The European Commission took dairy product traders by surprise at the end of last week by agreeing a major boost to export subsidies for skim and whole milk powder. Exports of both of these products have been well below normal levels since last summer, both because of an economic slowdown in importing countries and because of lower-priced supplies on offer from South American, East European and Australian and New Zealand sources. World market prices have dropped from more than $2,000 per tonne to below $1,400 per tonne. The EU has increased export subsidies three times in the past four months, the last increase taking place in late January. In what seems to be an attempt to knock out the competition, the EU has now boosted the subsidy on skim milk powder by 67% to 1500 per tonne and lifted the subsidy for whole milk powder by 17% to 1915 per tonne. With world market buyers standing back to see how far prices might fall, the EU may also be playing a psychological game of trying to convince importers that this latest boost in subsidies is the final move and that net prices after subsidy will not go any lower and may even start to rise. It is no coincidence either that EU producers have been able to sell skim milk powder into intervention from March 1 at a guaranteed support price of 12,055 per tonne and the Commission would rather see product being exported than piling up in intervention stores. {{CANNED GOODS }}

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