The EU Commission has agreed to start releasing intervention stocks of butter and skimmed milk powder (SMP) sparking some concern that the price recovery could be jeopardised.

Last year the EU bought up stocks of butter and SMP to help out farmers struggling to cope with the sharp fall in dairy prices. Now that the market has recovered significantly, the CMO Management Committee has voted to open tenders for the two dairy commodities.

The release in stocks comes on top of the amounts already agreed under the Deprived Persons Scheme.

Intervention stocks

So in the case of butter, 76 000t are in stock, of which 51 000t have been set aside for the most deprived and 25 000t are now to be opened up for tender.

As for SMP, there is 257 000t in stock and 65 000t have been committed for the most deprived leaving 192 000t, of which 65 000t are to be tendered.

Arnaud Haye, senior analyst from the Agriculture and Horticulture Development Board (AHDB), told that the decision to release the stocks was not “entirely surprising” given the amount in stock and that prices are quite high at the moment.

Market impact

In terms of the impact the move is likely to have on the market, Haye said the situation is quite different for the two dairy commodities in question.

The analyst told that it is unlikely that the release of butter socks will have much of an impact on the market. The move may release a little pressure as prices continue to rise but the amount being released is relatively low in relation to total European production.

In the case of SMP there is the potential for a more significant impact because the quantity being released is larger and it is a much higher proportion of EU production. Last year the EU bought up around a quarter of EU production of SMP so trying to feed much of that back into the market could put significant downward pressure on prices.

However, Haye said that a lot of EU produced SMP is exported so its price going forward depends a lot more on world demand and supply. This makes it harder to predict how prices will evolve as result of the release of stocks.

The first tenders have to be submitted by 1 June 2010, before being assessed by Management Committee on 3 June. The Commission said it will fix the price and quantities to be accepted after each tender taking into account the market situation at that moment and avoiding market disturbances.