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DEIP Report, March 2003: Invitation for Bids to Export Butter Announced On February 25, the U.S. Department of Agriculture (USDA) announced new allocations and invitation for bids in the Dairy Export Incentive Program (DEIP) for nonfat dry milk (NFDM) and cheese. In addition, USDA announced that butterfat would be included in this round of bid invitations. The invitations for bids for all three products were posted on USDA's website on February 28. This is the first activity in the program since late November, when NFDM and cheese awards were announced, and the first time that butterfat will be open for bids since spring of 2000.IDFA expressed disappointment that bids were opened for butterfat, particularly given the timing as the United States lobbies for elimination of export subsidies in the new round of World Trade Organization negotiations. As reported earlier in News Update, IDFA sent a letter on January 28 to USDA, urging them to resist exporting butter through DEIP. "This is not an enormous amount of butter and there will be little benefit to producers, yet this action jeopardizes the strength of our trade stance against export subsidies," said IDFA Vice President of Communications Susan Ruland. There also is some concern in the industry that the subsidized export of butterfat will short the domestic market later in the year. If one uses net government removals as a gauge of supply and demand balance, butterfat appears to be one of the more balanced segments of the industry. The average net government removals of butter over the last fours years was only 3.15 million pounds, or 0.2% of last year's total butter production. Further, comparing the DEIP limits for the respective products shows that DEIP could export 24% of government net removals of NFDM and 51% of cheese net removals, but a whopping 1800% of butter removals. The invitation of 5,000 MT of butterfat would represent 427% of average net butter removals. The new DEIP allocations exhaust the remaining tonnage for NFDM and cheese allowed under World Trade Organization (WTO) agreements. The butterfat allocation remains at 62.5% of its WTO limit. Table 1 summarizes these activities and product limits:
DEIP assists the export of U.S. dairy products by paying bonuses via competitive bids that compensate the exporting bidder for costs to procure and deliver domestic dairy products to a foreign port. The announcement process leading to DEIP exports can be confusing. Around the beginning of the program year (fiscal year of July 1 to June 30), USDA announces the tonnage that it reserves the right to export. The amount of NFDM, cheese, and/or butterfat is held to maximums set by WTO agreements. USDA will subsequently announce the portions of that tonnage that are allocated to any of three world regions. Even though tonnage may be allocated, the program does nothing more with the product until an invitation is made for competitive bids. Only after bids are invited does USDA start evaluating offers and award bonuses. Butterfat did not receive additional allocation on February 25. Partial allocations of butterfat had been made concurrently with the previous NFDM and cheese allocations. However, since no invitations had been issued, this previously allocated butterfat was still eligible for export under the program. USDA is now accepting bids for subsidized butter exports. The sequence of allocations and awards for the 2002-2003 DEIP year is presented in Table 2 below.
The invitations can be viewed by clicking here. Posted March 3, 2003
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