In 2013, against the background of high global dairy prices and the pending abolition of EU milk production quotas, the EC’s publication of its quarterly short-term outlook for arable crops, meat and dairy markets in the EU shows that the reversal of the long-term trend of declining EU dairy cattle numbers has been consolidated. The report shows that after increasing by 0.9% in 2012, the dairy herd grew by an estimated 1.3% in 2013. Recapitalisation of the EU dairy herd is now firmly under way, particularly in EU15 countries. The dairy herd increase was “particularly pronounced” in the Netherlands and Spain (+3.6%), Ireland (+2.1%), Germany (+1.8%) and France (+1.5%). Countries where the number of dairy cows decreased in 2013 were Denmark, Portugal and the UK.
In EU13 countries (i.e. the EU member states that have joined since 2004), the number of dairy cows decreased, with the marked declines in Slovakia, Hungary and Lithuania outweighing increases in Romania and the Czech Republic. This is part of the ongoing restructuring of the dairy sector in these countries. The restructuring means that in countries like Poland, where cattle numbers fell by 2%, production still increased as a result of improving yields.
In the second half of 2013, following strong gains, EU weighted farm-gate milk prices “reached a record level of €40.4/100kg in December 2013”, 18% above December 2012 levels. EU dairy product prices rose significantly in 2013, “with powders and butter prices about 30% higher than in 2012”. While increases in cheese prices were lower, they were still between 8 and 12% higher than in 2012. In the first 2 months of 2014, prices remained very firm, with only butter prices starting to decline from their very high levels.
According to the EC analysis of the figures, “EU and world prices remain firm in spite of high milk production in the main world dairy producing regions.” This reflects strong demand in China “where domestic milk production decreased by 5.7% in 2013”. Market prices are expected to “remain firm through 2014”.
By contrast, in March 2014, the Dutch dairy company FrieslandCampina “underlined the poor conditions in the European dairy market” and the growing importance of global demand to EU dairy companies. It highlighted growing demand in Asia and the “enormous potential” of the African market.
The EC’s quarterly outlook shows that the proportion of EU milk going into cheese production remained stable in 2013, at 45%, although EU cheese exports increased by 2.6%. In 2014 and 2015, EU cheese production is projected to increase by 1.2 and 1.7% respectively, driven by exports and a recovery in domestic demand.
In 2013, whole-milk powder (WMP) production in the EU increased by 4.2%, while skimmed-milk powder (SMP) production fell by 2.1%. Lower SMP production led to a fall in exports of 21.2%. The EC forecasts a recovery in SMP production of 7% for 2014. SMP exports are forecast to grow by 14.4%, with this growth continuing into 2015, when they are expected to be 11% higher than in 2012. Exports of other milk powders, notably whey and infant formula, increased strongly, particularly to China.
The EC quarterly outlook shows that African countries, notably Nigeria and Angola, were of growing importance as a destination for EU WMP exports in 2013 (+8%), while Nigeria also saw an 11% increase in exports of “fat-filled milk powders”, which are “much cheaper”.
The latest EC short-term outlook for the dairy sector, which describes the main trends in 2013 and prospects through to 2015, and recent statements from FrieslandCampina highlight the growing importance of international markets to an expanding EU dairy sector. This importance is likely to increase once EU production quotas are abolished.
While China is the major overseas market, African markets, particularly in West and Central Africa are also of growing importance. African markets could take on particular significance in the course of 2014, if the political situation in the Ukraine were to lead to a deterioration in EU trade relations with Russia.
Any disruption of the EU’s dairy trade with Russia would be likely to see added impetus given to the existing market positioning strategies being pursued by EU dairy companies in West, Central and even Eastern Africa (see Agritrade articles ‘ Danone to buy shares in East Africa’s Brookside Dairy?’, 17 February 2014; ‘ Danone looking to expand in West Africa’, 19 January 2014; ‘ Arla launches turnkey milk powder packaging facility in Côte d’Ivoire’, 27 October 2013; ‘ Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013).
This suggests that there could now be some urgency to the elaboration of national strategies for the management of milk powder imports, in the light of national aspirations for local dairy sector development across a range of sub-Saharan African countries.