An economic analysis shows the European Union’s (EU) Skim Milk Powder (SMP) Intervention Program had a severe negative financial impact on the U.S. dairy industry and farmgate milk prices. Leaders of U.S. dairy organizations want to make sure that doesn’t happen again.
The economic impact analysis, “Impact of the European Union’s SMP Intervention Program on the United States: 2016-2019,” was written by Kenneth Bailey and Megan Mao from Darigold, a wholly owned subsidiary of the Northwest Dairy Association based in Seattle, Washington. They conclude that the U.S. was “economically harmed by the EU’s Intervention program for SMP” in three ways:
The EU program depressed the global price of SMP, which lowered U.S. milk prices in 2018 and 2019, contributing to a $2.2 billion loss of U.S. dairy farm income those years.
The EU program also artificially inflated its global export market share, resulting in drastically lower market share for U.S. dairy exporters and other SMP exporters, and U.S. dairy export losses of $168 million from 2018-19.
When the EU unleashed its stockpile of “intervention SMP” onto the global marketplace, the disposal of the product had harmful effects on the competitiveness of the U.S. in historically important export markets, including Southeast Asia.
In a letter to U.S. Trade Representative Robert Lighthizer and Agriculture Secretary Sonny Perdue, heads of the International Dairy Foods Association (IDFA), NMPF and the U.S. Dairy Export Council (USDEC) urged the U.S. government to prevent the EU from using future intervention practices to effectively dispose of publicly stockpiled EU dairy products at discounted prices in the international markets.
According to the report, the EU tripled the annual ceiling of SMP intervention purchases in 2016 from 109,000 metric tons (MT) at the beginning of the year to 350,000 MT by June 24, 2016. The EU accumulated the equivalent of 16% of the global market in government storage.
As global SMP demand began to improve in 2018, the EU released its stockpile of SMP onto the commercial market, with no restrictions to prevent the product from entering the global market. During the 18-month period (January 2018 to June 2019), the EU sold, via a tendering process, 379,453 MT of intervention product, depressing global prices for SMP below what they otherwise would have been, according to the report.