5 Jun 2009

Lull in Europe-US subsidy dispute

3:11 pm on 5 June 2009

The European Union has held back from retaliating against the United States' recent decision to restore subsidies for its dairy farmers.

A meeting of European officials in Brussels on Thursday was the EU's first opportunity to respond to the United States' decision last month to restore subsidies to its dairy farmers.

The US decision followed a move by Europe in January to support the incomes of struggling dairy farmers in the 27-state bloc.

The moves had sparked fears of a trade war and was behind a big drop in prices at Fonterra's monthly milk powder auction this week.

Fonterra's managing director of global trade Kelvin Wickham says European officials increased subsidies by a token amount on Thursday, which he says would have been be to compensate for the strengthening euro against the US dollar.

He says the European Union is waiting to see how the US decision works in practice, even though the European body is facing increasing pressure from its farmers.

Federated Farmers president and trade spokesperson Don Nicolson says the continuing uncertainty is a problem.