The past year has seen a major shift in the way in which the EU supports the dairy markets. Major cuts in expenditure have taken place for export sales and on various schemes for subsidising the domestic markets.

By the start of this week export subsidies were down by around a quarter for butter and cheese, and over half for whole milk powder. Subsidies for skim milk powder have disappeared altogether. Similar cuts have also taken place for other dairy products and the export subsidy bill for the EU has been slashed by more than a third.

Similar cuts have also taken place in some of the major subsidies paid out by the EU on domestic market sales and production. For example, the long-standing subsidies paid out on making casein from skim milk and on the use of skim milk powder used to make animal feedstuffs have disappeared entirely. Large subsidies have been paid out on nearly 500,000 tonnes of butter used annually in other food and ice cream industries, but these were cut by around a half during 2006.

These cuts represent a changing policy in Brussels towards disengagement from subsidising the dairy product sector and away from managing the markets. This approach is likely to see more cuts in subsidies in 2007, leaving the dairy manufacturers to accept responsibility for managing the markets themselves. One consequence of this might be that market prices become more volatile during the course of the year - lower in the spring when milk supplies are plentiful and higher in the autumn and winter as production falls back.