Right now, we’re seeing a global imbalance in supply and demand of milk. There’s a lot of milk, but demand is unstable, so Farmers around the world are pulling back on how much milk they produce, because of the unsustainably low prices.
Here’s the run down on some of the regions whre the global volatility rubber is hitting the road:
Europe
Until 1 April this year, farmers in the EU’s 28 member states had milk quotas, meaning they could only produce a limited amount of milk. Farmers producing more milk than their quota had to pay a levy, in a system designed to limit how much milk there was available and try to keep the supply/demand ratio in balance. In 2015, the EU’s milk production is forecast to increase 1% and since the quota removal the EU has seen strong growth in milk production.
United States
In the US, farmers are getting help in times of low milk prices. The Dairy Margin Protection Program gives dairy farmers payments when margins between feed costs and milk price are below a certain level, to guard against potentially catastrophic business conditions. There’s also the Dairy Product Donation Program 2014, which requires the US Department of Agriculture to buy dairy products and donate them to food banks. This has supported US dairy prices at times when global dairy commodities have fallen.
Russia
In 2014, Russia put in place trade bans on food imports against some Western countries – Australia, Canada, the EU, Norway and the US – in retaliation for those countries applying sanctions against a range of people and businesses in Russia and the Ukraine over the Russian military intervention in Ukraine. Russia is the EU’s largest export market – in 2013, Russia imported more than 460,000 metric tonnes of dairy. While Russia’s trade bans don’t apply to New Zealand, dairy products that ordinarily would have gone to Russia are now displaced on the international market, creating a surplus – particularly in cheese.
Middle East and Africa
There’s market uncertainty in this region, although dairy imports remain slightly ahead of last year. However the rate of growth has really slowed in recent months. Political dynamics, disease outbreak and social unrest are causing instability in the dairy market.
China
China is a huge market for dairy, with import growing rapidly since 2009 to just below 2 million tonnes (annually) in 2013. Imports declined slightly in late 2014, but since May 2015 total imports have started to recover and return to a positive growth trend. Previously high inventory levels, now lower, should see demand start to increase again. China is still the biggest purchaser on GlobalDairyTrade. There are also concerns around the economic slowdown in China, which has affected global commodity markets.
But the future is bright. The long-term game for dairy is strong and the underlying demand is there.
New Zealand cows are pasture-grazed, so our dairy is seen as a premium product. Because of the low-cost dairy system, our farmers have a competitive advantage over many.
The world’s population is set to grow from 7.3 billion today to 9.7 billion in 2050. Most of this will come from countries such as China, Indonesia, Malaysia and Brazil, where we already hold leadership positions for our dairy brands.
Source: Fonterra