Due to the EU's use of intervention, production quotas and import tariffs, ‘internal’ EU prices for dairy products are usually higher than prices on world markets.

To help maintain these high ‘internal’ prices whilst still allowing EU processor to export onto world markets a system of export refunds or subsidies is used.

Export refunds are used to make up the difference between high internal EU prices (often set by the intervention price) and lower world prices, as illustrated in the graph below for skim milk powder (SMP).

The absolute value of the export refund is varied, depending on EU and world prices at that time. Currency exchange rates also have an effect as world trade is conducted in US$, whilst EU prices are in Euros.

Export refunds are available for various products including SMP, butter, whole milk powder, casein and cheeses. Applications for export refunds are made by the exporter to the EU Commission. If the application is approved, the exporter has a limited period in which to ship the product.

There are limits to the volume of individual dairy products which may be exported with the assistance of export refunds; these are set by the WTO.

The EU Commission currently operates a dual system under which exporters can choose to either except the 'common' rates set by the EC, or enter a tender (at a slightly higher price), which may or may not be accepted depending on market conditions.

As intervention prices are reduced and ‘internal’ commodity price become closer to world prices, export refunds are likely to become less important. They are also one of the EU subsidies under great pressure to be abolished by the WTO.