Market Update
May 26, 2009
Dairy Market Update: USDA Announces Dairy Export Subsidy Allocations
By Bob Yonkers, IDFA Chief Economist, Ph.D.
Secretary of Agriculture Tom Vilsack on Friday announced dairy product volume allocations under the Dairy Export Incentive Program (DEIP), which were followed by Invitations for Offers. According to Secretary Vilsack, "These allocations illustrate our continued support for the U.S. dairy industry, which has seen its international market shares erode, in part, due to the reintroduction of direct export subsidies by the European Union earlier this year."
Under this program, the U.S. Department of Agriculture provides export subsidies to commercial exporters for certain dairy products. The allocations are for the current DEIP year, which ends June 30, 2009, and include up to 150.4 million pounds of nonfat dry milk, 46.5 million pounds of butterfat and 6.7 million pounds of cheese. The Invitations for Offers included details on the regions of the world and specific countries for which exports are eligible to receive DEIP subsidies. For more information, visit USDA's website. USDA provided no indication that another allocation announcement for the next DEIP year, which begins July 1, 2009, will be forthcoming.
Allocations were announced by USDA in both 2005 and 2006, but no Invitations for Offers were ever issued for those years and therefore no DEIP subsidies were paid by USDA. The last time USDA actually paid subsidies to commercial dairy product exporters was nearly five years ago in 2004, when this program subsidized the export of 100 million pounds of nonfat dry milk.
The DEIP program was first announced by USDA in May 1985, after it was authorized for the first time in the farm bill that year. However, the first use of the program in providing export subsidies to commercial dairy product exporters was in 1991. The stated objective of DEIP is to develop export markets for dairy products where U.S. products are not competitive because of the presence of subsidized products from other countries.
All sales under DEIP are made by the private sector, not the U.S. government. Once an Invitation for Offers is issued, it is up to commercial exporters to contact prospective buyers in eligible countries and negotiate a sales contract covering price, quantity, and other terms. Each prospective exporter then submits a bid to USDA requesting a subsidy that would allow the sale to take place at the agreed price.
USDA reviews all bids for the competitiveness of the subsidy requested and compares the bids with offers from other U.S. exporters and with sales of competitor countries. USDA has the right to reject any or all bids. Once USDA accepts a bid, the exporter and USDA's Commodity Credit Corporation (CCC) enter into an agreement. Once an exporter furnishes USDA with evidence that the specified commodity has been exported to the target destination under the terms of the agreement, the exporter can request payment of the subsidy.
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