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Developments in the global and EU dairy market

21 August 2014

The EC report on developments in the dairy market and the operation of the EU’s “milk package”, published in June 2014, highlighted the current “quite favourable situation” in the dairy sector, with average EU milk prices in January 2014 17% higher than in January 2013, representing “the highest average milk price for January ever recorded”.

This is linked to the high prices obtained for a range of dairy products. According to the report, “in October 2013 [the] EU average butter price hit an all-time record of 423 €/100 kg. Similarly, EU average cheddar cheese prices reached an unprecedented level of €407 €/100 kg in February 2014. All the main dairy products’ prices increased throughout 2013 by more than 20% (23% for butter, 22% for SMP [skimmed milk powder], 27% for WMP [whole milk powder] and 20% for cheddar cheese).” These positive price developments, in part linked to strong global demand, have meant that no intervention buying into public stocks occurred in 2012–13, and there are currently no public stocks of butter and SMP.

The EC notes that EU dairy products enjoyed a “good export performance… throughout 2012”. By the end of 2012, however, further export growth was being constrained by a lack of milk production. From January to September 2013, SMP exports were down 31% while butter exports were down 5% compared to the corresponding period in 2012.

This led to calls from farmer organisations for better management of the transition to a quota-free regime.

EU and world market dairy prices, annual (May 2013–May 2014) and monthly (April–May 2014) changes

EU28 World
 

Monthly average

€/t

Annual change

%

Monthly change

%

Monthly average

US$/t

Monthly average

€/t

Annual change

%

Monthly change

%

Butter 3,498 –11.6 –2.2 3,950 2,876 −7.6 −3.7
Cheese 3,932 +12.5 –1.6 4,617 3,362 +0.4 −5.3
SMP 2,874 –7.0 –6.1 3,963 2,886 −16.4 −8.0
WMP 3,371 –8.7 –5.1 4,075 2,968 −21.7 −6.3

Source: EC, ‘Commodity price dashboard’, No. 24, 26 June 2014 (see below)

The report noted that both EU and global dairy prices had weakened by the beginning of 2014, but that “the medium-term prospects for milk and dairy commodities are favourable.”

Up to 2023 the EC is projecting a significant expansion of milk production in a number of countries: Ireland (+20%), Germany and the Netherlands (each +15%), Denmark, France, Austria, Poland, Estonia and Cyprus (each above 10%), Belgium and the UK (increase of less than 5%). In nine other countries, production is projected to contract, while being relatively stable in another six. By 2023 EU milk deliveries are projected to be 9.6 million tonnes above 2012 levels.

There remains uncertainty over these projections, with some French companies planning to limit milk supplies, while focusing on high-value products. In contrast, in Ireland, the national authorities are forecasting up to 50% expansion in milk production, and analysts suggest a higher level of production increase is likely in the UK given recent investments.

The additional milk produced will enable the EU to increase “its exports to the world market and maintain a share in world exports close to 60% for whey powder and around 30% for cheese and SMP”. 

Editorial comment

The projected 9.6 million tonne increase in EU milk production will largely be used to serve export markets. Although China is a rapidly expanding market for EU dairy sector exports (see Agritrade article ‘EU agro-food trade surplus continues to expand’, forthcoming 2014), competition on the Chinese market is intensifying, with the world’s leading dairy company, Fonterra, well placed to serve that market. US dairy companies are also expanding their exports to China.

Against this background, EU dairy companies are busy developing strategies to target rapidly growing markets for dairy products in Africa (see Agritrade articles ‘ Africa and European corporate responses to EU milk quota abolition’, 12 May 2014 and ‘ Nestlé to roll out modular factory system in Africa’, 18 August 2014). Key questions arise:

  • How will this growing European corporate interest in African dairy markets relate to local milk production?
  • What policy measures can African governments set in place to encourage increased EU investment in local value-added processing?
  • What policy measures can African governments adopt to ensure that EU corporate engagement fosters local milk production?

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