The United States’ tit-for-tat response to the EU’s reintroduction of dairy export subsidies got underway today, and should help Fonterra's US export arm do some more business.

The United States Department of Agriculture’s (USDA) Commodity Credit Corporation (CCC) has introduced its Dairy Export Incentive Program (DEIP) for products for non-fat dry milk to Asia and the former USSR.

The CCC awarded the subsidy to DairyAmerica, a federated marketing company for nine US dairy cooperatives.

The average ‘bonus’ (read: subsidy) for exporters on their product is $US114.89 per metric tonne, or 5.7% of the current skim milk powder price of around $US2000MT.

The USDA award totalled 6,550MT of non-fat dry milk for the period June to October 2009, leaving 61,651MT available to DEIP for future subsidies.

With the subsidy added, this equates to a product value of around $US13.85 million, protecting US farmers to the tune of $US750,000.

Fonterra is Dairy America’s export agent, handling the sale and transfer of goods on its behalf. The company’s various US arrangements with DairyAmerica and Dairy Farmers of America (a US co-operative) account for around 80% of its non-NZ milk supply business.

An industry source told NBR Fonterra’s margin would be around 2% of the total price, or approximately $US277,000 (with subsidy) and $US262,000 without.

Fonterra's head of communications Graeme McMillan told NBR that the company remains on a standard traders margin as per the terms of its contract (which is confidential), and that would not include a percentage of the subsidy - which goes straight back to US farmers.

Dairy America accounts for a significant portion of Fonterra’s value return component (dividend) of its payout, and has left the co-operative’s executive stuck between championing free trade rights for its farmers, and not offending its US partners who desire state protection.

NBR understands Dairy America representatives were in Auckland a month ago for discussions over a contract renewal;  the arrangement is vital to Fonterra’s non-core business.

Dairy makes up around $6.3 billion a year or 27% of all New Zealand exports for the year to last May.

The US Dairy Export Incentive Programme has total allocations of 68,201 tonnes of non-fat dry milk, 21,097 tonnes of butterfat, 3030 tonnes of cheeses and 34 tonnes of other dairy products.