078411
AfricanContinent 3294 1720 1667
*-».•-îhbeanS
Centra..America 8374 4329j9080
SouthAmerica 9201 4702μ
Oceania 770 1059 2812
TOTAL 36379 2967123675
Source:NZDepartmentofStatistics