RESTRICTED GENERAL AGREEMENT ON L/1453 TARIFFS AND TRADE 28 April 1961 Limited Distribution REPORT ON THE CONSULTATION ON THE MARKETING OF BUTTER IN THE UNITEDKINGDOM I. Introduction 1. At the request of the of New Zealand, the Council decided at its meeting on 24 March 1961Governmentthat arrangements should be made for a multilateral consultation, under the provisions of paragraph 1 of Article XXV, on the difficulties recently experienced in the marketing of butter. 2. The Council felt that this procedure was justified and urgent in view of the special character of the trade in butter and the present trend of price levels in the United Kingdom market, and also taking into account the possibility of further deterioration in the situation during the next few months. The following countries and, inter-governmental organizations were represented at the consultation which took place from 17 to 20 April 1961: Argentina, Australia, Austria, Canada, Denmark, Finland, France, the Federal Republic of Germany, Ireland, Italy, the Kingdom of the Netherlands, New Zealand, Norway, Poland, Sweden, Switzerland, the Union of South Africa, the United Kingdom, the United States of America, the EEC, the FAO, and the OEEC. 3. Consulting countries recognized the serious long-term implications of this problem but the gravity of the present situation and the outlook for butter imports into the United Kingdom market in the near future make it necessary for governments to consider the possible adoption of urgent short-term measures in order to avoid a crisis such as the one which occurred in 1958. 4. Furthermore, this approach to the problem of the marketing of butter in the United Kingdom market should not be considered as an isolated case but as one example of the type of action that may be taken by contracting parties in the commodity field. II. The market situation 5. Butter production has risen in recent months in many western European countries in accordance with the rise in milk production which has been influenced by an early spring. Total new supplies of butter on the United Kingdom market were 405,000 tons in 1957, 460,000 in 1958, 421,000 in 1959, 453,000 in 1960. Indications are that in 1961 they may be some 5 per cent higher than in 1960. Total imports into the United Kingdom in the first three months of 1961 were higher than in the two previous years as shown in Annex B which provides relevant statistics on production, consumption and stocks. Of great importance with respect to recent developments in prices is that the level L/1453 Page 2 of stocks in the countries mainly concerned1 at the beginning of April amounted in 1958 to approximately 300,000 tons, in 1959 to 200,000 tons, in 1960 to 240,000 tons and they are estimated at 260,000 in 1961. Consumption in the United Kingdom has increased loss than the increase in total available supplies. 6. Under present circumstances it appears unlikely that exporting countries will be able to dispose of any substantial part of their supplies on markets other than the United Kingdom. Consequently, it is anticipated that under the present marketing conditions the cumulative pressure of such supplies being disposed of on the London market might result in a further reduction in prices. In fact, the present price level is already much lower than prices in effect in any other countries and is not regarded by exporters as an economic price level even for efficient producers. III. Analysis of contributing factors 7. The countries represented have considered the elements contributing to the decline in the price level, and have agreed to the following analysis: (a) Supply has increased more than demand and as a result of the free play of the law of supply and demand on the London market there has been a serious drop in prices. The uncertainty in the market is further aggravated by the existence of unusual stocks in a number of countries which might find an outlet on the United Kingdom market. (b) In recent years there has been an upward trend in the level of total supplies. The small suppliers have on the whole delivered more significant quantities and have taken a greater share of the United Kingdom market. (c) Although prices received on the London market are regarded by exporters, even the most efficient producers, as uneconomic, supplies have continued at a high level. This situation cannot be maintained in the long run without some form of government support or reduction in farm income or both. The price and marketing policies of many countries have involved increased sales on the United Kingdom market at heavily subsidized prices. (d) The United Kingdom is the only significant market without quanti- tative import restrictions of general application on butter. No measures arc applied to control prices on the market. 1Argentina, Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, the Republic of Ireland, Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, United Kingdom and the United States. L/1453 Page 3 IV. Conclusions and proposals 8. The representatives of participating governments drow special attention to the fact that certain Articles of the General Agreement, notably Article VI and Article XVI, in particular paragraph 3, could be applied to certain aspects of the present situation. The representatives of consulting govern- ments noted tho conclusions and proposals made by the OEEC Committee of Deputies at their meeting on 13-14 April 1961 which are included in paragraphs 11 and 12 of the report attached as Annex A to this report. As noted in Section I above, the representatives of consulting governments recognize the urgency of the present situation and consider that, apart from any steps that might be taken in terns of specific provisions of the General Agreement, the OEEC proposals which aim at improving market conditions should be regarded as a guide for governments in defining their policies with respect to the marketing of butter. 9. The consulting countries stressed that the suggestions referred to in Annex A should not be construed in such a manner as to weaken the rights or obligations of contracting parties under Articles VI or XVI of the General Agreement. The consulting countries suggest that the CONTRACTING PARTIES at their eighteenth session should consider action taken in accordance with these rocommendations and the means by which conditions in the butter market could be kept under review. - -1 ANNEXA ORGANISATION FOR EUROPEAN ECONOMIC CO-OPERATION C O P Y Paris, 15 April 1961 Original: French Report by the Committee of Deputies of the Ministers of Agriculture and Food on the Situation of the Dairy Products Market The attached report was adopted by the Committee of Deputies of the Ministers for Agriculture and Food at its thirty-third session (13-14 April 1961). - 2 - THE MARET FOR DAIRY PRODUCTS (December 1960 to April 1961 and Prospects) 1.. The following is a description of the market situation for dairy products since November 1960 and an appraisal of outlooks for the coming months. Milk 2. Weather conditions have, as a whole, been favourable to milk production with in general a mild winter in most European countries; this, together with abundant forage, though in some cases of an inferior quality (notably hay in Sweden) and an early spring almost everywhere has resulted in a high production of milk. Production for the four months in question was especially higher than in the comparable months a year earlier in France, the United Kingdom, Ireland, Austria, Germany and Belgium. Sweden, Denmark, Switzerland and the Netherlands showed, on the other hand, some decline in relation to a year earlier. The drop was, in the cases of Sweden and Switzerland, due mainly to the bad quality of forage but also to decreasing cow numbers in the former; in the case of Denmark due to low remuneration of milk production. Butter 3. Butter production rose over the months in question in accordance with the rise in milk production, especially in France, the United Kingdom, Ireland, Austria, Germany and Belgium. Of greater importance are, however, the large stocks of butter held now in a number of countries. At 1 March 1961, these stocks, although lower than in 1958, were thus for twelve OEEC countries 24,900 tons above the preceding year and almost double the stocks of 1959 at the same date. It is especially in France and in the United Kingdom that stocks are heavier than a year ago. 4. The seasonal increase in production which has come earlier than usual is now being felt in most countries. This may further aggravate the situation and it is feared that the Londonmarket may soon be overloaded once more with increasing butter supplies. There seems little prospect for exporters to find outlets for their butter on other markets than the United Kingdom in - 3- the foreseeable future. The German market is generally closed except for small quantities which were imported from Belgium and which will be imported from France to the Saar. The Italian market is closed for imports. Switzerland may still import small quantities of butter for cooking. 5. Danish and other butter prices on the London market were already in 1960 at a relatively low level. The decline was accentuated in the second quarter and again in the first quarter of 1961 for Australian and New Zealand butter. Danish butter prices showed a corresponding decline in the second quarter of 1960; they moved up again in the third quarter but went down recently so that the present level is only about 17 per cent higher than the very low level attained in March 1958.