The hangover from Europe's diary crisis, which has witnessed the spilling of 50m litres of milk by protesters, threatens to derail plans for the next chapter of market liberalisation, US officials have warned.

While the European Commission has committed to a range of dairy reforms, such as the removal of export subsidies, over the next four years, this year's downturn has threatened the appetite for a further shake-up.

European Union countries last year began airing measures such as cuts to agriculture spending, the removal of all market protection measures and a shift towards environmental subsidies as part of a revamp of policy once the current plan expires in 2013.

Butter mountain 

However, the depth of the dairy crisis - which prompted a 9% rise in the number of cows sent for slaughter in France and a halving in milk prices in Germany - "will throw a long shadow on the post-2013 debate on the future liberalisation of the sector", a briefing compiled by US staff across Europe said.

Meanwhile, the "sheer volume" of butter and skimmed milk powder bought from the market through intervention purchases "will overshadow the EU market into 2010 and maybe beyond".

"The EU is expected to keep stocks high, or even add to stocks during 2010, as the supply-demand relationship is not expected to change much," the bulletin said.

The commission had, by September, bought an extra 53,000 tonnes of butter through intervention buying, on top of the normal limit of 30,000 tonnes, with 173,000 tonnes of skimmed milk powder purchased beyond the 109,000 tonnes usually mandated.

Europe has also agreed to extend the intervention buying period through its close season, which stretches from the beginning of September to the end of February.

Prices 'to recover' 

The report follows bitter demonstrations over falling prices from dairy farmers who, according to the briefing, have spilled 50m litres of milk on fields in protest, besides giving many thousands of litres more away to consumers.

Nonetheless, production of cows' milk, which eased marginally to 133.8m tonnes this year, will recover slightly to 134m tonnes next year, helped by a market revival.

"It is expected that, after bottoming out in mid-2009, dairy prices may start to recover in late 2009 and 2010," the report said.