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Australia, N.Z., U.S. Will Compete For The Biggest Piece Of Cream Pie

The United States, Australia and New Zealand will move to displace Europe in the world trade of dairy products in the next 10 years, says William Dobson, an agricultural economist at UW-Madison”s College of Agricultural and Life Sciences.

Currently the European Union is the largest dairy exporter, with 45 to 50 percent of the market. The United States has only a 10 percent share of the world trade of dairy products; New Zealand holds 22 percent and Australia holds 9 percent.

“Europe is taking its obligations under GATT seriously,” said Dobson, who just completed a study on the Ireland and New Zealand Dairy Boards and the world trade of dairy products.

In the Uruguay round of the General Agreement on Tariffs and Trade, the European Union agreed to reduce export subsidies for cheese, butter and nonfat dry milk. According to Dobson, this will have the greatest impact on world cheese prices because the GATT agreement will require the European Union to reduce subsidized exports of cheese by up to 25 percent by the year 2000.

However, the lower European cheese exports will be partially offset by other developments in world markets. “Australia and New Zealand will increase cheese exports by about as much as the European Union reduces the amount of subsidized cheese that it puts on the world market,” Dobson said.

“GATT undoubtedly put agriculture on the path to freer trade,” said Dobson. “Major developments in the free trade negotiations will happen in the next round of the World Trade Organization negotiations.”

The World Trade Organization is slated to begin trade negotiations in 1999. As European governments try to reduce debt to join the European monetary union, the EU may have to reduce farm subsidies. This development will cause them to further reduce dairy export subsidies and force the EU to compete at fair prices, reflecting world supply and demand conditions, said Dobson.

U.S. firms will be looking to export dairy products as world prices improve. “The food industry is mature in the United States and there will be a desire for new international markets,” said Dobson.

The United States has a much larger dairy industry than either Australia or New Zealand. “Under some reasonable assumptions Australia and New Zealand can produce a little more than California and Wisconsin combined,” Dobson said.

New Zealand”s dairy expansion is constrained by available land. “If New Zealand relies on domestic supplies, they might be able to expand their world market share 5 to 10 percent more.”

New Zealand, however, does not solely depend on domestic suppliers for dairy products. “When New Zealanders need more product to capture market share they often choose to source products from other countries, such as the United States, Europe and Australia,” said Dobson. “New Zealanders are experienced and skilled world marketers.”

Australia has considerably more expansion potential than New Zealand, said Dobson. “Australia”s southeastern coastal area is where dairy production is located and able to be expanded.”

Australia and New Zealand will offer substantial competition to the United States in future world exporting of dairy products, especially in Asia, which is their targeted market. “The United States will likely be the major exporter to Latin America,” Dobson said.

Dobson”s study was supported by the Babcock Institute, a collaborative effort by the College of Agricultural and Life Sciences, the School of Veterinary Medicine, and the University of Wisconsin-Extension. The Babcock Institute provides information exchange between the Wisconsin dairy industry and dairy producers worldwide.