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The crisis in the dairy sector is the result of a perfect storm – rising production, high productivity, closure of markets, falling demand and prices and high production costs.
By the end of 2014 the European dairy herd had reached 23.6 million head, up by nearly half a per cent on the previous year and for the major 15 EU states it was up by nearly one per cent.
When milk quotas were abolished 12 EU countries were over their quota limit – Luxembourg (+ 6.6 per cent), Poland (+ 5.8 per cent), Austria (+ 5.5 per cent), Ireland (+ 4.4 per cent), the Netherlands (+ 4.1 per cent), Germany (+ 3.7 per cent), Cyprus (+ 3.4 per cent), Belgium (+ 2.2 per cent), Denmark (+ 1.8 per cent), Estonia (+ 1.2 per cent), Italy (+ 1.0 per cent) Spain (+ 0.6 per cent).
EU milk production reached 151.1 million tonnes.
In the first eight months of the 2015/16 year starting in April 2015, EU milk production rose by 2.6 per cent or 2.62 million tonnes with Ireland showing the highest increase of 15.9 per cent, and production up by 9.1 per cent in the Netherlands, 10.2 per cent in Belgium, 4.1 per cent in Denmark and 3.1 per cent in the UK, according to a new report from the French market analysts France AgriMer.
Over the first 11 months of the calendar year production rose by 1.6 per cent or 2.08 million tonnes.
The report Les filières animals terrestres et aquatiques Bilan 2015 Perspectives 2016 said that this was despite a difficult global dairy market, because of a supply and demand imbalance, and a reduction in demand from the major importers.
Among the major producers in the EU, only Germany and France saw a stable production level.
But in all cases prices for milk were lower and a similar situation was being seen in New Zealand.
France Agrimer said that the downturn had seen priced fall from €80 per 1000 litres to €60 per 1000 litres.
While milk prices fell, however, production costs, largely feed and energy were stable.
Most of the increase in production was turned into butter and milk powder, mainly skimmed milk, which reached record levels, and also cheese.
The increase in butter produced, allowed some countries to release more of the milk they had produced onto the EU market, with volumes up by around 91,500 tonnes – a rise of 4.6 per cent.
The increase in butter production was limited mainly to the five leading dairy producers in the EU with Ireland at the head and butter production there up by 18.6 per cent followed by Poland, which saw a 10.3 per cent increase in production.
After skimmed milk production had risen by 27 per cent in 2014, last year it rose by another nine per cent, reaching a peak of 1.46 million tonnes, according to the France Agrimer report. Germany, Europe’s largest producer contributed with 40,000 tonnes.
The rise in production saw a rise in the number of processing plants and drying towers being built, but the report saw that these are likely to reach saturation point this current year.
While cheese production has seen a slight rise in production with the UK, Netherlands, Poland and Denmark in particular increasing production, the closure of the Russian export market has held this part of the sector back.
Overall, the EU’s cheese production rose by 1.3 per cent to 8.92 million tonnes.
The concentration on butter, skimmed milk powder and cheese has meant countries have not been producing so much whole milk powders, and production last year was down by four per cent.
France Agrimer said that the market has been generally affected by the Russian ban on dairy products from most producing countries, except New Zealand, together with a sharp reduction in imports from China.
The situation was exacerbated by economic difficulties in some importing countries reliant on oil, when oil prices also started to fall sharply.
Supply of dairy products was also strong from other producers with Australia’s production up by 3.8 per cent in the first 10 months of the year. New Zealand also saw a rise in production between April and July and the US saw a rise in production throughout the year, although consumption started to decline forcing more product onto the export markets.
Parity between the Euro and the US and New Zealand dollars helped the EU to find export markets and European butter exports rose by 30 per cent, skimmed milk powder by 6.3 per cent and whey by 6.5 per cent. Only exports of cheese suffered falling by 1.2 per cent.
Algeria was the main outlet for EU skimmed milk powder, although it reduced the amount it took as New Zealand and Argentina stepped in to take a share of the market.
The EU also found other markets in the Middle East, particularly Egypt and Saudi Arabia and South East Asia, mainly Thailand, Malaysia and Viet Nam.
The Middle East and Asia were also the main destinations for EU butter.
Although the US, Japan and South Korea increased their imports of EU cheese, the export market fell slightly.
The increase in exports of butter in particular allowed the EU to improve its balance of trade in dairy products from third countries.
However, France Agrimer said that the imbalance between supply and demand has created a decline in prices globally. Last year prices for butter, skimmed milk powder and whey were down generally, with the most pronounced fall in skimmed milk powder – 32.3 per cent.
Prices for powders also fall in the US and Oceania forcing other prices to go down with them.