EU & Global Dairy Markets Prospects

AHDB Outlook Conference

12 February 2014

Eucolait

• EUCOLAIT is the European Association of Dairy Trade representing the European wholesalers, exporters and importers of dairy products.

• EUCOLAIT promotes the interests of the dairy trade at the European Institutions, is a platform for discussion and meetings for European and international dairy trade companies and provides an unparalleled information service for European dairy trade.

• EU

– Policy Milestones

– Soft Landing

– Current Market

– Outlook

• Global

– Supply developments

– Demand developments

• Conclusions

Dairy Market Prospects

EU Policy Milestones

• CAP reform 2003

– From market support to direct aid

– Reduction of intervention prices

• Health Check 2008

– Abolishment of Milk Quota on 1.4.2015

– Soft Landing

• Gradual expansion of milk quota from 2009 till 2014

• No expansion in final quota year

EU Policy Milestones

• Milk Package 2012

– Improve dairy producers bargaining power

• 2013 CAP reform

– Confirmation of Quota Abolishment

– No supply management in case of crisis

– Market measures only as safety net

• EU

– Policy Milestones

– Soft Landing

– Current Market

– Outlook

• Global

– Supply developments

– Demand developments

• Conclusions

Dairy Market Prospects

Soft Landing On track?

Source ZMB

Soft Landing Is quota still a factor today?

Source ZMB

Soft Landing Countries in trouble

• Austria

• Belgium

• Denmark

• Germany

• Ireland

• Luxemburg

• Poland

• The Netherlands Source ZMB

Various EU Approaches Different Milk Price Models

20 €

25 €

30 €

35 €

40 €

45 €

pri

ce p

er

10

0 k

g

Ireland

France

UK

Germany

SMP + Butter

20 €

25 €

30 €

35 €

40 €

45 €

pri

ce p

er

10

0 k

g

Ireland 0,84

France 0,55

UK 0,91

Germany 0,89

Cheddar + Whey

Various EU Approaches Different Milk Price Models

Potential

Contraction

Likely

Expansion

Soft Landing Various EU Approaches

Purchased Feed over milk price ratio

Source CNIEL

Soft Landing Milk Output Profiles

Source ZMB

• EU

– Policy Milestones

– Soft Landing

– Current Market

– Outlook

• Global

– Supply developments

– Demand developments

• Conclusions

Dairy Market Prospects

Current Market Extended Period of High Prices

Source Commission

Current EU Market

• High Milk Price

• Lower Feed Cost

• Strong Milk Production Growth

• Protein tight

• Butterfat under downward pressure

• Ireland + 50 %

• The Netherlands + more than 20 % in 5 years

• Belgium size of remaining dairy farms to double by 2020 producing 20 % more milk

• Similar claims in Germany, Denmark, Estonia,…

• UK wants to become self-sufficient by 2025 by adding 4 million tons of milk

EU Outlook A lot of strong claims

EU Outlook Commission’s Medium Term Outlook

+ 5.2% / + 6.3 %

Source Commission

• Quota elimination will not cause a revolution but – Quota abolishment appears to be slowing down growth?

– Other studies show growth pace x 2

– Recent increase in cow numbers has not been foreseen?

• Extra milk mostly destined to cheese but – Domestic consumption growth to outperform recent years

– Export continues to grow but at lower pace

• Outlook for powder not so bright but – most investments have been geared towards powders

– Over 0.5 % growth milk will have to go to powder

EU Outlook Commission’s Medium Term Outlook

EU Outlook Commission’s Medium Term Outlook

Development of production and exports 2023 (million tonnes)

Source Commission

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012 2013*

200 176 229

376

516 520

407

EU 28 - SMP EXPORTS 1000 Tonnes

EU Outlook Is powder in trouble?

0

50

100

150

200

250

300

350

400

450

500

2007 2008 2009 2010 2011 2012 2013*

365

480 454 440

381 379 368

EU 28 - WMP EXPORTS 1000 Tonnes

EU Outlook Is powder in trouble?

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013*

589 547 569

667 673 768 791

EU 28 - CHEESE EXPORTS 1000

EU Outlook and will cheese

slowly and steadily win the race?

• EU

– Policy Milestones

– Soft Landing

– Current Market

– Outlook

• Global

– Supply developments

– Demand developments

• Conclusions

Dairy Market Prospects

Global Prospects

Source

Global Outlook Milk Production Development

Source IFCN

Global Outlook US Milk Production

Source USDA

Global Outlook NZ Milk Production

Source NZ Dairy

Global Outlook Major Exporters expanding

after weak 12 months

19,0

19,5

20,0

20,5

21,0

21,5

22,0

22,5

23,0

23,5

24,0

24,5

Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez

2011 2012 2013

Milchaufkommen wichtiger Exportländer* (Mio. t)

* Summe EU-28, USA, Neuseeland, Australien, Uruguay, Chile, Weißrussland.

© ZMBQuelle: ZMB nach nationale Statistiken.

0

100

200

300

400

500

600

700

2007 2008 2009 2010 2011 2012 2013

51 44 176

325 318 403

618

CHINA - WMP IMPORTS 1000 Tonnes

Global Outlook China Imports

40,6 75,8 89,0 89,5 64,2 67,4 57,7 46,1

175,4

325,0 319,7

402,7

617,8

17,935,0

45,0 55,442,6 62,4 40,5 55,0

70,4

88,5129,9

167,6

235,0

119,7

137,9161,1 178,0

187,5 184,5166,7

211,3

287,5

264,6

341,8

376,0

430,6

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chinas Dairy Imports('tons)

Butter / butter concentrates Cheese Whole milk powder Skim milk powder Whey powder

Global Outlook China Imports

Current Global Market Converging High Global Prices

Source Commission

• Current market conditions (high prices, low feed cost, strong export demand) favour expansion.

• The abolition of quota is likely going to result in average growth similar to that during soft landing but the ride could be bumpy.

• A shift of production to the EU dairy belt will continue and accelerate during “difficult” periods.

Conclusions

• EU demand will grow modestly absorbing on average between 0.3 and 0.5 % more milk solids per year

• Production growth above this will have to be exported

– Global demand is there

– Cheese and whey exports will continue to grow steadily

– Milk Powder & butter export growth demands competitive prices

Conclusions

Thank You

Bart Van Belleghem

Managing Director

Eucolait

www.eucolait.eu @Eucolait