European dairy trading body Eucolait underscores the moral necessity of the block sharing its milk supply, albeit scarce, via free market trade at a time when societies grapple with post-pandemic headwinds, rampant inflation, supply chain shocks and the ongoing war in Ukraine.
Despite the EU milk industry facing declining volumes, trade experts call for the EU to increase the output of milk saying that sustainability targets should not come with reduced outputs. Flagging how production might be a more important issue than trade restrictions.
The EU exports 20% of its milk solids and despite its limited supply, the bloc “has a duty to contribute to global food security,” according to Eucolait.
Redistributing better milk exports might help contribute to food security.
Jukka Likitalo, secretary General of Eucolait, tells that 2023 is shaping up to be uncertain for dairy.
He notes that while dairy prices have gone down in the last few months, there is still uncertainty and volatility ahead for the dairy markets.
“Sentiment has weakened and prices have come down considerably over the last months as EU milk production was stronger than expected and there are some question marks on the consumption side due to the inflationary pressures and economic anxiety. We do not do price forecasts but my feeling is we have entered a new era where milk is no longer available in abundance, while global dairy consumption continues to grow,” explains Likitalo.
“There is no shortage of uncertainty factors however: energy and other input costs, generational renewal in dairy farming, inflation, geopolitical developments, demand outlook in the main import market China, environmental regulations and changing consumer preferences just to name a few,” he continues.
Likitalo explains how the EU must be sensible with who it partners in the future, to avoid over dependence on unreliable partners like Russia or work too much in one big market, such as China.
“We need to produce more”
The trade body flags how dairy consumption is “inadequate” in large parts of the world, as many countries can’t meet their dairy necessities independently. This prompts a need for more overall milk production.
“A sustainable food system uses scarce natural resources as efficiently and effectively as possible. In the face of the dual challenge of feeding a growing global population and mitigating climate change, we need to produce more, from less and with fewer adverse impacts and in places and climates best adapted for this. As such, there can be no food security without open, rule-based trade,” the trade body explains.
“The enhanced sustainability of the European dairy sector should not go hand-in-hand with a declining output.”
“Trade in its most basic essence connects surpluses with deficits and helps countries or regions play to their strengths.”
Internally, in the EU, Likitalo highlights that “it is crucial from a food security standpoint that the single market remains operational during crisis situations,” to avoid shortages and supply disparities.
Global trade on the rise
Eucolait explains that despite international economic woes that affect demand, global trade of dairy increased 2.7% in Q3. However this 2022 will “likely” mark the first decline in cumulative dairy volumes in two decades, with an expected fall of 2.3%.
Notably, weak Chinese dairy demand explains the fall of dairy trade internationally; nevertheless, other Asian countries are more dynamic, led by Indonesia, the fastest growing dairy market in the world; other countries like Saudi Arabia and the Philippines also stood out, according to Eucolait.
Dairy imports in China are down 20% year-on-year, according to the Agriculture and Horticulture Development Board (AHBD). AHBD flags how the lower demand offered some relief for international dairy prices. However, EU producers were negatively affected as they saw a fall in exports to the Asian giant of 31% in a single year.
Dairy commodity prices dip
The UN FAO Dairy Price Index showed a 1.2% decline in dairy prices in November from October, declining for the fifth consecutive month. However, dairy prices continue to be 9.2% higher than one year ago, driven by inflationary pressures from earlier in the year.
FAO says that there is an “increased export availability in Europe.”
Nevertheless, consumers are paying considerably more for the finished product at stores. While dairy prices are globally up 9.2%, commodity-wise, in the UK consumers are seeing an annual rise in CPI for low-fat milk of 47.9%.
Kerry Dairy Ireland revealed in its Q3 report that it had increased prices by 36.6% in the first nine months of the year, significantly outpacing the general pricing strategy of the food giant (which has increased prices by 10.6% this year).
European Dairy giant FrieslandCampina’s Food & Beverage business revealed that its half-year results were boosted by high butter market prices.
Danish-Swedish multinational cooperative Arla Foods increased its prices for milk eight months in a row, with this December marking the first month since March without price increases.
“Global milk supply levels continue to stabilize with levels in Europe increasing. Global dairy commodity prices, including yellow cheese and butter have declined from the previous high levels in October. The outlook is negative, driven by the continued decline in commodity prices,” says Arthur Fearnall, Arla Foods board director.
“The last year has brought inflationary challenges for our farmer-owners and our teams across the UK have worked hard to deliver significant increases to both our conventional and organic farmgate milk price throughout the year,” adds Paul Savage, agriculture director for Arla UK.
However, general cheese demand, as in previous months, continues to outpace the demand formilk. “International cheese prices increased, underpinned by a steady import demand and less buoyant export availability from major producing countries in Western Europe,” says FAO.
Cheese is becoming a coveted commodity, with supermarkets in the UK putting security tags on cheese and butter products.
