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Good prospects for EU dairy exports but growing competition

02 March 2014

According to the EC’s ‘Prospects for agricultural markets and incomes in the EU 2013-2023’, published in December 2013, adverse weather conditions and high feed costs “led to a 6.0% underutilisation of the EU-27 delivery quota in the 2012/13 quota year, although Austria, Cyprus, Denmark, Germany and (for the first time) Poland all overshot their quota”. However, lower feed prices and higher milk prices arising from the tight global supply situation have eased cost pressures in 2013.

In the coming years, the EC projects favourable prospects for the dairy sector, with world demand dynamic, particularly in emerging economies. This prognosis is projected to maintain dairy prices at relatively high levels, even while it is expected to boost EU milk production, particularly following the abolition of production quotas. The boost to EU production is expected to take place mainly in the Netherlands, Denmark, Germany, Austria and Cyprus. While environmental constraints will be increasingly faced over time, slowing down expansion towards the latter end of the projection period, by 2023 EU milk production is projected to be 9.6 million tonnes more than in 2012.

The EC report notes that “in 2013, dairy industries have preferred to process the limited available milk into cheese (rather than skimmed-milk powder [SMP], butter or fresh dairy products), because of its higher added value and good export performance.” This preference led to lower levels of EU SMP exports in 2013. Shortfalls in supplies from New Zealand, however, saw prices for milk powder reach record levels.

EU dairy sector 2010–2023: Projections for production exports (’000 tonnes)

  Skimmed-milk powder Whey Cheese Whole-milk powder Butter
2010 376 453 667 445 157
2011 516 526 673 388 124
2012 523 544 768 386 124
2013 403 562 806 394 119
2014 454 589 826 359 111
2015 576 645 851 359 113
2016 607 672 890 355 117
2017 619 712 918 348 117
2018 622 732 945 343 116
2019 623 757 972 339 117
2020 624 776 998 334 116
2021 634 786 1,010 330 115
2022 635 795 1,015 326 114
2023 637 802 1,016 316 109

Source: EC, ‘Prospects for agricultural markets’, extracted from Tables 6.25, 6.26, 6,27, 6,28 and 6,29.

Favourable prices are projected to see a recovery in EU SMP exports, with a steady increase to 637,000 tonnes in 2023 (a 69.4% increase over 2010 export levels). The analysis notes that EU SMP production “is driven mainly by export demand – from 2016 half of [EU SMP] production will be exported” (54% by 2023, up from 39% in 2010). By 2023, the EU is projected to account for 30% of the world’s SMP exports.

Very strong growth in exports of whey powder (used in infant formula and sport drinks) is foreseen, with growth of 3.9% per annum up to 2023 – adding up to a projected 47% growth in exports between 2012 and 2023 (77% between 2010 and 2023). By 2023, EU exports of whey powder are projected to account for 37.3% of EU whey production, up from 25.6% in 2010.

Increased competition is foreseen on global dairy markets, not only from Oceania, but also increasingly from the USA and, over time, even Argentina. The USA in particular is seen as a major competitor on SMP and whey export markets, which is seen as generating an uncertain future for EU exports.

The analysis notes that the EU cheese sector is expected to expand, “buoyed by a dynamic world market and steady growth in domestic consumption”. This will absorb much of the expected expansion of EU milk production. Between 2011 and 2023, EU cheese exports are projected to increase by 51%, with around 10% of EU cheese production being exported in 2023, up from 7% in 2010.

Exports of fresh dairy products are also growing, including to China. The EC report notes the “premium for imported milk” in the country, given various safety scandals that have plagued the domestic Chinese dairy sector.

Editorial comment

The importance of SMP and whey exports to overall EU production of SMP and whey is growing, while increased competition from the US on both SMP and whey export markets is anticipated. Against this background, establishing closer corporate linkages in major target markets can be seen as an important vehicle for securing EU export markets.

This provides important background to current patterns of investment by EU dairy companies in Africa.

Whey and cheese exports to meet growing demands from an expanding African middle class could also play an important role in intra-corporate trading between the EU and Africa in the dairy sector in the coming years. However, to date ACP markets do not feature as areas of growing export interest for EU cheese exports.

Given African aspirations for local dairy sector development, these projected developments could pose important policy challenges.


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