New Zealand farmers may be in for a more prolonged slump in dairy prices after the European Union announced plans to double the amount of skim milk powder it is prepared to buy to support local producers.

The EU has moved to introduce measures to restrict the amount of dairy product its member states produce while at the same time extending its price support mechanism for skim milk powder and butter.

The European Commission - the EU's executive wing - said it would increase the quantity ceilings where it provides market support for skim milk powder from 109,000 tonnes to 218,000 tonnes and for butter from 60,000 tonnes to 100,000 tonnes.

It will also consider letting member states provide up to 15,000 ($25,027) per farmer per year.


ANZ agri economist Con Williams said more details were needed, but at first glance the measures, taken together, "will increase export competition and delay a recovery in dairy prices, given current market behaviour".

The last time intervention was activated was between March and October 2009 when 273,682 tonnes of skim milk powder was bought and which took nearly three years to sell.

The EU last year did away with production quotas for member states.

Chicago-based commodities specialist HighGround said exceptional times could sometimes push Governments to take exceptional measures.

"The first year of being quota-free has had a significant impact on production this year. In many countries, more cows were added to the herd last April," HighGround dairy division president Eric Meyer said.

"Fantastic weather and less-expensive feed have helped propel EU milk collections to unthinkable levels in a down market," Meyer said.

"It is HighGround's belief that increasing intervention volumes may delay the market recovery as those stocks will continue to weigh on any potential upward momentum."

The commission, in a raft of measures aimed at the dairy, pigmeat and fruit and vegetable sectors, said it would activate for a limited period the ability of producer organisations to establish voluntary agreements to restrict dairy supply.

A commission statement said it "acknowledges the depth and duration of the current agricultural crisis as well as the considerable efforts made at member state level to support their farmers and is responding with a further meaningful package of measures".

Williams said moves to restrict supply were likely to be positive for the market, but much would depend on uptake from EU countries and how it was implemented.

"The fact it is being introduced highlights that it is not only New Zealand dairy farmers that are hurting in the current environment," Williams said.

The Dutch dairy co-operative FrieslandCampina introduced a scheme in January to pay farmers not to produce more milk but Williams said it was unclear how it might work from an EU-wide perspective.

The series of measures outlined by Commissioner Phil Hogan to the Agriculture Ministers of the EU is in addition to a 500 million support package introduced last September.

Hogan said: "I believe that this is a package of measures which, when taken with the full implementation of the September solidarity package, can have a material and positive impact on European agricultural markets and it should now be given the chance to succeed."

Dairy doldrums

• European Union increases quantity ceilings where it provides market support.

• Skim milk powder rises from 109,000 tonnes to 218,000 tonnes.

• Butter increases from 60,000 tonnes to 100,000 tonnes.

• It will consider allowing member states to provide up to €15,000 per farmer per year.

• For a limited period producer organisations can establish agreements to restrict supply.