The European Commission is considering the reintroduction of subsidies to encourage manufacturers to use more butter in their products.

Under the proposals, manufacturers of ice-cream, bakery and other products would be offered reduced-cost butter to replace oils in their ingredients. A scheme for putting subsidised skimmed milk powder into animal feed is also under discussion.

Similar programmes have been run in the past, with the last such scheme having ended in 2006. On that occasion, some 400,000 tonnes of butter were taken out of the market.

The proposals are being considered as a remedy for the growing butter mountains building up as a result of European Union intervention in the milk market. The EC has already bought up 81,900 tonnes of butter and 231,000 tonnes of SMP and has moved to extend intervention until at least 28 February 2010 as it reacts to falling demand for dairy in the recession.

"It's about creating artificial demand for dairy markets," said Mark Voorbergen, senior dairy analyst at Rabobank. "They are only proposals at this point in time but it's relatively easy to implement these programmes."

Subsidy programmes would be good news for big ice cream manufacturers if it meant they could incorporate more butter in their products, said PTF dairy specialist Michael Bessey.

"It'll depend on the price of alternative fats and though I doubt [the programme] would bring the price of butter down to the palm oil price, manufacturers can make a virtue of the fact," he said.

Some industry sources have claimed EC bosses also hoped the plans would quieten rising discontent among producers across the Continent over volatile commodity prices.

"The EC is under pressure from agriculture ministers to do something," a source said. "Export subsidies have been brought back and this is a shot they haven't tried yet. To demonstrate their support [for EU dairy] they are pulling all the stops out."