Archive: Russian embargo changes production trends in EU

Published 2 December 14

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Until the embargo imposed in August, the Russian market was an important export destination for EU produced butter and cheese. Almost a third of all cheese exported from the EU was destined for Russia (equivalent to 2.6% of total EU production). For butter, Russia was a destination for just over a quarter of all exports (equivalent to 1.4% of total production).

Only a few months in to the yearlong embargo EU processors have already switched away from cheese production towards increased production of butter and SMP. This trend is set to continue as the EU moves from the seasonal trough in milk production towards the spring flush. Although export prospects for butter are directly affected by the Russian embargo, both butter and SMP are eligible for EU market support mechanisms including Intervention and Private Storage Aid (PSA). This makes these products more attractive to produce than cheese and WMP at times of low returns from the commodity markets.

The new Intervention period is set to open earlier than normal on 1 January 2015. If all the milk that had been destined to be processed into cheese for the Russian market was diverted to the production of  butter and SMP, it is estimated that Intervention would be sufficient to provide a home for 62% of the butter and 72% of the SMP produced as a result.

The opening of Intervention may offer some relief to the commodity market from the combined effects of increased milk supply and the loss of export markets by providing a floor to prices.