Holstein World: How would the termination of the Dairy Export Incentive Program (DEIP) affect our milk prices?

Lee Mielke: USDA is NOT terminating the DEIP. It assumes that there will be no ned of it, considering the current supply and demand balance. DEIP is not mandatory and the Agriculture Department can use it as it sees fit, though National Milk and others have charged that USDA has not used the DEIP as Congress intended.

I hope that USDA’s decision to not use the DEIP is not based upon the success of the CWT export assistance program.

Dave Natzke: As Lee noted, I know of no one who has proposed eliminating DEIP. However, it has been used so little over the past few years, I doubt people would miss it if it was eliminated – under current market conditions.

DEIP was designed to helps exporters of U.S. dairy products meet prevailing world prices for targeted dairy products and destinations. Due to market conditions and large export subsidies by the European Union and others, “world” dairy product prices were usually lower than U.S. prices, therefore the government also had to subsidize exports (through DEIP) to help lower the cost to foreign buyers. Under the program, USDA pays cash to exporters as bonuses, allowing them to sell certain U.S. dairy products at prices lower than the exporter’s costs of acquiring them. The major objective of the program 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.

Currently, however, a weaker U.S. dollar, reduced foreign export subsidies, a drought in Australia (normally a larger exporter) that has limited world dairy product supply, and heavy demand for some dairy products in developing countries, has raised world dairy product prices to where U.S. prices are now competitive. According to the latest annual report from the U.S. Dairy Export Council, fewer than 2% of the exports in 2006 were assisted by the government or the Cooperatives Working Together (CWT) export assistance program.

Market conditions change, and the structure of DEIP should be retained for the time when, or if, it is needed again.

This entry was posted on Wednesday, March 28th, 2007 at 8:22 am by sschmidt and is filed under Guest Blogger Series. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.