Continued growth in EU outlook for dairy

Published 14 December 16

Global milk production is expected to show moderate growth over the next decade according to the EU Commission’s latest Medium Term Outlook1. This will be driven by continued increases in dairy consumption. Slower income and population growth however means global demand is projected to grow at the relatively slower rate of 1.8% per annum (equivalent to an extra 16m tonnes per year).

EU production growth is predicted at an average of 1.3m tonnes per annum (1.4%) over the 10-year period. Rising domestic consumption, particularly for cheese, will absorb some of this growth, although the majority of it will be directed to export markets. As such, it is anticipated that the EU will become the world’s top exporter of dairy products by 2026, just ahead of New Zealand.

Prices are projected to remain limited in the short-term as high intervention stocks of SMP weigh on the market. However, they are expected to rise above the €32/100kg mark in the second part of the projection period (2021-2026). Despite the delay to increased milk prices, farm profitability is presumed to remain relatively stable over the period as feed prices are expected to remain low.

The EU Commission’s outlook also assumes a continued priority of the CAP to provide income support to the EU farming sector. However, little, if any, mention is given to farm or supply chain competitiveness or productivity in proposals to simplify the CAP post-2020. This suggests growth will still be dependent on a significant CAP budget, something that will continue to be an irritation for more free-market thinking exporters such as New Zealand. The report also assumes the continued inclusion of the UK within an EU-28 throughout the entire projection period.

The full report can be found here, along with proceedings of the Annual Outlook Conference

 

1The Outlook is based on a set of assumptions deemed most plausible at the time of the analysis. The projections assume a continuation of current agricultural and trade policies. These assumptions imply relatively smooth market developments while in reality markets tend to be much more volatile. Therefore, the outlook is not a forecast.